Global IT Outsourcing

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Global IT Outsourcing
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What is Global Outsourcing?

• Migration of white-collar IT jobs to overseas
  technology firms
• The average value of an IT outsourcing contract
  is 47 million (Gartner Group, May 2003)
• By 2005, spending is likely to top 260 billion
• Source ARIASYS

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Areas covered by IT outsourcing

• Information Processing services
• Highly structured and routine
• Little interaction required between outsourcer
  and vendor
• Includes payroll, claims and credit card
  processing
• 60 of all IT outsourcing spending worldwide

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Outsourcing Areas

• Contract programming
• Covers software development and maintenance
• Includes design, testing, porting, and conversion
• Wages in Philippines may be a fifth of those
  offered to US programmers

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Other Outsourcing Areas

• Facilities Management
• Entire operation and support of system is placed
  in the hands of a vendor
• Covers hardware, software, networking, and
  personnel
• EDS is dominant in this area

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Other outsourcing areas

• Systems Integration
• Covers entire SDLC from design to implementation
• Sometimes referred to as turn-key projects
• Support operations
• Specialized services
• Includes maintenance, training, help desk
  support, PC support

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Advantages of IT Outsourcing

• Cost Reduction
• Wages much lower outside the US
• Reduced need for IT people nice in tight IS
  market
• Predictability
• Cost overruns become responsibility of the vendor
• Vendor contractually required to meet deadlines

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Advantages of Outsourcing

• Improved focus of current IT staff
• With daily, mundane issues taken care of, IT
  staff can focus on strategic issues
• Access to cutting-edge technology
• Know-how not always available in-house
• E.g. SAP implementation at Perdue Farms by Price
  Waterhouse Coopers

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Outsourcing Advantages

• Increased availability of outsourcing vendors
• No longer dominated by just a few consulting
  companies
• In 1996, IBM, EDS, and CSC represented 65 of the
  outsourcing revenues
• Now many small to mid-size IT firms with PC and
  networking skills

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More Advantages

• Easy (relatively) method to create a global
  network
• Vendors may have branches in many countries
• Access to global pool of skilled IS personnel
• Access to foreign markets
• A means of bypassing local protectionist policies

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Some Disadvantages

• Coordination of activities
• Potential loss of confidential company
  information
• Vendors with access to system may offer systems
  specs to competitors
• Lack of control over software quality control
• Lack of control over project timetable
• Role of government in controlling transborder
  data flows (TDFs)

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Disadvantages

• Perceived threat to outsourcers own IT
  department
• Perceived irreversibility of outsourcing decision
• Outsourcers potential loss-of-touch with
  technology

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So, when do you outsource?
High
Strategic value of IT In organization
Low
High
Low
Organizations IS capabilities
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So, when do you outsource?
High
Insource
Strategic value of IT In organization
Low
High
Low
Organizations IS capabilities
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So, when do you outsource?
High
Insource
Strategic value of IT In organization
Outsource
Low
High
Low
Organizations IS capabilities
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So, when do you outsource?
High
Strategic partnership
Insource
Strategic value of IT In organization
Outsource
Low
High
Low
Organizations IS capabilities
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So, when do you outsource?
High
Strategic partnership
Insource
Strategic value of IT In organization
Establish spin-off to offer function in
marketplace
Outsource
Low
High
Low
Organizations IS capabilities
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When choosing a vendor

• Check their track record
• Determine human and technology resources at
  vendors disposal
• Determine viability of vendor
• Should not go bankrupt during the outsourcing
  period
• CMM Level?

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Software Capability Maturity Model

• Describes the principles and practices underlying
  software process maturity
• Intended to help software organizations improve
  the maturity of their software processes in terms
  of an evolutionary path from ad hoc, chaotic
  processes to mature, disciplined software
  processes

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5 Levels of CMM

• 1) Initial. The software process is characterized
  as ad hoc, and occasionally even chaotic. Few
  processes are defined, and success depends on
  individual effort and heroics.
• 2) Repeatable. Basic project management processes
  are established to track cost, schedule, and
  functionality. The necessary process discipline
  is in place to repeat earlier successes on
  projects with similar applications.
• 3) Defined. The software process for both
  management and engineering activities is
  documented, standardized, and integrated into a
  standard software process for the organization.
  All projects use an approved, tailored version of
  the organization's standard software process for
  developing and maintaining software.
• 4) Managed. Detailed measures of the software
  process and product quality are collected. Both
  the software process and products are
  quantitatively understood and controlled.
• 5) Optimizing. Continuous process improvement is
  enabled by quantitative feedback from the process
  and from piloting innovative ideas and
  technologies.

From Carnegie Mellons SEI Website
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Other issues to keep in mind

• Stability of host country
• Attitude of host country to FDI and
  collaborations
• Foreign currency restrictions
• Mostly in case of a spin-off can the revenues be
  repatriated?
• Size of IS professionals pool
• Telecommunications infrastructure
• Time zone differences

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