Global Insight on The Impact of ITO & BPO on US Economy

Global Insight says:

"The current rapid increase in offshore IT software and services outsourcing has sparked a debate on the costs and benefits of this trend to the U.S. economy. To help understand the comprehensive economic impact of offshore IT software and services outsourcing, Global Insight has undertaken a thorough analysis on behalf of the Information Technology Association of America (ITAA). The analysis was undertaken in the context of Global Insight’s economic models and incorporates information from third- party research reports, members of the IT industry, and primary research surveys."

Research key findings are:

• Spending for global sourcing of computer software and services is expected to grow at a compound annual rate of almost 26%, increasing from approximately $10 billion in 2003 to $31 billion in 2008. During the same time period, total savings from the use of offshore resources are estimated to grow from $6.7 billion to $20.9 billion. The estimated spending amounts represent 2.3% and 6.2% of total IT software and services spending by U.S. corporations in 2003 and 2008, respectively.

• The cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates. This boosts business and consumer spending and increases economic activity.

• The benefits of global sourcing contribute significantly to real Gross Domestic Product in the United States, adding $33.6 billion in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing does not occur.

• While global IT software and service outsourcing displaces some IT workers, total employment in the United States increases as the benefits ripple through the economy. The incremental economic activity that follows offshore IT outsourcing created over 90,000 net new jobs as of 2003 and is expected to create 317,000 net new jobs by 2008.  

• In the software and services area, the economy is expected to create 516,000 jobs over the next five years in an environment with global sourcing but only 490,000 without it. Of these 516,000 new jobs, 272,000 are expected to go offshore, while 244,000 are expected to remain onshore. Thus, the U.S. IT workforce will continue to grow.

• The impact of global sourcing on employment varies by industry sector. The major industry groups that are expected to gain a significant number of incremental jobs over the next five years include education and health services, transportation and utilities, construction, wholesale trade, financial services, professional and business services, and manufacturing.

Direct link to full report in PDF

Steve Hamm's Bangalore Tiger

"Bangalore Tiger" is hard to read. To get the feeling just imagine reading a 300-page corporate brochure - the usual pompous style and "the world's leading" attitude.

Consider this passage: "These were members of the intrepid band that planted the seeds of a global tech powerhouse in a small vegetable company in western India"

Wow, I can imagine Steve Hamm at his desk with his hot mug of coffee and his thesaurus, searching for the one word that could only communicate all the bravery and merit of the Wipro personnel.

In fact, "Bangalore Tiger" is dangerous. Because many will misinterpret it as the India success story. While somebody might have had successful projects in India, too often the stories about Indian programmers send shivers down my spine.

However, if we cut out all the pretentious writing (that spans to nearly two thirds of the book)we will actually squeeze out some potentially interesting facts:

1.
Wipro invests in establishing a culture of high productivity. If you are not ready to be assessed against your scorecard goals every month, then you don't belong here. This is the Wipro Way : 6-day working week, 1 am work calls, high performance. Off course this kind of schedule is not going to work in US companies and especially in European ones. But what we can learn here?

Whatever the focus is ( productivity, trust or communication) big investments in setting up a corporate culture makes sense.

2.
Wipro picks up new approaches to management and measurement as quickly as they come out. The company fires up quick implementation plan, starts small and assesses the progress rigorously. If it doesn’t work they throw it away. If it does, like 6 Sigma and Lean, they expand the practice. In-house Six Sigma black belts and Toyota Production System experts keep the company up with the latest techniques. To some, however, it might seem like few companies can afford building the whole justify-implement-assess framework from scratch.

What we can learn here is that it never hurts to start small and try new things, if you are able to measure the real cost and value of every initiative. That is, invest in measurement tools and systems so you could experiment and innovate more.

3.

Wipro employees at all levels, from the executive board to the freshman tester, plan their activity monthly. They assess their performance against scorecards and report their progress monthly. And their salaries are calculated in such a way that they are motivated to achieve real results, monthly.

Do you get it? That's right, the whole system is geared towards getting things done and achieving real results.

So what are the lessons we, the companies that have been raised in hothouse conditions, can learn from Wipro's story? The message is quite obvious, yet few stick to it : move fast, take risks, be consistent.

Technorati Tags: Software Outsourcing Maturity, Bangalore Tiger, software outsourcing maturity, Steve Hamm

RCOS Report: Eastern Europe ICT and Outsourcing Market 2007-2011

The report "Eastern Europe ICT and Outsourcing Market (2007-2011)” by RNCOS provides research and rational analysis on the IT&C industry in Eastern Europe. It underlines the issues related to the success of the industry and provides a prudent analysis on its various aspects.

The report presents a comprehensive overview of the past and current performance of the IT industry including software, hardware and services industry of Russia, Romania, Hungary, the Czech Republic, Bulgaria, Ukraine, Poland, and Slovakia.

Key Findings :

• Eastern European software industry grew by 12.53% in 2006 and is further estimated to grow at a CAGR of 10.87% till 2008.
  
  
• Low cost outsourcing services and highly qualified talent pool is driving the industry.
  
  
• EU accession is one of the factors that are attracting more international IT players to invest in Eastern European software industry.
  
  
• Growing IT industry provides opportunities for consultancy firms, R&D centers and ICT industry.
  
  
• With the development of IT outsourcing industry, enormous opportunities emerge in ICT industry, Education Service market, for the global as well as domestic players. Russia and Ukraine are emerging as the most desired destinations for IT outsourcing.
  
  
• Historically, major part of the Eastern European IT market was constituted by the hardware segment that is expected to be replaced by the software industry soon.

Frost and Sullivan: Trends in ICT outsourcing

The global information and communications technology (ICT) industry has provided the supporting infrastructure for economic growth across the world in the last decade. Despite the setbacks following the failure of dot com enterprises, the ICT industry continues to show enormous growth potential. ICT is a vital component of the infrastructural support needed for the development of any economy. Global trends in telecommunications indicate a shift toward open access, creation of a healthy competitive environment, and a consequent drop in prices. Although companies are likely to continue outsourcing IT services mainly to India, they are also expected to increasingly witness lucrative bids from Russia, the Philippines, Ireland, Israel, and China.

ICT spending is likely to grow impressively, with emerging markets in eastern Europe and Asia leading the way. Shares of IT and telecommunications sectors are almost equally important in the total ICT spending, with governments and businesses accounting for more than three quarters of the spending. The general economy, expanding consumer base, and increasing foreign investments play a critical role in the development of this industry.

The economic future of Russia looks promising in the central and eastern European (CEE) region, owing largely to the country’s stable and strong macroeconomic environment. The gross domestic product (GDP) of over $814.76 billion and economic growth rate of 6.7 percent in 2006 have strengthened Russia’s robust growth prospects. Moreover, strong consumer demand, greater political stability, expanding consumer base, and increasing foreign investment flows are expected to allay hindrances such as energy-dependent exports, weak infrastructure, and geographical imbalances. This industry offers tremendous employment opportunities, considering it witnessed double-digit growth for the last five years and is poised for further growth until 2010.

Russia’s vast human resources and low labor costs hold it in good stead in the ICT industry, while its competent education system provides its citizens with high levels of skills, excellent training, as well as intensive scientific and engineering expertise. However, the country is impaired by substandard process quality, a weak legal system, and intellectual property right (IPR) enforcement. All these are set to change, with the present government strongly focusing on the development of the IT industry, since the telecommunications industry is already well covered.

link to "Economic Analysis for the Russian Information and Communication Technologies Industry" report page

REUTERS: Kenya strives to Become the new Outsourcing Destication for BPO and software outsourcing services

Kenya is banking the first fibre-optic cable in east Africa to be laid by mid-2008. Many Kenyan entrepreneurs hope that this, plus cheap labour, clear accents, and customer fatigue with Indian call centres could help the African country hook into the booming call centre and software development outsourcing industry, Reuters reports.

Right now, poor, outdated technology is the country's main hurdle. BPO companies in Kenya have to rely on legacy satellite system that fails to deliver quality voice calls. What's worth, satellite connection costs $7,000 per megabyte of bandwidth each month, compared with the roughly $500 per megabyte Indian operators pay.

The new fiber-optic cable, known as The East African Marine Systems (TEAMS), will connect Mombasa with Fujairah in the United Arab Emirates. Eventually, it will bring the cost of bandwidth down to levels similar to what India is paying. Once the technology is in place Kenya will be able to compete with India and the Philippines for clients that demand fluent English language.

via Information Week

Technorati Tags: Kenya ITO industry, software outsourcing industry

Follow-up: 8 Outsourcing Myths

Technology analyst, Gartner, who had originally coined the term multi-sourcing lists eight outsourcing myths that are undermining outsourcing success. According to Gartner, building a successful sourcing operation requires a new approach that goes beyond the traditional view of outsourcing – hence multi-sourcing.


Gartner describes multi-sourcing as an innovative discipline that takes organizations beyond "quick-fix" cost cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage

The myth of sourcing independence: This is the idea that sourcing decisions can be made entirely independent of business strategy. As a result, organizations create outsourcing relationships that are incompatible with the business results expected.

The myth of service autonomy: A similar myth is that services are autonomous-and one sourcing relationship has nothing to do with another. According to Gartner, in today's world, "all of a company's business processes and services are interrelated. We've created an operating environment where autonomous services simply don't exist."

The myth of economies of scale: This myth takes the form of service recipients demanding cut-rate prices for highly customised services. "Service providers can only pass along cost savings from economies of scale if they can achieve scale through standardised offerings," says Gartner.

The myth of self-management: Buyers believe that once they sign a contract the outsourcer and the contract itself will manage the service. Most organisations do not budget and plan adequately for the ongoing management of the relationship and the services that are provided.

The myth of the enemy: This is the idea that service providers are out to fleece service recipients. Many organisations view contract negotiations as a war in which there will only be one winner rather than an attempt to create a mutually profitable relationship.

The myth of procurement: A related myth is that the sourcing of services is primarily a procurement exercise where best price wins. In reality, many services outsourced today are vital to corporate strategy, and therefore issues of capability, culture, relationship, and other factors are often more important to long-term success than price.

The myth of the steady state: This myth supposes that, once signed, the outsourcing contract remains set for its term length. In reality, outsourcing contracts and relationship management must be developed to anticipate and accommodate change.

The myth of sourcing competency: Finally, and perhaps most painfully, many organisations believe that they have the requisite expertise to manage complex sourcing environments even when they have never done it before.

Technorati Tags: Gartner, outsourcing myths, software outsourcing maturity, multi-sourcing

INSIDER | Understanding Multi-sourcing

During the past month i realized it's hard for me to post large materials on weekly basis. So i've decided to drop "weekly" from WEEKLY INSIDER and post articles as they go, hopefully twice a month. I will use the official logo of Outsourcing-Insights blog as the new image for my articles. This article is called "Understanding Multi-sourcing" and i hope it will help people realize the challenges and benefits of this approach.

Sourcingmag dictionary defines multi-sourcing as a strategy that treats a given function -- such as IT -- as a portfolio of activities, some of which should be outsourced and others of which should be performed by internal staff. This approach moves away from the idea that all of a function should be viewed as a commodity, easily handed over to a service provider. Multi-sourcing (or multi-sourcing) is also known as "selective sourcing."

Outsourcing of software development and services has become a mainstream for many Fortune 500 companies across diverse verticals. But betting on a single vendor often is not a viable option as functions that an organization wants to outsource may differ greatly. Software, hardware, operations, processing - it looks natural to engage multiple providers that specialize in each of the above.

Even if a company managed to outsource diverse functions to a single provider, there will be always the fear of dependancy on that supplier and the power which transfers to the outsource supplier in respect of their own business activities. Multi-sourcing is the way to mitigate these risks. In fact, industry research indicates that multi-sourcing will be the prevailing outsourcing model.

By 2010, market leaders will instill disciplined multisourcing as a core competency for successful business operations. Lack of multisourcing management discipline will result in large-scale business disruption among buyers, suppliers and their value chains. Gartner

Managing outsourcing relationships is a challenge that requires a whole new set of skills, requiring staff training and setting up a new management structure. Although, when done right, multi-sourcing benefits greatly to achieving high performance.

The Benefits & Challenges of Multi-sourcing.
One major benefit of multiple outsourcing is the best of breed effect: you choose suppliers based on their specific expertise, instead of outsourcing every possible function to a single provider. Further, you create competitive environment, lowering the risk of delivery failures, escalating fees and inflexible services. The multi-sourcing approach also gives organisations more flexibility to follow the crazy pace of tech industry developments like softtware as a services (SaaS) and service oriented architecture (SOA).

Multi-sourcing strategy brings complexity: even if you are engaged with three or four strategic suppliers, breakthrough organizational efforts and sufficient funding are required. While some expenses are one-time, others are ongoing. For instance, tracking all outsourcing agreements requires qualified staff with financial and technical skills.

The other side effect is that you probably will loose some of your outsourcing contracts with majors because large outsourcers are not interested in smaller transactions.

Below are best practices of multi-sourcing and also the list of things to avoid

Multi-sourcing Best Practices

Managing multiple offshore providers can become mission impossible if you fail to follow the best practices:

Look for strategic partnerships
Technology analyst, Forrester Research indicates that best-practice organizations try to establish strong relationships with a few providers, instead of dealing with multiple outsourcers with the goal of reducing outsourcing services to the level of commodities. Taking the time to develop each relationship in a multi-sourcing arrangement is important and can pay off in smoother communication, better execution and avoidance of unnecessary expenses.

Create transparency
Typically multi-sourcing relationships span across diverse IT functions: one provider is responsible for hardware or software, the other is running operations. When the software vendor deploys a new application, the hardware vendor must know ahead how, say, processing requirements will be effected by this new software.

Develop a single SLA
While managing outsourcing vendors across the globe, legal issues can become a bottleneck. Developing a single standard contract worldwide might speed up project lifecycle.

Measure Everything
multi-sourcing projects should be measured vigorously from day one. There are different methods to evaluate outsourcers' performance, such as Balanced Scorecards. Corporate executives love ROI metrics, however it is important to measure not only Return in Investment, but also return on every resource you use.

Multi-sourcing Bad Practices

Focus on price
The number one bad practice deals with the common myth that outsourcing and offshoring are two strategies for getting cheap software and services of good quality. This is last century even if we talk about outsourcing to a single vendor. Today outsourcing as well as multi-sourcing become major tools for building competitive advantage through long-term strategic engagement with best of breed providers. Speaking at Gartner's outsourcing and IT services summit 2007 held in Sydney, Gartner's analyst Linda Cohen said than hit-and-run deals will inevitably fail because most of them were created only to cut costs and provide quick access to skilled workers and managed poorly on both sides.

Ad-hoc management
While running ad-hoc processes is a bad practice per se in any king of offshore engagement, it becomes a real nightmare when you have multiple outsourcers and no outsourcing management strategy. Typically such projects fail to deliver ROI, if any meaningful outcome at all. Setting up proper practices, beware re-instating employees from outsourced units as sourcing managers because their vested interests may hamper the vendor's productivity

"Me too" approach
When done right, multi-sourcing requires significant time and finance commitments, at least initially. Thus multi-sourcing for its own sake does'nt work. With smaller-scale outsourcing contracts it is just not cost-effective to break up the sourcing approach across multiple suppliers. If you need to outsource diverse functions and internal resources are scarce, consider granting the project to a single vendor that manages multiple sub contractors.

Technorati Tags: Forrester, Gartner, insider, Linda Cohen, multi-sourcing, outsourcing bad practices, outsourcing best practices, outsourcing management, outsourcing myths