CEO Guide to Outsourcing - Do's & Don'ts

India remains an IT outsourcing powerhouse, with $17.7 billion in software and IT services exports in 2005, compared with $3.6 billion for China and $1 billion for Russia, according to trade organizations in each country.  And India's outsourcing industry is still growing at a faster pace than that of Russia and other wannabe Bangalores.

Yet many companies can't resist the lure of cheaper labour.  'Ninety percent of all outsourcing deals in the market today have been structured around cost improvement only,' says Linda Cohen, vice-president of sourcing research at consulting firm Gartner (IT).  By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead.

But moving IT operations into developing countries like Vietnam or China can also pose big risks, such as insurmountable language and cultural differences, geopolitical instability, and the risk of stolen intellectual property.  'You keep following the money, but how often are you going to move people around?' asks Cohen.  Even the routine day-to-day management of an offshore team can require significant project management expertise.  'If you don't have experience and don't do it well, it can negate savings,' says Barry Rubenstein, program manager of application outsourcing and offshore services at IDC.

Tips to CEO's who are increasingly sending IT work to hubs outside India to save money

Do's

Take a trip: Before you sign a contract, spend some time at the offshore outsourcing centre, even if it's on the other side of the world.  Many companies send business to centres overseas without ever visiting them.

Look beyond the bottom line: Many outsourcing deals are focused solely on cost but break down in the third year after every last penny has been squeezed out.  Instead, consider what you'll need over a three- to five-year period and choose a vendor capable of innovating or making enhancements when the time comes.

Consider culture: Offshore workers may speak your language, but they may not fit the company culture.  You may want programmers to challenge ideas and propose alternative courses of action at times?  You may be better off in Moscow than Bangalore.

Seek maturity: The Software Engineering Institute rates the maturity of business processes of some offshore IT providers.  Look for providers with CMMI (capability maturity model integration) Level 5, the highest possible rating.

DON'T

Pick the wrong partner: Offshore providers often cater to specific countries.  In China, for example, some providers have experience serving domestic clients, while others work primarily with U.S.  and European companies.

Expect instant results: There's an illusion that sending IT work offshore will immediately yield high productivity.  Success takes time.

Give it all away: Not all work is appropriate to send offshore.  For instance, some organizations that outsource entire help desks are starting to take back pieces that are especially complex.

Forget about time: If your employees will need to collaborate with workers in other countries, pick an offshore destination in a time zone that will allow some overlap of the workday.

Jump the gun: If you're just beginning to send work offshore, consider a locale where providers have years of experience.  Emerging destinations such as China or Vietnam offer lower costs but present bigger challenges.  (Published in Business Week by its writer Rachael King)

 Top Stories

Prime minister Tony Blair says HR offshoring to India is an opportunity, not a threat
Asked whether HR staff should be afraid that jobs were going to India, Blair replied: 'No, because we will also generate lots of business from there as the economy [in India] grows.  We should see it as an opportunity, not a threat.' A survey by professional services firm Deloitte last week revealed that eight in 10 UK workers are worried about offshoring.

Global IT Buying Growth Slows to Five Percent in 2007
After two consecutive years of 8 percent growth, global purchases of IT goods and services will slow to 5 percent growth in 2007, reaching $1.55 trillion in sales according to a new report detailing worldwide technology spending and purchases by Forrester Research, Inc.  US purchases of IT goods and services will also grow 5 percent in 2007, the slowest rate of growth since 2003, but better than Forrester had projected a year ago.

BI, ERP top 2007's IT spending list
Forrester Research Inc.  surveyed IT decision makers at 1,078 enterprises with more than 1,000 employees and found that about 13% plan to purchase BI software for the first time in 2007.  Forrester also found that many large companies plan to upgrade their ERP and customer relationship management (CRM) systems while simultaneously beefing up security of infrastructure software and middleware deployments.

EMEA outsourcing market to touch $16bn in 2012
Fuelled by positive economic movement in central and eastern Europe, the Europe, Middle East and Africa (EMEA), contact centre outsourcing market is likely to grow at a steady pace.  The vast majority of large, medium and small businesses in EMEA continue to seek cost reductions, focus on building core competencies and gain economies of scale through smart investments in outsourcing.  New analysis from Frost & Sullivan, EMEA Contact Centre Outsourcing Market, reveals that the market earned revenues of $11.20bn in 2006 and estimates to reach $16bn in 2012.

FCC rewrites its outsourcing deal
FARM CREDIT CANADA HAS realized its move to a service-oriented architecture and some unexpected growth demanded a change in its relationship with a key outsourcing partner.  The company has signed a $36-million deal with ISM Canada, a subsidiary of IBM Canada, which will extend the relationship between the two firms by five years.

NFU Mutual signs €130m outsourcing deal
Insurance company NFU Mutual has signed a €130 million ten-year contract with IT services company Atos Origin to outsource its data centres and desktops.

InterContinental Hotels Goes For Convergys' HR BPO Services
Under the terms of the contact, Convergys will provide HR-support services to the hotel group in the Asia Pacific region.  The company will provide HR-data administration and payroll services for corporate and employees of its reservations centre in the region.

United Biscuits outsources IT to India
Biscuit and snack manufacturer United Biscuits (UB) has announced a five-year multi million pound managed services contract for applications development and IT support in the UK.  The contract, with Indian vendor Tata Consultancy Services, will provide United Biscuits with end-to-end IT support services ranging from application support, projects, business analysis services, strategic IT programmes, and value-added initiatives for their UK markets.

Singapore Govt saves US$22.5M per year by outsourcing services
The government has managed to save about S$35 million of its annual operational costs by outsourcing some of its non-strategic services.  The Health Sciences Authority's laboratory support services, such as the cleaning of lab equipment and handling of waste and chemicals, are among the 158 functions that have been contracted out.

HSBC plans to expand BPO investment in Philippines
Hong Kong and Shanghai Banking Corporation informed President Gloria Macapagal-Arroyo Monday of their plan to expand their investments in the country, particularly in the business process outsourcing (BPO) industry and infrastructure development. 

 Service Provider News

Eastern European Outsourcing to Triple
Although only one per cent of the world's total BPO spend - worth $30bn - is currently located in Eastern Europe, the region emerged as one of the favourite locations for Western European companies to invest in between 2004 and 2006.  McKinsey identifies three main advantages A) Low wage levels, with slow wage inflation looking likely to keep the region economically competitive for at least 15 years.  B) Also, compared to competing regions around the world, Eastern Europe is a relatively low-risk location for investment due to the reliable infrastructure already in place.  C) The other benefit is the region's geographical and cultural proximity to Western Europe, making the process of setting up offices much easier.

ExcellerateHRO Signs Benefits Administration Outsourcing Contract With Bank of America
Under the five-year agreement, ExcellerateHRO will provide flexible benefits plan services to more than 10,000 Bank of America associates in the United Kingdom, Ireland and Canada.  The contract expands the scope of Benefits Administration Services already provided by ExcellerateHRO through the addition of associates in the UK and the launch of flexible benefit plan services for Bank of America associates in Ireland and Canada.

EDS gets contract from US Department of Veterans Affairs
EDS, will provide applications maintenance and sustainment services for the US Veterans Health Information Systems Technology and Architecture, it said in a statement.

RBC Dexia and CI Financial extend outsourcing relationship to 2011
Under this outsourcing arrangement, RBC Dexia will continue to provide custody, fund accounting and securities lending services to CI Financial and will act for Assante Wealth Management as the primary custodian for the private clients of Stonegate Private Counsel and United Financial Corporation.

Oracle Bids For Larger Stake In Indian Software Vendor i-Flex
Oracle on Thursday said it wants to up its holdings in red-hot Indian banking software and services vendor i-flex Solutions to 90% and is offering to pay $47.14 per share for the stake -- a 20% premium over Wednesday's closing price in Mumbai for i-flex shares.  Oracle, which already owns 55% of i-flex, didn't give a reason for the offer, which represents a multiple of 49 times forecasted earnings and is well above industry averages for similar deals.  However, it's clear the company is looking to get a larger piece of an offshore vendor that has been one of the bigger beneficiaries of the outsourcing boom.

IBM acquires Consul Risk Management
IBM has confirmed that they are acquiring Consul Risk Management, a Dutch maker of security and compliance products.  With this, IBM would be filling out its portfolio of IT management software

Jones Lang LaSalle Wins Unisys Outsourcing Deal
IT and business process outsourcing services provider Unisys Corp.  recently did a little outsourcing of its own, awarding transaction management and lease administration for its 9.77 million-square-foot global portfolio to Jones Lang LaSalle.  Garry Baddock, Unisys Vice President of Global Procurement and Workplace services, said JLL's integrated service delivery model and its proven record of accomplishment at helping companies reduce occupancy costs were significant factors in JLL winning the business.

Cognizant to invest $30M in Hyderabad operations
Cognizant announced plans to invest over $30 million to expand its infrastructure at Hyderabad.  The company will invest in building a 500,000 square feet facility in the special economic zone (SEZ) to create capacity for 5,000 new employees, said Lakshmi Narayanan, president and CEO, Cognizant.

TCS to open offshoring unit in Morocco by Jan.  2007
TCS Morocco, which would function out of Casablanca, would be an offshoring delivery centre for the French and Spanish speaking parts of Europe and begin ...