8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke REVIEW OF...

8 October 2004Review of IT Offshore Outsourcing Issues

Helen M. Carothers Gerhard Steinke

REVIEW OF IT OFFSHORE OUTSOURCING ISSUES

Helen M. CarothersGerhard Steinke

Seattle Pacific [email protected]

8 October 2004



OVERVIEW

BackgroundOutsourcing ModelsDriversBenefitsRisksFutureConclusion



BACKGROUND

“Offshore outsourcing” and/or “offshoring” refers to moving work and the related costs from a developed country to a lower-cost, developing country.



OUTSOURCING MODELS

OwnershipSubsidiary Partnership

ContractProvider owned facilitiesProvider employs staffProvider responsible for

deliverables



OUTSOURCING LEVELS Simple - Provide Resources

Repetitive tasks

Moderate - Cost ReductionsRule-based decision-making Problem resolution

Complex - Process ImprovementsFully analytical tasksResearchNon-rule based decision-making



Figure 1: Outsourcing TrendsSource: Australia Outsourcing and Utility Services: Research Fact Sheet.

IDC’s IT Outsourcing and Utilities Services (2004)



MATURING MARKET • More sophisticated providers• Focus on higher value work• Distinguish and differentiate

offerings• Driver shifting from cost to quality• Some fragmentation• Variety of business models• Disparity in provider maturity• New service offerings



GROWTH POTENTIAL Fewer Opportunities

Application developmentMaintenance work

More OpportunitiesEnterprise application integrationImplementation of application packagesBusiness integration

Greatest OpportunitiesCall centersBusiness processesInfrastructure



Figure 2: Applications Being Sent OffshoreSource: Behind the Numbers: Offshore Outsourcing Projected to Grow.

Information Week. (2004)



Figure 3: Type of Work Being Sent OffshoreSource: Behind the Numbers: Offshore Outsourcing Projected to Grow.




BENEFITS• Cost reduction• Enhanced processes• Reengineered processes• Cost reduction• Enhanced processes• Reengineered processes• Process improvements



RISKS• Rapid growth• Renegotiated contracts• Leaving shareholder value

on the table• More complex operations• Not always satisfactory• No competitive advantage• Poor quality



Figure 4: Success of Offshore OutsourcingSource: Behind the Numbers: Offshore Outsourcing Projected to Grow.




CHALLENGES

• Communication • Cultural differences• Time-consuming travel• Intellectual property

considerations• Privacy and security regulations• Political risks• Infrastructure capabilities



FUTURE

IT industry is changingGlobalization of software Globalization of it services Stronger job demand

Support specialistsSoftware applications engineersSoftware systems engineers



JOB DEMAND



WHAT DOES THIS MEAN?

• Large businesses• Globally blended outsourcing

options• Enterprise software development• Paper-based transaction processing• Project manager• Business requirements analyst



CONCLUSIONS

Man was not meant to fly.The horseless carriage was a fad.There was no place in business for the

personal computer.

Offshore outsourcing is a fad. Most of the offshore projects will fail.



PREDICTIONS

Globalization will happen and it is about more than the offshore outsourcing of IT related jobs.

If you work in the IT industry, your work environment will be changed by offshoring.



OFFSHORE OUTSOURCING

• Reduces costs• Facilitates innovative solutions• Facilitates growth• Increases productivity• Increases demand for IT-related

jobs• Leaner, more competitive U.S.

economy



EPILOGUE

Since 2000, U.S. has lost 372,000 IT jobs Reasons:

Dot-com bustRecessionGrowth in productivity

Global Insight study Sponsored by the Information Technology Association of

America (ITAA) The Benefits of Offshore Outsourcing

Michael J. MillerPC Magazine, 28 April 2004



WHAT CAN WE DO? Increase worker training, retraining, and educationFix failing K-12 education system (future competitiveness

depends on it)Increase basic research in physical sciencesEncourage foreign nationals earning masters and Ph.D.

degrees to stay and workAdopt a broadband policy to facilitate communicationsSupport open markets and oppose protectionist legislationReduce the costs of doing business

Adapted from the American Electronics Association report:Offshore Outsourcing In An Increasingly Competitive And

Rapidly Changing World: A High-Tech Perspective March 2004



NOT FOR EVERYONE

"We'd be nuts to outsource."

Linda DillmanExecutive VP and CIO of Wal-Mart Stores Inc.

InformationWeekSept. 27, 2004



REVIEW OF IT OFFSHORE OUTSOURCING ISSUES

Helen M. CarothersGerhard Steinke

Seattle Pacific [email protected]

8 October 2004

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke REVIEW OF...

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