Outsourcing Times

The Great American Outsourcing Deceit

By Priya Jestin, Staff Writer

When we talk about learning the fine art of outsourcing, there’s probably no one better than our very own US President Bush to begin with. His presidency is marked by great outsourcing ideas. A recent article in the New York Times describes how the Coast Guard has run a $17 billion modernization program. The huge bill was thanks to the expertise that the Coast Guard outsourced to two of the nation’s largest military contractors. They were supposed to plan, supervise and deliver the new vessels and helicopters. And the result? Expensive ships that aren’t seaworthy.

Now that we’ve checked out the home front, let’s take a look at the international scene. They first bomb the place down and promise a good regime. Then when it comes time to help the Afghan government train a new police force, our great administrators outsourced the work to DynCorp International, a private contractor. Today, after throwing $1.1 billion into this police-training project, Afghanistan still doesn’t have an effective police-training program.

The Story Of A Tech Upstart

This is the story of Steve Hamm who was sent to India by Business Week, USA to study the story of Wipro, one of the big three that spawned the phenomenon of outsourcing of computer-based services over the past two decades. In his book How Indian Tech Upstart Wipro is Rewriting the Rules of Global Competition, Hamm tells the story of how Wipro rose from its humble origins of a vegetable oil processing and wholesaling company called Western India Vegetable Products.

Azim Premji, the man behind the vision managed to convert Wipro into a software giant with a current turnover of $ 2340 million and a profit of over $400 million. One of the main reasons for Wipro’s success is the importance given to serving the customer at all costs, building relationships and maintaining the highest standards of integrity. Hindu.com reports:

Though software is seemingly a technology business, the fact is that success has far more to do with personal relationships and sustaining customer confidence and comfort levels. In Wipro, this has been repeatedly shown not only by Premji, but also others like Ashok Soota, and Vivek Paul who contributed significantly to the development of the organization. At the root of the successful growth, according to the author, is also a managerial style, to an extraordinary extent based on open debate, participative action and strong work ethic.

Read more: How Indian Tech Upstart Wipro is Rewriting the Rules of Global Competition

My Two-Bit Prediction For The Industry

By Priya Jestin, Staff Writer

Predictions are what most people are good at. At the end of each year or financial year, we see this huge array of predictions from self-styled experts in the field. While some of them may have really done their bit of research to arrive at their conclusions, most others are just trying to get their moment in the sun.

Well, whatever be the case, let’s take a look at what the predictions for 2007 and the next few years are:

Firstly, India has become everyone’s favorite dartboard. So just about everyone is rushing to predict how India will cease to lead the outsourcing market in the next few years. Princes in waiting for the crown of outsourcing king include Israel, China, Russia and the Philippines. What most of these guys don’t realize is that India was never leader and the outsourcing industry cannot be clubbed as one single market. It has software, hardware, HRM, KPOs, BPOs, and well… many other Os. What my point here is how can we put it so simplistically?

Did anybody know that the outsourcing phenomenon would become so big? Did we realize ten years ago that many, many people will lose their jobs and that we might need to learn new trades in order to earn money? As the saying goes, there’s only one thing constant: change. So, probably, we may see a resurgence of jobs at home. But then here too predictions come in the way to play spoilsport. According to some ‘gurus’ in the field, tightening U.S. labor supply in technology, accounting and other processes, will force U.S.-based companies to accelerate their outsourcing strategies to stay competitive.

So, what happens if policies change? Recent news has it that the Democrats, alarmed with the rising student loan costs, are planning to reduce the rates. That might happen in the near future. So our doomsday fears of students being unable to bear the burden of debt may be misplaced after all. So what says, a policy change occurs, one that makes US companies realize that operating from home base is better? And yes, I’m being simplistic about it, but you never know. It could happen.

Change Is The Name of the Game

By Priya Jestin, Staff Writer

In outsourcing, the easiest part is signing on the dotted line, or doing the deal. And then begins the really hard part. Everything in the agreement may seem absolutely watertight and both parties in the relationship may think they have a really strong relationship going. However, what they don’t realize is that the rules of the game change constantly depending on various factors. Hence instead of trying to play by the rules, if the companies learn to adapt to changing realities, they will find their relationship growing stronger.

Now, adapting doesn’t mean trying to foresee and predict changes well into the future. You just cannot tell what the global scenario is going to be like five or ten years down the line. So, instead of wasting resources, time and energy trying to prepare for the future, your company must try other methods of maintaining and building a strong relationship. One of the best ways of strengthening a relationship is to build on it by creating a platform for information sharing and dialogue with vendors. Adaptability to changing conditions is another prerequisite to success in the outsourcing game.

Outsourcing & OEM Direct Costs

At the TFI's Quarterly Forum recently there was one point that seemed to come up pretty often. That of the knee-jerk reactions of OEMs and their manufacturing partners to the challenges of global electronics manufacturing. The fact that this mode of functioning doesn’t work is pretty obvious. Most of these people seem frustrated with the tactical measures required to meet environmental regulations such as China RoHS.

They are also finding it increasingly difficult to find profitable and socially responsible ways to manufacture the low-volume, high-mix products that represent the next wave of electronics outsourcing for the global arena. One attendee from an OEM member company succinctly expressed this frustration: "I am so tired of the fire drills for WEEE, RoHS, and now China RoHS."

What they don’t realize is that there IS a better way. It’s actually now a time to reconsider their management strategies. In the first wave of outsourcing, OEMs' transferred their manufacturing costs from their bottom line to that of the EMS. Now, they must focus on their internal management costs. They must find ways to increase the efficiencies on the supplier interface and the first step toward this is knowledge.

The best way to gather knowledge is to check out TFI's 8th study on environmental requirements, which focused on OEMs' performance and paths to profitable compliance. The research on electronics manufacturing in India uncovered several trends: Based on a Web survey of over 400 electronics industry managers, TFI projects that the number of electronics companies selling product in India will rise by 24% in the next two years.

Moreover, the number of companies manufacturing in India is expected to rise by 63% during the same period. India’s major attraction to most OEMs and EMS providers is the huge local market, which they can serve. This differs from the typical manufacturing strategy in China. The question for OEMs and EMS providers is the size of India's consumer electronics market.

Is Your Doctor Googling Your Symptoms?

Is it okay for your doctor to use Google search as part of his/her practice? Well, it has caused a furor in certain parts. There is an implied suggestion of incompetence over the process. But do you really think so? I mean if I don’t know how to solve a case and try to get help, it means I am competent enough to recognize when I need help. It also shows that curing a patient is uppermost on the doctor’s mind.

A recent study in Australia has actually approved of the practice in difficult cases. Using 26 difficult diagnostic cases published in the New England Journal of Medicine, doctors from Brisbane's Princess Alexandra Hospital Googled three to five symptoms from each case. And guess what? There was a significant improvement in diagnosis using the search engine! Desicritics.org reports:

The controversy seems needless considering the larger trends that have been occurring in Western Medical Practice. The two trillion dollar U.S Health industry is increasingly forcing financially overburdened Americans to seek other avenues for their health procedures. The internet has opened their eyes to the possibility of affordable health care in foreign destinations, India being a particular hot spot.

Read more: Medical Procedure Outsourcing: Truly Alternative Medicine

Financial Health As A Determinant For Outsourcing

How financially healthy is your company? The reason for this question is that all companies are driven by their return to shareholders or owners. If the results are not as strong as they should be, it is time to thoroughly examine the cost structure. This is more than a financial analysis; it is a strategic and organizational exercise as well. Manufacturing.net reports:

A merger or acquisition is a common outsourcing trigger for either the divested or newly formed organizations. When two companies become one, there is always extensive redundancy of infrastructure and staff. This duplication typically includes departments, equipment, machinery, and people. Facing the challenge of eliminating this duplication and its ensuing upheaval, a company may choose to look at to an outsourcing provider as an alternative to taking on this task themselves.

Read more: Determining When To Outsource: Indicators For Pharmaceutical Companies

IT Boom In Russia

Exports of Russian programming products increased by 80 percent, from $1-billion worth last year to $1.8 billion in 2006. Analysts now predict that Russia will be one of the top three countries for IT outsourcing by 2010. Kommersant.com reports:

“Russia now controls 3 percent of the market for offshore programming,” said Viktor Vainshtein, head of the Aplana company. “By 2010, our country might confidently claim 10 percent and, if things go right, 15 percent. That will be possible in large part thanks to active state support.”

Read more: Russia's IT Boom

Kodak renews Nortel outsourcing deal

Eastman Kodak Co. recently agreed to a renewal of its existing agreement with Nortel Networks Corp. Nortel will now manage Kodak’s U.S. voice network for another three years. Marketwatch.com reports:

The Rochester, N.Y., film and camera company said the renewal calls for Nortel to continue managing Kodak's network of PBX's and telephone services through 2008. Kodak has outsourced its voice network to Nortel since 1995.

Read more: Kodak renews Nortel outsourcing deal for 3 more years

Chinese Dragon To Overtake India As Outsourcing Hotspot

According to analysts, in a few years about 5-10 percent of US and European software outsourcing would be diverted from India to China. Increased outsourcing contracts will boost mergers and acquisitions in China's software industry, so that enterprises can upgrade and win more deals. Cio-weblog.com reports:

A recent survey shows that in the mid-1990s, only 15 per cent of China's software companies were under contract to foreign companies to provide outsourced software, but in 2005 the figure had climbed to 40 per cent. The global service outsourcing market is worth between 300 billion and 500 billion dollars. Business insiders have predicted the market will reach one trillion dollars in 2008 with an annual growth of 7.9 per cent.

Read more: China & India Outsourcing 1

Outsourcing – A Yes or No??

When you contract your business to a third party for sometime, it is called outsourcing. In doing so, you not only save money but also put it in a literal way. Outsourcing partner lets you ‘Mind Your Own Business.’

Once you make up your mind on outsourcing, here are few questions that you need to ask yourself.
• What is your core strength.
• Which process do you want to outsource.
• What is the cost of doing it in-house? Also, calculate the hidden costs that are the space, staff and maintenance.
• Most importantly ask yourself will your business suffer if you do not outsource. Will you be able to afford the cost of outsourcing partner?

Remember outsourcing is like a helping hand. It will let you concentrate on your strengths and weaknesses. In the end, it will help your process to reach the zenith of its growth.

‘Lack Of Skilled US Workers Is Main Cause For Outsourcing’

Azim Premji chairman of Wipro Technologies doesn’t agree with the general belief that outsourcing is stealing high-paying American tech jobs. According to Premji, the United States should be more worried about what is taught in its classrooms -- or, rather, what isn't. Crmbuyer.com reports:

In fact, there is a shortage of information technology engineers in the United States, said Premji, who in four decades has led Wipro from a US$2 million cooking-oil processing company to a $2.4 billion global technology player. In its most recent quarter, the Bangalore-based company reported $765 million in revenue, a 41 percent increase from a year earlier, with profits of $152 million, a 48 percent jump.

Read more: Wipro Chairman: Outsourcing Due to US Skilled Worker Shortage

China Will Lag Other Markets In 2007

As the year ends, it is time to take stock of the past year and find out what can be done to better business in the coming year. One thing outsourcing service providers must place higher priority on is staying cost competitive. They must also try to stay ahead of global trends in the sourcing market if they are to remain viable.

According to Ben Trowbridge, CEO of global advisory firm Alsbridge, US-based companies will accelerate their outsourcing strategies to stay competitive. The main reason for the increased traffic is the tightening U.S. labor supply in technology, accounting and other processes. And contrary to prevailing opinion, cost of labor in India will remain neutral when compared with wage inflation in the U.S. market. Sdcexec.com reports:

Contrary to prevailing opinion, China will still lag other markets, mainly India, as a destination for English-language-driven business process outsourcing (BPO) or shared service centers due to language, low national birthrate, intellectual property and other legal issues. The exception will be those companies who have a market strategy to sell into China market, which will override the former comments.

Read more: Predictions for 2007 Trends in the Outsourcing, Shared Services and Offshoring Market

UK Outsourcing Model Needs Change

Experts in the UK are now trying to encourage local firms to look beyond traditional outsourcing models and embrace new ideas. Nowadays, a growing number of companies are turning to outsourcing in areas such as analytical support, market analysis and financial modeling, sectors that do not have a traditional link with outsourcing. Ihotdesk.com reports:

Neeraj Bhargava, the group chief executive officer at WNS Global Services, told a meeting of leading executives that knowledge-based outsourcing revenues are set to grow to $5 billion within four years, well up from the current figure of $1.2 billion. "Outsourcing offers specialized industry and functional expertise, predictable cost and risk management and increased efficiencies," Mr. Bhargava remarked.

Read more: UK outsourcing model to see shift

Indian Outsourcing Firms Face Chinese And European Challenges

Various problems with the Indian outsourcing industry are now forcing U.K. and European companies to look elsewhere for their offshore provision. The problems that have been cited include big wage rises, skills shortages, and incidents around data security. Enterprisenetworksandservers.com reports:

The way in which business is done in the West is different to India, which again is different to China, and so on. Only when an offshore location can demonstrate that it understands the methods and meanings of its customers will it be able to deliver on requirements. Location suitability is also another important issue - Hong Kong and mainland China are approximately 12 hours flying time away from the U.K., and further for East Coast America, and around eight hours flying time from East Coast Australia.

Read more: Another Worry for Indian Outsourcing Companies

FSSA Outsourcing Plan Hits Turbulence

The FSSA reorganization and outsourcing plan is meeting with a lot of opposition. Recently state caseworkers, their union leaders, social advocates and others accused Gov. Mitch Daniels’ administration of lying, fudging statistics and endangering needy and vulnerable Hoosiers to make its case for outsourcing the application process for food stamps and other public benefits. Fortwayne.com reports:

The Daniels plan envisions improving the delivery of the public safety-net benefits system received by one in six Hoosiers by making it easier to submit and process applications through the Internet, e-mail, telephone call centers, and faxes. It also aims to use computers to drive the process with self-surveys, instead of time-consuming interviews, to ease caseworkers’ paperwork and reduce error and fraud.

Read more: 200 protest outsourcing benefit plan

Future Perfect: No More Accents

--By Priya Jestin, Staff Writer

Handling customer calls is a Catch-22 situation for most companies. You have to either lose a major chunk of your resources by continuing with your in-house client handling operations or have the client breathing down your neck when you outsource or have an IVR system in place. Come to think of it, it seems more like a no-win situation. Either you lose money or you lose clients.

Is a call center operation all that simplistic? Actually no. There are a lot of cultural and emotional factors at play here and a company must understand and respect customer sentiment. S/he must also find a cost-effective method of dealing with this problem. First the facts:

Nearly 70 percent of customers would rather deal with an IVR system than talk to an agent with a foreign accent.

Over 92 percent of customers are frustrated with present-day IVR systems. Given these figures, there is probably only one good option left to companies – supercharge their IVR system and avoid outsourcing unless absolutely necessary. Yes, this is a very radical approach. But this is probably the best way to retain clients without losing valuable resources.

In the long term, a strong IVR system can be beneficial to a company. All the system needs to do is provide customers with what they need and when they need it. For instance, an organization could install a personalized automated system that deals with individual needs rather than a generic one. And no, this ideal doesn’t belong to the realm of hi-tech imagination. Software that’s recently been developed helps the IVR become caller-specific; have personalized menus, personalized voices, personalized prompts and even dialogs.

Now, the only problem that may arise is that customers may find this solution too perfect – and to that, probably there is no solution. What’s your opinion?

To Outsource or Not? Know The Answer

--By Priya Jestin, Staff Writer

Many people mistakenly believe that when they decide to outsource IT, they are making a strategic decision. Outsourcing can never be a strategy in itself. What an outsourcing policy does is help the business forward its actual planned strategy. The main reason for the continuing debate between outsourcing and insourcing is the fact that many people are yet to understand that an organization’s nature of business, scope of operations, and growth strategies are some very important determinants for its sourcing policy.

IT sourcing strategy must, therefore, map to business strategy. One very important factor is that a good sourcing strategy must be flexible enough to allow the business to make radical changes to adapt to changing market conditions. This is a reason that most supporters of outsourcing highlight. Outsourcing helps an organization support a business strategy of rapid expansion without time-consuming up scaling of internal IT and the consequent hike in costs. Basically what outsourcing does is allow a corporation to play at a global level.

But that doesn’t mean that outsourcing is not inherently risky. It may be compelling to outsource IT but it is even more important to study the risks and costs that such a move may entail. Outsourcing is not a panacea and just because the industry is gung-ho about it, doesn’t mean it is the best option available.

Moreover there are certain boundaries that you just cannot cross. Certain things like core competences just cannot be outsourced. Also if there is an inherent problem in the method of operation, you cannot wish the problem away by outsourcing it. What you can do is solve the problem at the initial level before it goes on to become an even greater one with worse consequences.

Change Indiana

--By Priya Jestin, Staff Writer

Another bastion falls. The Indiana Family and Social Services Administration recently announced that it would undergo significant changes under a decision to privatize jobs now performed by state workers. The agency provides Medicaid and welfare services to more than 1 million Hoosiers.

This change is based on a recommendation by a committee that was assigned the task of reviewing the agency. So what exactly was the recommendation? Among others, the committee recommended that FSSA's current intake program should be outsourced, its technology upgraded. The committee also sought to make changes that could help FSSA serve its clients better, save taxpayer money and improve working conditions for overburdened workers.

The contract will most probably be awarded to IBM once federal authorities approve the plan. Privatization will cost FSSA $1.6 billion and will take around 10 years for the process to be completed. This works out to be much cheaper than the $2.1 billion it could cost FSSA to modernize on its own.

Indian IT firms queue for Japan's outsourcing pie

--By Priya Jestin, Staff Writer

Having got their fairs share of European and US markets, Indian IT firms are realizing that to maintain their present rate of growth, they need to expand exponentially. So now you have them exploring the Japanese market.

Japan is the world's second-biggest spender on technology after the United States. The total IT outsourcing market in the country grew to $15 billion in 2005 and the market is forecast to grow 5.8 per cent per year through 2010 to 2.34 trillion yen. And this time around, the Indians don’t want to make any mistakes – culturally that is. So now you have Indian software engineers learning the Japanese language, cultural nuances and etiquette.

IRS No To Outsourcing

This didn’t sound right from the start so when the plan was shelved, you probably had the urge to say, “I told you so”. Those not in the know, let me update you: The Internal Revenue Service has decided to shelve a plan that would have seen it outsource the management and maintenance of more than 100,000 desktop computers at facilities across the nation to a private contractor.

An IRS spokesman explained that this would be a huge and complex undertaking and hence they’d decided to pull back. The IRS had been in preliminary talks with technology vendors about the plan but no deals had been signed. Informationweek.com reports:

The halting of the plan is unrelated to the fact that the IRS has a poor track record when it comes to managing large outsourcing projects, the spokesman insists. In the most recent foul up, the agency issued more than $318 million in refunds on phony returns last year because of a botched software project, a government report released earlier this year concluded. The project had been outsourced to Computer Sciences Corp.

Read more: IRS Deep Sixes Outsourcing Plans As Tax Season Approaches