IT Outsourcing Offshore Process

1
IT Outsourcing Offshore Process

• Anthony Geers
• Student DIP 99
• May 4, 2005

2
Thesis Presentation Overview

• What is Outsourcing?
• Why Outsourcing?
• What function to outsource?
• Outsourcing Models
• Outsourcing and Offshore Landscape
• Outsourcing Contract Legal Issues
• Outsourcing Risks Outcome
• Conclusion

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
1
3
What is Outsourcing?

• Section 1/8

2
4
What is Outsourcing?

• Paying another company to provide services which
  a company might otherwise have employed its own
  staff to perform.
• Princeton
  University in its Webster Dictionary

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
3
5
Why Outsourcing?

• Section 2/8

4
6
Why Outsourcing?

• Financial
• Fix -gt Variable Cost
• Releases capital
• Selling assets -gt Positive Cash in-flow
• Focus on core business
• Agility
• Low cost
• Quality (i.e. CMMI, Six Sigma)
• Access to Technology (i.e. SAP)

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
5
7
What Function to Outsource?

• Section 3/8

6
8
What Function to Outsource?

• Do what you do best and outsource the rest.
• 
  Tom Peters

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
7
9
Outsourcing Decision Process
COMPANYS FUNCTIONS
CORE
CONTEXT
UNTOUCHABLE
TOUCHABLE
Continuous Review
COMPETITIVE ADVANTAGE
NO COMPETITIVE ADVANTAGE
CRITICAL SCHEDULE
STABLE
OUTSOURCE
INSOURCE
Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
8
10
Outsourcing Models

• Section 4/8

9
11
Outsourcing Models
Full Offshore Projects
On-Site/Off-Site Projects
FINANCIAL BENEFITS
Nearshore Projects
Onshore Projects
On-Site Projects
GEOGRAPHICAL LOCATION
Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
10
12
Outsourcing and Offshore Landscape ?

• Section 5/8

11
13
Top 5 External Service Providers

• CGEY
• 12 000 outsourcing personnel
• Solution delivery centres in all continents in
  27 locations

• IBM
• 25 000 outsourcing personnel
• Solution delivery centres in all continents in
  30 countries

• Infosys Technology
• 19 000 outsourcing personnel
• Solution delivery centres in all continents in
  20 locations

• TCS
• Over 24000 outsourcing personnel
• 31 client dedicated offshore centres (6 cities
  in India)

• WIPRO
• More than 21000 outsourcing personnel
• 30 offices across Northern America, Europe and
  Asia

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
12
14
Nearshore Landscape
Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
13
15
Offshore Landscape
Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
14
16
Outsourcing Contract Legal Issues

• Section 6/8

15
17
Outsourcing Contract Legal Issues

• The formulation of a contract is an important
  issue because, in case of a premature termination
  of the contract, the problems are resolved in a
  court of law. And when the case goes to the court
  the formulation of the contract is decrypted word
  by word.
• Main sections of an outsourcing contract
• Service Description
• Responsibilities of each parties
• Penalties and Bonuses
• Change Procedure
• Intellectual Property Rights (IPR)
• Validity and Termination

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
16
18
Outsourcing Risks Outcome

• Section 7/8

17
19
Outsourcing Risks Outcome

• Prepare to renegotiate your Outsourcing deal,
  says Gartner 27/04/2005
• Nearly 80 of all outsourcing relationships will
  be renegotiated say Gartner. Lack of flexibility
  is the main issue leading to renegotiations,
  followed by a need to improve the relationship
  between the supplier and customer.
• Beware the security risks in outsourcing says
  Gartner 14/05/2004
• While there may be benefits for enterprises that
  implement an outsourcing strategy, companies must
  identify and manage the security risks before
  they sign any agreement, according to researchers
  at Gartner.

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
18
20
Outsourcing Risks Outcome

• Outsourcing does not guarantee cost savings says
  Gartner 19/11/2003
• A new report suggests that of firms that
  outsource their IT capabilities,
• almost 20 make no cost savings and
• around 10 experience an increase in costs.
• But Project management is more expensive than
  many firms expect.

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
19
21
Conclusion

• Section 8/8

20
22
Conclusion

• Do not outsource your problems
• Do not try to be trendy by outsourcing without
  a global sourcing strategy.
• Your medium size local provider might be cheaper
  and better, in the end, compared to Global
  Providers from India.
• Include the right people from the start (I.e.
  Legal, Sourcing, Business owners, Executive).
• Outsourcing negotiation is time consuming

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
21
23
Questions

• THANK YOU

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
22
24
Outsourcing Offshore Process

• Anthony Geers
• Student DIP 99
• May 4, 2005

23
25
Additional Material

• CMMI Capability Maturity Model Integration
  created by Carnegie Mellon Software Engineering
  Institute

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
26
SIX SIGMA

• W. Edwards Deming is known as the father of the
  Japanese post-war industrial revival and was
  regarded by many as the leading quality guru in
  the United States. He passed on in 1993.
• Trained as a statistician, his expertise was used
  during World War II to assist the United States
  in its effort to improve the quality of war
  materials.
• He was invited to Japan at the end of World War
  II by Japanese industrial leaders and engineers.
  . His methods dramatically altered the economy of
  Japan.. It was not until the 1970s, however,
  that Deming started to make an impact in the
  West(We will talk about this later).

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005
27
SIX SIGMA

• Joseph Juran started out professionally as an
  engineer in 1924.
• In 1951 his first Quality Control Handbook was
  published . Chapter 1 of the book was titled The
  Economics of Quality and contained his now famous
  analogy to the costs of quality 'there is gold
  in the mine'.
• Again like Deming Juran was invited to Japan in
  the early 1950s by the Union of Japanese
  Scientists and Engineers (JUSE).
• He arrived in 1954 and conducted seminars for top
  and middle-level executives. His lectures had a
  strong managerial flavour and focused on
  planning, organisational issues, management's
  responsibility for quality, and the need to set
  goals and targets for improvement.
• He emphasised that quality control should be
  conducted as an integral part of management
  control.
• Juran developed the idea of quality trilogy
• quality planning,
• quality improvement and
• quality control.

Anthony Geers, IT Outsourcing Offshore Process
May 4, 2005