Thursday, December 29, 2005

Legal outsourcing can rise up to US$4bn by 2015

Outsourcing is gradually becoming the backbone of Indian service sectors. In the last fiscal India earned US$6.7bn by providing services in software, technology and manufacturing outsourcing.

Legal services are the next destination for a "cool" BPO. According to a study by the US based Forester Research, the current annual value of legal outsourcing which is worth US$80mn can rise up to US$4bn and can fetch 79,000 jobs in India by 2015.
The report says, "The benefit of the outsourcing companies in the US would translate into a cost saving of about 10-12 per cent. The potential of the Indian resources to absorb the increasing demand in legal outsourcing is because India enjoys the economic advantages of the wage difference and less perks and overheads."

National Association of Software and Service Companies (NASSCOM) also projected that legal processing outsourcing providers (LPOs) in India will soon rise up to US$3bn.

As associate lawyers in the US carry a price tag ranging from $225 to $450 per hour, India is a natural fit and already five of the 20-odd Indian KPO companies have established themselves and are tapping on skilled legal professionals to handle the outsourced work.

Indian firms enjoy much bigger margins as they bill their clients even 5-10 times more than BPO firms. Like BPO, India enjoys vast skilled manpower and this has given us the lead in KPO much ahead of Philippines and Sri Lanka.

But this glossy figure has many challenges ahead. The most important challenge to the newly-born sector is the need for Indian lawyers to pass us bar exams, conflict of interest rules and data security.

Going beyond costs to measuring value

Outsourcing services will continue to grow in popularity in 2006, dissipating the political haze that has led the public to misunderstand its full benefits and implementation options, say Unisys experts.

“In the last few years outsourcing has been made the focus of a political sideshow - portrayed at best as a way for companies to meet demand for IT services by capitalising on lower labour costs in developing regions of the world, and at worst as a way to employ one set of workers at the expense of another,” says Mukul Agrawal, country manager, Unisys India.

“Really, the discussion needs to be about the significant business advantages outsourcing delivers,” added Agrawal.

“In 2006, enterprises will finally see through the politics and economic half-truths and realise that outsourcing isn’t just global sourcing narrowly applied. They will focus on the business definition of outsourcing: assigning execution of certain tasks to an expert partner, regardless of geographic location, who can deliver demonstrable value to the business.”

This will enable all to “clearly see outsourcing?s benefits: breakthrough visibility leading to secure business operations, better quality of service to customers and employees, improved risk management, remarkable operational efficiencies with lower total cost, and maximised IT investment.”

Spelling out new success measurements that will drive global sourcing decisions and which will emerge as a key market factor, Unisys said that there will be decline of the SLA (service level agreements) as prime outsourcing success metric.

“Business-value metrics will drive increased global sourcing and complexity in engagements will drive the need,” Unisys in its predictions for 2006 noted.

On the decline of the SLA, Agrawal said: “Organisations make substantial investments in management of IT infrastructure and business processes because they understand that outsourcing can deliver significant returns. They must continually demonstrate the relevance of that investment to the business and strategy by measuring the results it yields. SLAs, the traditional yardstick for measuring results, are no longer adequate to that purpose. They are primarily measurements of the vendor’s success in executing tasks, not how the provider impacts or furthers the client’s business imperatives.”

He further said that achieving 99.96 per cent uptime of the client’s network is a typical SLA, but as a measurement of business value it’s so broad that it becomes nearly meaningless.

“On the other hand, the personal uptime per high-productivity or pivotal employee would be a more meaningful metric, because it measures the kind of uptime that most directly benefits the business.”

In 2006 outsourcing performance metrics that are “directly rather than tangentially relevant to business improvement,” will be adopted.

To discover the appropriate metrics, according to Agrawal, an enterprise management has to find the linkages among critical business processes and supporting IT infrastructure elements.

Once this is done, the key next step is deciding which would be most beneficial to the organisation to outsource, assigning management responsibility to the appropriate internal or external party, determining the optimal success metric for each and monitoring progress against those agreed-upon business metrics.

Detailing on the aspect of Business-value metrics that will drive increased global sourcing, he said: “In 2006, to capitalise on the combination of educated workforces and lower labour costs and cost of living, enterprises and their services providers will continue to outsource important support tasks to providers in India, Eastern Europe, China, and even certain areas of the US and Canada. Increasingly, though, measurable value to the business, and not just cost containment, will be a key factor in global sourcing.”

“An enterprise can send IT support offshore to take advantage of lower labour costs, but if its employees spend more time on the phone per call with support personnel due to language or technology barriers, it hasn’t gained any advantage at all from global sourcing. Global sourcing needs to be backed up by a strong business case based on meaningful metrics,” highlighted Agrawal.

He added that complexity in engagements will drive the need for a ‘manager of managers’. A basic economic reality will continue to drive outsourcing in 2006 and only a relatively few large, multinational companies have the scale to insource management of all their business processes and IT infrastructure.

The personnel and capital costs of wholesale insourcing can be astronomical. Increasingly, both enterprises and government agencies will adopt global sourcing strategies that rely on multisourcing, the use of use both insourced and outsourced resources.

Frequently, enterprises’ next-generation multisourcing strategies involve multiple external partners. While retaining internal control and maintenance of its strategic applications, such as those for customer service, a company could outsource management of its IT infrastructure to one partner, its HR processes to another specialist, its procurement and logistics operations to a third provider, and so on. The larger the number of partners, the more value there is in unified, programmatic oversight of their activities, Unisys said.

“Outsourcing specific functions to best-in-class providers makes tremendous strategic and economic sense,” noted Agrawal, “but it can create challenges for management if not done adroitly. I see 2006 as a breakthrough year when enterprises begin engaging a ‘manager of managers’ to oversee and coordinate the activities of all sourcing partners to maximise the business and operational value of their outsourcing engagements.”

This doesn’t involve just implementing a function in software, “It requires choosing a skilled outsourcing provider to ensure that multiple providers make the appropriate connections, which appropriate benchmarks from all quarters of the engagement are linked and reported, and that conflict is surfaced and resolved right away.”

He added that application outsourcing will become more widespread in 2006, but the way enterprises undertake it will be more disciplined. Outsourcing applications can take many forms, from engaging a provider to run the applications in a conventional data centre and perform code maintenance to accessing the applications on a pay-per-use subscription basis from a provider running an IT utility employing a server farm.

To maximise the value of outsourcing strategic applications, enterprises will increasingly take a planned approach, often working with an expert partner, to answer fundamental business questions, such as whether the organisation needs to own the applications, or just the architecture around the applications, or both or neither.

Then they can determine which applications are most strategic, which ones the business will benefit from outsourcing, and what is the best way to outsource each.

“Enterprises will begin to derive as much benefit from planning the way they’ll outsource the applications as they will from actually outsourcing them,” noted Agrawal.

On the issue of what will spur offshore processing in 2006, Agrawal said: “The 2004 passage of the US Check Clearing for the 21st Century Act (Check 21), which provides a comprehensive framework to dramatically reduce the amount of clearing time for paper checks, led financial-services experts to expect a huge decline in US check volumes in 2005.”

“In 2006 I expect what we had initially anticipated for 2005. We’ll see a more precipitous decline in check and remittance volumes, driving banks that previously relied on internal processing capabilities to achieve economies of scale, especially by pooling their volumes with those of other banks in check processing utilities,” he added.

“American financial institutions will demonstrate greater willingness in 2006 to take advantage of payment processing capabilities outside the US to capitalise on economies of scale and lower costs,” predicts Agrawal.

“India has a mature payment processing capability. A lot of US financial institutions and payment processors like the idea of doing something where it’s been done successfully before. Eastern Europe especially, but parts of Asia in addition to India, are well positioned to host an increasing amount of offshore payment processing from the US.”

Monday, December 26, 2005

Outsourcing boom creates worker shortage

India`s outsourcing boom has created a chronic shortage of skilled workers, threatening to send future jobs to competitors like China and the Philippines.

ABC reports call centers and outsourcing firms are growing fast, but their HR departments say because of the shortage, many young Indians they interview are unemployable mainly because of their poor English.

A Bombay-based call center manager showed a letter written by an employee that said: 'I am in well here and hope you are also in the same well.'

The report said India`s outsourcing industry employs about 350,000 people but will face a shortfall of 500,000 workers in the next few years, a study by by McKinsey & Co. says.

'If the industry has to go on paying higher and higher salaries to retain the staff it has, costs will rise and India will lose its biggest advantage -- cheap labor,' said Saurabh Wig, a former call center sales manager.

The problem with the skilled worker shortage in the second-most populous nation in the world is not quantity but quality, the report said. Many of the 3.6 million graduates churned out every year by Indian universities are considered mediocre, the report said.

Friday, September 30, 2005

Tax issues: UK insurers may end outsourcing to India

UK insurers have urged the government to delay implementing a European ruling on the tax applied to outsourced insurance services.

This, the insurers say could increase their tax burden by over 200 million pounds ($354 million).

The additional tax will also reduce the attractiveness of offshoring insurance services, so it could halt or limit the recent trend to move insurance jobs overseas.

The Association of British Insurers (ABI) on Thursday called on the UK tax authority, Customs & Excise, to delay implementation of new value-added tax rules, which are due to take effect from the start of 2006.

In March, the European Court of Justice ruled that some back-office activities outsourced by insurers were not exempt from value added tax (VAT).

This could be potentially a big blow to insurance firms outsourcing these functions to save money.

“Our view is they (Customs and Excise) are rushing into it without fully considering the implications,” John Breckenridge, acting head of taxation and accounting for the ABI. “January 1 is simply not practicable. We are looking for a delay until at least 2007.”

He added that the ABI had a good relationship with Customs and Excise. “We can’t be sure what they will do. But we feel our argument that their guidelines need more clarification will weigh quite heavily with them to get them to move (the date back),” he said.

Customs and Excise indicated it could heed the request. It has been consulting the industry on the changes, with the deadline for feedback this Friday.

“We’ve suggested a possible date and we’ll look at the feedback, that’s part of the consultation process,” a spokesman for Customs and Excise said. “Nothing’s set in stone.

Comapanies like Aviva have taken advantage of outsourcing agreements as Customs and Excise has granted insurers fairly wide value added tax (VAT) exemptions for a range of services.

Thousands of administrative jobs, such as call centres, claims handling, loss adjustment and back office processing have shifted to India and other countries.

Breckenridge acknowledged that the way the exemption has worked in the UK “has probably been more liberal than in lots of other member states”.

He estimated the change would cost ABI’s members — who provide 94 per cent of UK insurance business — at least 200 million pounds.

He said this could see insurers re-negotiate contracts with outsourcing providers or prompt some services to be brought back in-house — potentially expensive and a major change in policy.

“I don’t know if it will stop the trend in its tracks, but it certainly adds a cost and makes it more of an issue to consider,” he said.

Breckenridge said the that main impact would be on insurers’ bottom line. “The danger is that insurers will simply have to bear this extra cost.

Some might get passed on to consumers, while some might get passed on to the outsourcing companies.

But a lot is going to stick with the insurers, which obviously reduces their profits and reduces their ability to offer services and make further investments in the UK,” Breckenridge added.

Prudential Insurance said it would urge Customs and Excise to agree to the delay “to allow more time to iron out the uncertainty about the implementation.”

A spokeswoman said, however, it was too early to say whether its outsourcing policy would alter due to the tax change.

Thursday, September 29, 2005

Bangalore Outsourcing Revenue Increases

India's technology hub Bangalore experienced a 20 percent growth to 90 billion rupees ($2.05 billion) in its software and back-office outsourcing exports in the April-September half-year period, an official said Wednesday.

Also, 57 foreign companies opened offices in the city and had invested a total of 9.2 billion rupees ($209 million) through Sept. 27, when the figures were calculated, B. V. Naidu, director of the federal government body Software Technology Parks of India told reporters.

"The momentum of outsourcing growth is the same as we witnessed last year and we expect it accelerate in the next two quarters," Naidu said. India's financial year starts in April.

Naidu expected full year revenues to be at least $8.7 billion, or 30 percent higher than the last year's figure of $6.7 billion.

Industry leaders had feared that Bangalore's outsourcing revenue growth may slow down due to the city's sagging infrastructure and resistance from U.S. labor groups. But the latest growth figures suggest there has been no decrease in Western outsourcing.

Western companies save costs by farming out software development, engineering design and back-office functions to India and other countries where wages are low and skilled workers are plentiful.

"I won't say our infrastructure problems have been sorted out, but we still have rich human resources and that ensures dynamic growth for us," Naidu said.

Many of the world's largest technology companies including Microsoft Corp., Intel Corp., Oracle Inc., and Google Inc., have their offices in Bangalore. But many complain that the city's potholed roads, congested traffic, frequent power shortage, inadequate public transport and a cramped airport threaten their growth.

Labor groups in the U.S. and Europe have protested the practice of outsourcing, claiming it leads to job losses. But such protests have eased in recent months.

India's revenue from Western outsourcing was $17.2 billion in the fiscal year ended March 2005. It expects a growth of at least 30 percent in the current year.

World Outsourcing Forum holds its first edition - UAE

Downsizing cost and work force, more flexibility and access to high-end professionalism are the main advantages of outsourcing, said Ayed A. Al-Ruwaili, Comm. Engineer at Saudi Aramco, yesterday at the first edition of the World Outsourcing Forum. The forum, discussed challenges and opportunities the rapidly developing outsourcing industry presents. "Oustcouring should not mainly be introduced for cost cutting reasons, although this is one aspect of it.


The overall decision to outsource certain aspects should be based on various considerations and an profoundly evaluated risk-cost comparison," Al-Ruwaili expressed. Co-host of the event was the Dubai Outsource Zone (DOZ), an initiative of the Dubai Internet City.

DOZ, the first free zone in the world dedicated to the outsourcing industry, has been developed to provide a base for both captive and third-party outsourcing operations to supply mid and high-end services in areas such as finance, accounting, IT, payroll processing, engineering, R&D, and design. The Institution is to be completed in 2006; it has so far attracted US, US, European and Indian businesses looking to relocate their existing operations to Dubai. The World Outsourcing Forum gathers experts and industry professionals to discuss, develop and implement structure within the industry associations every year. "Outsourcing has become a defining global strategy for many high-profile multinational businesses, but until now the industry has lacked an annual focal point to support these companies and the vendor companies that make up this industry," James Freeman, director of the World Outsourcing Forum, emphasised.

Wednesday, September 28, 2005

Dubai Outsourcing Zone promotes global standard

Dubai Outsourcing Zone will use the platform of the Dubai conference 'World Outsourcing Forum' to discuss implementation of regional and international standards in the outsourcing industry.

As part of its presentation DOZ will encourage local and international outsourcing players to adopt certifications and standards like ISO 9000, COPC, Six Sigma, BS 7799 and ISO 17799, if the business community is to be given a 'yardstick' to compare different outsourcing facilitators.

DOZ will also urge outsourcing companies to address the need to comply with key regulations in client countries to raise the credibility of the outsourcing industry as a whole.

Leading the way, Dubai Outsource Zone will ensure compliance with the proposed standards in the outsourcing industry cluster that it is currently building within Dubai.

As part of this effort, Dubai Outsource Zone is in talks with prominent outsourcing industry bodies such as the International Association of Outsourcing Professionals (IAOP) and NASSCOM.

Dubai Outsource Zone also seeks to pioneer a 'Centre of Excellence;' a resource centre of 40 to 50 of the world's best outsourcing professionals. This centre of excellence will have some of the cream of global outsourcing professional talent in various fields like IT, business process management, transition management, Customer Service, HR, Finance and Accounting. They will provide independent consultancy services the region's outsourcing industries and will therefore not be affected by attrition issues.

Dubai Outsource Zone seeks to promote technologies that will bring greater efficiencies and competitiveness as well as facilitate cost-effectiveness in the industry.

Dubai Outsource Zone seeks to catalyse the development of the outsourcing industry to support the growth of the knowledge economy in the region. In accordance with HH Sheikh Mohammed Bin Rashid Al Maktoum's vision of 120,000 knowledge workers in Dubai by 2010, DOZ plans to generate a significant number of these workers by the end of the decade.

Tuesday, September 27, 2005

British mobile phone operator outsourcing

British mobile phone operator Orange plans to outsource 700 jobs to India by yearend, the Economic Times said Monday.

The decision to outsource follows successful call center trials in New Delhi through outsource companies Vertex and Convergys.

Orange is recruiting a team of 20 to 30 volunteers, chosen from its British sites, to train 700 staff members in the Indian call centers.

20 Questions To See If You Are Ready To Outsource

Some companies are jumping into software outsourcing before they are ready. They hire a team, sometimes the wrong one, and then expect them to start producing software right away. In their rush, they skip the planning, goal setting and careful evaluation of how outsourcing fits into their organization.

What does it mean to be ready for outsourcing? Is there a way to measure your readiness? Now you can answer a set of twenty questions on-line to get an idea of where you stand. The results will tell you if you are ready to go, if should proceed cautiously, or that you should seek immediate help. Here is the link to this free, no obligation, outsourcing readiness test:

http://www.accelerance.com/readinessTest.php3

One company I met with recently is already doing outsourced software development from their engineering group. "How is it going?" I asked. "It depends on who you talk to," I was told. The executives of the company thought it was going great. The company was paying less for engineering talent. Board members seemed satisfied.

But after further conversation, I learned the engineering department had never really bought into the concept of outsourcing. They resisted working with the outsourced team. Their results were actually less than spectacular. Clearly this was a company not completely ready for outsourcing.

And look at this email I received the other day:

We are looking to get started soon. I would like to get a quote from your firm for its services. I need an auction style web site to be built that could withstand up to 10 million hits per day. I need to know how fast it can be built and how much it will cost. I look forward to hearing from you...

I replied asking for more information about what was needed. At least a few additional details or some sort of specification are required to give any meaningful answer. If you do not have these details prepared, you are probably not ready to outsource.

And if you are not ready to outsource, you face the risks of extra costs, huge delays and the complete failure of your outsourced software development.

Why do people start outsourcing without planning? There are different reasons. Sometimes it is ignorance. Other times it is an intense desire to get the software developed as quickly as possible.

Before you jump into outsourcing make sure you are ready. Take this free test and think about your answers. Be honest. Then seek out advice and other resources to help in areas where you need improvement.

The on-line readiness test divides the questions into four areas - Your Previous Outsourcing Experience, Technology, Business, and Management Approach.

Even if you are not completely ready for outsourcing, you can get help to compensate for areas of weakness. That is the other benefit of the readiness test - just by answering the questions honestly, you can focus on areas where you may need help to minimize your outsourcing risks.

The help you need in these areas can come from several different sources. It might be books and articles that describe proven methods for outsourcing. It might be software tools to help you manage outsourcing. Or it might mean hiring additional resources that have outsourcing experience.

Don't get discouraged if you get a low score on the readiness test. Remember that one of the seven deadly dangers of outsourcing is not taking advantage of outsourcing at all. Learn from your test results and make the changes needed to make your outsourcing risk-free.

Monday, September 26, 2005

‘Indian cos edging out US outsourcing firm

Indian firms are edging out US outsourced call centre agents from the world market, says leading US-based analyst firm Datamonitor. In a recent study, the firm found that the tight profit margins were driving outsourcers to move offshore.

It saw the largest benefits going to Canada, India and the Philippines. The Datamonitor report on ‘Contact Centre Outsourcing in the United States’ said outsourcers were being forced to reinvent themselves by merging, partnering or competing with other types of companies in a bid to stay in the international arena.

It be noted that nine out of 10 jobs lost in the US contact centre outsourcing industry would be outbound telemarketing jobs as a consequence of the do-not-call registry and the higher revenues offered by inbound work. “In addition, the number of agent positions in offshore and nearshore countries will continue to grow, due to the growing demand from the US and captive market businesses,” it said. In 2004, 37% of the world’s outsourced contact centre agent positions were in the US.

By 2008, Datamonitor expects that number to shrink to 25%. In fact, the number of the US agent positions (AP) is expected to drop from 3,15,000 in 2004 to 2,91,000 in 2008.

Bangalored?
• US outsourcers are merging, partnering or competing with other types of companies in a bid to stay in the international arena
• 90% jobs lost in US outsourcing industry would be outbound telemarketing jobs on the back of do-not-call registry
“The boundaries between the US-based contact centre providers and other business process outsourcers are dissolving, and firms are invading each others’ territories,” said Datamonitor associate analyst Ri Pierce-Grove.

There have been at least eight publicly announced acquisitions since 2003, and Datamonitor expects this trend to continue,” it added.

Firms that were founded as contact centre outsourcers are offering services which overlap other business process outsourcing (BPO) areas, and BPO providers are acquiring contact centre capability.

“As the market contracts through to 2009, it will be imperative for outsourcing service providers to choose between competing on the basis of cost or reinventing themselves,” Pierce-Grove added.

The report sizes and segments the contact centre market in the US from 2004 to 2009. Data sets include total number of contact centres, APs, regional AP distribution, contact centre sizeband distribution and vertical market.

New to this report is a methodology based on ARPAP (average-revenue per-agent-position), examination of contact centre outsourcing in relation to other types of BPO and competitive profiles of the major outsourcers.

Sunday, September 25, 2005

No big impact in US due to outsourcing, study says

American employers are not benefitting much and damage to US workers in terms of wages as well as jobs is far less, according to a research study, which focused on outsourcing on technology and other jobs.

The study pointed out that some foreign companies have set up shop in the US thus contributing to job growth as they continue to believe that America is the best place for research and development activities.

The study was published in The Dallas Morning News, which quoted Diana Farrell, director of the McKinsey Global Institute, as saying, ''the infrastructure, the market size, the risk profile, access to talent --these are very rational reasons why we have such a high incidence of companies from all over the world placing their R&D facilities in the United States.'' The study pointed out that Texas Instruments (TI) is building a semiconductor fabrication plant at Richards, near Dallas in Texas itself-and not abroad.

''We were not going after cheap labor. The reasons we chose to stay in the Dallas area are really tied to cutting-edge research,'' Paula Collins, vice president of TI, was quoted by the study as saying.

Meanwhile, the Conference Board said that in the US there has been only a minor impact of jobs that have moved overseas.

The New York research group noted that till 2003 only 1.5 million jobs in the service sector had migrated from America. The number is expected to rise to 4.1 million within three years (still too small to make an impact on the American job market), the group said.

Friday, September 23, 2005

India top outsourcing destination

India and Canada continue to lead as top outsourcing destinations, while eastern Europe was rapidly gaining ground as the preferred outsourcing destination for western Europe, according to an annual white paper presented by Neo IT, a leading offshore advisory and management firm.

Philippines, Malaysia and Mexico were also making steady progress as preferred global destinations, said the white paper, titled "mapping offshore markets update 2005", which examines the country's capabilities of the leading contenders for outsourced BPO and ITO functions.

As per Neo It Offshore Attractive Index (which rates each country's characteristics to generate a quantitative net cost benefit of outsouring to that destination based on Financial benefit, service, maturity, people, infrastructure and catalyst) India, Canada, China, Poland and Ireland ranked among the top five.

Other countries ranked include Ireland, Czech Republic, Russia, Malaysia, Mexico, Hungary, the Phillipines, Brazil and South Africa, a release quoting excerpts from the annual white paper said.

The paper outlines the primary factors to consider when choosing an offshore outsourcing destination such as government support, educational system, geopolitical situation, business environment, cultural affinity, time zone and language proficiency.

Neo It focuses on assisting companies in maximising the returns from the off shoring of information technology and business process, the release added.

Thursday, September 22, 2005

India a clear leader in offshore outsourcing: Gartner

The increasing competition notwithstanding, India has maintained its top position among the global sourcing destinations with the market opportunity expected to go up to 50 billion dollars by 2007, research and analyst firm Gartner has said.

"Although more options for external service provision are becoming available worldwide, India remains the market leader with a majority of essential resources and a sufficiently robust technology infrastructure," the firm said.

It has predicted that by 2007, total global offshore spending on IT services will reach 50 billion dollars.

"Strong governmental support is rapidly propelling China's capabilities into the frame, while Latin America, Brazil and Mexico are increasingly becoming attractive options. In Eastern Europe, the Czech Republic, Hungary, Poland and Russia are among the countries to watch," Gartner said.

Wednesday, September 21, 2005

Potential (and Limits) of Outsourcing

Outsourcing is a growing trend in higher education, but concerns about control over quality and a “loss of identity, community, culture and collegiality” may limit its use as a tool to cut colleges’ costs (and in turn their prices), says a new report.

The report by the Institute for Higher Education Policy, “Is Outsourcing Part of the Solution to the Higher Education Cost Dilemma: A Preliminary Examination,” is just that: a review of the relatively small amount of existing information about the extent to which colleges and universities turn to outside vendors to do tasks traditionally done by employees.

It finds (based in part on surveys done by the National Association for College and University Business Officers and other groups) that most colleges have turned to private entities to perform at least one function, in areas such as bookstores, food services and technology, and that the use of outsourcing is on the rise.

But the study also emphasizes the significant barriers that exist to outsourcing any areas at the core of what higher education does: teaching, research and public service. In addition to the concerns that exist about outsourcing in any setting — lack of control, possible declines in quality and customer satisfaction, and blows to employee morale — college and university officials are particularly wary of perceived damage to the sense of institutional culture and community, the report says.

Colleges and universities simply have different ways of getting things done than businesses,” it says.

“In addition to encouraging, indeed mandating, a consensus approach to decision making, the protection of shared governance and academic freedom is paramount. In short, a major barrier to outsourcing in higher education is the very essence of the organization.”

Still, the report encourages colleges and policy makers to continue to explore outsourcing, or at least collaboration with outside vendors, as a potential avenue to help institutions of higher education rein in costs and find more efficient ways of managing certain tasks.

Leading U.S. Outsourcing Event Returns for 4th Time in New York

OutsourceWorld New York 2005, the leading outsourcing event in the U.S., will present a highly focused program of expert industry speakers and the largest compilation of onshore, nearshore and offshore outsourcing vendors and service providers in a single venue.

Now in its fourth successive year, the standalone event will take place over two days in central Manhattan, delivering a concentrated focus on best practice outsourcing for both large organizations and SME enterprises.

OutsourceWorld New York is regarded as the most valuable learning and networking business solutions platform in the U.S. The event provides a comprehensive forum for delegates to debate the latest developments and issues in outsourcing with experienced industry speakers, as well as the opportunity to discuss individual requirements with leading international vendors.

New to this year's program is a special focus on the HR function. Today a large number of companies are outsourcing their HR departments and this subject is gaining momentum in current discussions within the outsourcing sector. OutsourceWorld is organizing one stream of the conference and exhibition purely focused on HR Outsourcing to tackle this growing sector.

Tim McLucas, Show Director, OutsourceWorld New York 2005 said: "Outsourcing has become more sophisticated in the three years we've been running this event, which is reflected in the specialized format of this year's show. The new concentrated format will optimize the time of both visitors and exhibitors at the show, delivering the most current industry thinking, tailored specifically to address the needs of large and small companies from introductory level through to experienced multinational multi- discipline outsourcers."

UK tops European outsourcing league

Britain extended its lead as the top European outsourcer during the second quarter of 2005, according to research revealed today.

Data from Forrester Research indicates that firms in the UK and Germany, in particular in the financial and public sectors, closed most of the €5bn in outsourcing deals between April and June this year.

The analyst firm tracked 67 outsourcing deals exceeding €10m in contract value involving 22 vendors during the report period.

The UK extended its lead, with British firms representing 39 per cent of total outsourcing deals.

Germany and The Netherlands shared the first outsourcing tier with the UK, and Italy propelled itself into this group for the first time with seven major deals. Norway reported four deals brought in by EDB.

In contrast, Finland, Poland and Hungary disappeared from the outsourcing playing field altogether.

Infrastructure outsourcing diminished slightly, and buyers outsourced more than two categories of IT services per deal on average, although the mean deal size shrunk.

The study identified BT Global Services as heading the vendor table for deal value, bagging €2.2bn for a single deal with the UK Ministry of Defence.

Forrester Research noted that infrastructure outsourcing declined for the first time in seven quarters, while telecoms and network outsourcing grew by " leaps and bounds".

Almost a third of this quarter's deals involved telecoms or network outsourcing services, 18 per cent more than a year ago and almost identical to the first quarter of 2005.

Siemens Business Services (SBS) and Gerling signed one of the largest contracts in this space, valued at €300m. SBS will take over, run and maintain the insurer's entire IT infrastructure including PCs, laptops, telephones and networks.

The second quarter of 2005 saw the most business process outsourcing (BPO) deals ever reported in Forrester's surveys. More than a quarter of the deals were BPO agreements, almost twice the proportion found last year.

Boots and Xchanging inked the largest of these, worth €592m, involving outsourcing administrative tasks to manage spending in areas such as corporate travel, facilities management and invoice processing.

Looking at the number of contracts signed in the two most mature outsourcing industries - government/public sector and financial services/insurance - the public sector outpaced the financial services industry for the first time.

The high tech and utilities sectors were both surpassed the results of a year ago.

Tuesday, September 20, 2005

Outsourced accounting demands disclosure

I had been told that three-time Pulitzer Prize winner Thomas L. Friedman had a way of boring his readers. I was surprised then when I was immediately captivated with his national bestseller, The World is Flat: A Brief History of the Twenty-First Century. Just barely into the first chapter Mr. Friedman discussed my industry: accounting.

Can accounting really be captivating? Mr. Friedman's experiences intrigued me because he discovered that with simplification, tax-return preparation could be outsourced. Outsourcing is not a new concept to the accounting profession. For years accountants have hired interns and temporary help for the months of January through April. Before software for desktop computers, efficient accountants were forced to have their tax returns processed by the software developer. What is new to the profession is the outsourcing of tax returns to foreign countries.

Mr. Friedman was told that outsourcing is justifiable because with the grunt work being done efficiently far away, the accountant will now have quality time to discuss the management of his or her clients' financial affairs.

My first skeptical question if I were a client is, "Have you not already given my account the proper management?" Next, I would ask, "Are you telling me that in a short time span foreign countries are better able to handle the seasonality of your profession than you are?" and "With the cost savings, will I see a reduction in my bill?" Lastly, "If there is no shame in your actions, why are you unwilling to disclose these activities prior to 2006?" (Beginning in 2006, the American Institute of Certified Public Accountants (AICPA) requires disclosure by CPAs to clients of outsourced production.)

I would ask these questions because I already know the answers. I worked at an organization that outsourced tax-return preparation to a company located in India. During the process of setting up the foreign outsourcing I repeatedly encouraged the owners of the CPA firm to disclose to their clients that they were outsourcing to India. I have always believed that you should disclose, disclose, disclose, when working with clients.

However, I was an unwelcome voice. The truth of the matter was that the returns were being outsourced at a cost of $100 each. The client could be charged anywhere from $500 to $2,000 for the outsourced work. The different spins that can (and will) be placed on the rationale for foreign outsourcing is endless. The truth is the outsourcing accountant wants to increase profits. Everybody wants to increase their financial security. The difference is that honest people admit it.

Does your accountant outsource your income tax return to India? When you look at the bottom of your tax return do not expect to see a sticker indicating "Made in India." Even with the AICPA's new standards, you may not be told. Accounting firms have invested in foreign entities so that the accountant may legitimately exclaim that your return is prepared by firm employees.

During the past few years, the accounting industry has been recuperating from diminished public perception due to high-profile scandals. Professional associations of certified public accountants have been actively promoting the high standards exhibited by the majority of the profession. At such a tumultuous time within the accounting industry, I am confused as to why accounting firms are choosing to keep secrets from their clients. Outsourcing firms have generally waited to be told by the boards establishing standards that disclosure would be the obvious ethical approach.

I am not condoning or condemning the outsourcing of income-tax-return preparation. I am simply advocating open and honest relationships between the individuals who hire professionals and the accountants who have been entrusted with confidential personal financial information. If outsourcing is an important concern to you, exercise your right to know. Ask your accountant "Is my personal financial data being transmitted electronically to another country?" "How long have you been doing this?" and "When were you going to tell me?"

The coming wave of Knowledge Process Outsourcing – can India really align into vertical business signets and repeat a BPO performce?

After BPO it is KPO. But can India repeat the performance in KPO. Knowledge Process Outsourcing is the new buzzword. That is where the action will be in the next ten years, say experts. In BPO or Business Process Outsourcing, slients provide the business process requirements and the outsourcing service provider in India follow the needs of the client. But in Knowledge Process Outsourcing Indian companies will asked to provide vertical business segment driven specialized knowledgebase. It needs vertical business alignment and strong networking with specialized consulting firms.

According to media reports in India, Mohit Srivastava, Associate Vice-President, E-Valueserve, said from current billion dollar industry with a growth rate of 50 per cent per annum, KPO is set to grow to usd 17 billion in the US.

"India can garner 71 per cent share in this by 2010," Mohit said.

However, the change-over is not to be an easy deal, observed Mudit Kulshreshta, Associate Director, Knowledge Services.

"The transition would be a tough one as there are vital differences between BPO and KPO. The domain expertise need for KPO is widely varied," he said.

The biggest challenge for Indian firms is the fact that KPO really represents high end consulting and not just cheap labor outsourcing. A client in KPO will not look at dollar figures but will be mainly concerned with quality of services. That is where Indian companies may fail.

Indian industry needs to tone up itself by moving up in the value chain besides augmenting human resources and domain knowledge, according to speakers at a NASSCOM meet on `From BPO to KPO and Beyond'' held in Hyderabad.

Outsourcing firm picks up $20M for passage from India

Freeborders, a San Francisco IT outsourcing company, has liberated $20 million in funding from three VC firms with plans to use the cash to grow its financial services business in China.

Freeborders helps clients outsource software application work to China and has clients in retail, high-tech and, as of last year, financial services. Many financial services firms have outsourced call centers and technology work to India, but with costs now rising sharply for operations in that country, Freeborders hopes to grab a chunk of that multibillion-dollar market for its Chinese technology center.

San Francisco-based FTVentures, which itself is backed by 38 financial institutions, is the latest VC firm to plunk its dollars into Freeborders, joining existing investors Internet Capital Group and TAL Ventures in this round.

Brad Bernstein, a partner with FTVentures, said his firm noticed that India's booming financial services outsourcing industry had inflated wages there. The firm identified a need for a cost-effective alternative.

"We started looking for outsourcing firms in China with language and technical skills to serve the U.S. market, and it became clear Freeborders was best positioned to do that," he said.

Freeborders, which employs 90 in the United States and 400 in China, has raised more than $40 million in two rounds since its founding in 2000. The company generated revenue of $15 million to $20 million in 2004. Co-CEO John Cestar said he expects that to double next year.

The company counts Coach, Quicksilver Software and Citigroup among its customers.

The outsourcing outfit will use the new cash infusion to expand its whiz-bang technology center in Shenzhen, China, which Cestar calls the "Silicon Valley of China" with its 150,000 tech workers and advanced technology infrastructure. The company is adding a buffed-up cafeteria, fitness center and, more importantly, enough space to accommodate 1,000 workers, which it expects to employ in China within the next 12 months. Freeborders is hiring 30 people a month there.

"When you start to get bigger-scale work, you have to have the flexibility to expand," Cestar said, adding, "our facility looks like it could be in San Jose; it just happens to be in China and enjoys a sustainable cost advantage."

Freeborders, which has offices in New York and North Carolina, will also use its fresh capital to beef up its sales and delivery services in North America and Europe.

Monday, September 19, 2005

Outsourcing doctors 'is dangerous'

A leading prosecution lawyer has warned that the outsourcing of police doctors' work could lead to rapists escaping prosecution.

Simon Di Rollo QC criticised the experience and communication skills of some foreign police doctors being hired by private agencies to carry out duties for police forces, including examining victims of crime.

Mr Di Rollo said doctors who could not communicate properly with juries and lacked experience could lower the chances of securing successful rape convictions.

The advocate depute was speaking after a recent rape case in Inverness in which a Croatian doctor who had examined the victim gave evidence in court.

The doctor has now been sacked by Medacs Healthcare Limited - the private company which hired him - after concerns were raised about his standard of work.

Mr Di Rollo, who was prosecuting the rape trial, wrote a letter of complaint to the procurator fiscal in Inverness following the case, which was heard in July.

He said: "I had concerns about his qualifications, experience and ability to communicate with the jury.

"Crucial work is being carried out and if it is not being done by someone who is competent and professional then innocent people could be convicted and guilty people may be acquitted."

In a statement, Medacs Healthcare Limited said the doctor had been dismissed following appraisals and feedback from the police service when it became apparent that he "was not achieving required standards".

A spokeswoman added: "A full internal investigation and review of procedures for the recruitment and training of all clinicians was carried out as a result of this case, resulting in further improvements to the company's recruitment procedures."

Aussies should embrace global outsourcing

The Australian ICT industry and State and Federal governments have been advised to take advantage of the fresh potential of knowledge-based global outsourcing or miss out on billions of dollars of offshoring business.

According to Swamy & Associates, independent offshoring advisors and managers, commissioned by The Australian Computer Society, high-end analytics work - such as Knowledge Process Outsourcing, is in growing demand in the US, European and Japanese markets, and if successful, Australia's "onshoring" efforts could capture between 150,000 to 200,000 highly qualified full-time workers.

Edward Mandla, the ACS president, said that the research and policy framework for onshoring is a natural next step to the ACS Offshoring Policy released last year. "Offshore-outsourcing of processes has so far been characterised by considerable community anxiety and apprehension within Australia.

"Yet the emerging reality is that Australia can look at the global trend towards offshoring as an opportunity rather than a threat. Global offshoring has moved to the next level and we need the support of government and industry to capture the opportunities.

"Phase one was basic administrative and processing tasks. Phase two is knowledge-based analytics. As a medium cost destination, Australia is ideally suited to take on knowledge-based, ICT-enabled analytics services."

Mandla added that despite this opportunity, Australia is not seen as a top-of-mind destination, therefore there is a tangible need for a national agency to represent the interest of government and industry to develop a long-term strategy for the Australian ICT sector, to facilitate international partnerships and promote the benefits of onshoring work to Australia.

"The current industry landscape in Australia consists of more than fifteen industry association giving mixed messages, and with an over reliance on volunteers and a lack of funds to develop programmes. There is no 10 to 15 year plan and there are competing state and federal interests.

"The result is there's no appropriate government policy which addresses these opportunities, and it appears no true willingness to have Australia positioned as a global technology player."

The ACS Onshoring policy believes that Australia's workforce is between 20 and 40 percent more affordable than the US, UK, Japan and major European centres and highlights Australia's other key onshore advantages:

A sophisticated financial services sector; a highly skilled and productive workforce; excellent infrastructure, including strong Business Continuity Planning processes; strong multi-lingual skills across both European and Asian languages; respect for intellectual property; a stable political and economic environment and a transparent legal and governance systems.

Sunday, September 18, 2005

Malaysia attractive IT outsourcing centre: CompTIA

INTERNATIONAL consulting firm A.T. Kearney’s recognition of Malaysia as the world’s third most attractive offshore location is opening doors towards the country’s information technology (IT) centre, Computing Technology Industry Association (CompTIA) director of public policy Asia Pacific Michael Mudd said.

CompTIA is a global trade association representing the business interests of the IT industry.

“Malaysia has an advantage over other countries in the region with its ready pool of knowledge workers that are proficient in English.

Mudd said knowledge workers are crucial for Malaysia to be competitive in outsourcing and the key to any business success is the quality of workers and companies want to know that the productivity of knowledge workers can match investment.

Mudd said the most valuable assets of a company are their workers and productivity.

“More than 90 per cent of all workers in the IT field do not work for companies in the IT industry. Rather, they fulfil IT functions in other industries, for example the hotel, bank and airlines industries,” he said.

Mudd said IT provides the backbone that powers the global economy in financial services, government, agriculture, healthcare, transportation, manufacturing, education, and scores of other industries.

Mudd said CompTIA is working with Malaysia on developing knowledge workers through broad-based, foundation exams that validate an individual’s IT skills set.

“As the largest vendor-neutral provider of IT training certificates, we are working with the National Vocational Training Council to map the syllabus to the Malaysian National Competency Skill Standards,” he said.

He also said that CompTIA’s opinion on Malaysia has a good international record in working within the rules.

He said Malaysia’s strong governance has an edge over other economies and its strong legal system that is more advanced coupled with an educated workforce, of which there is a strong education system in place already.

“Good incentives are already in place for example pioneer Multimedia Super Corridor-status companies need not pay corporate tax in the first five years,” he added.

Mudd said there is also strong support and positive moves by the Government to push Malaysia as an outsourcing destination.

CompTIA members in Malaysia include the National Vocational Training Council under the Human Resources Ministry, New Horizons Computer Learning Centre, Getronics Solution (Malaysia) Sdn Bhd and Hewlett-Packard (Malaysia) Sdn Bhd.

Others are Intel Electronics (Malaysia) Sdn Bhd, Microsoft (Malaysia) Sdn Bhd, Sun Microsystems Malaysia Sdn Bhd, Fujitsu (Malaysia) Sdn Bhd and Hitachi Asia (Malaysia) Sdn Bhd.

Indian BPOs eye US healthcare

Indian business process outsourcing companies involved in healthcare are increasingly eyeing a niche business in the US healthcare sector.

The healthcare sector in the US is undergoing a sea change due to the need for compliance to the Health Insurance Profitability and Accountability Act (HIPAA), which might result in off-shoring a good quantum to other countries like India, according to analysts.

"The verticals such as healthcare administration, medical management and imaging are in high demand in the US and India can make this a niche BPO area," a top functionary of Atlanta-based STI knowledge told PTI.

As of now outsourcing to Indian companies can offer cost saving to the tune of 20-30 per cent. "For every healthcare dollar spent, 21 cents go to administration. The average margins for publicly traded healthcare firms are under pressure," he adds.

Apart from administration and paper work, imageology also offers business promises to India, say analysts. As per the HIPAA verticals like electronic transactions and electronic claims attachment frameworks are being revamped and offer immense business opportunity to India BPOs.

Apart from administration and paper work, imageology also offers business promises to India, they say.

KPO: Moving towards third party outsourcing

Knowledge process outsourcing industry in India is poised to head towards being a $12-14 billion market by 2012. The trend in this fragmented industry is towards moving captive services to third-party outsourcing as large IT services firms are set to take to this wave. While large IT services providers are better placed, some tier II companies are making a mark operating in niche segments.

The Managing Director of Deloitte Consulting, Sam Balaji, said these are exciting times for the IT industry and present a tremendous opportunity for growing at about 40-50 per cent per annum. While the KPO industry itself is projected to grow to about $17-18 billion by 2010, we expect India to garner a big chunk of this market, potentially $12-14 billion.

Speaking at a national event on "From BPO to KPO" organised by the Nasscom here today, Balaji said the largely fragmented KPO currently engages about 25,000 people and has the potential to employ 2.5 lakh by 2010. However, this calls for economics of skill and not scale as in other areas such as BPO.

"Indian technology companies need a paradigm shift in the way they do business bringing in a lot of consultancy expertise to offer these services. The build, own and transfer model will continue to fuel this growth as companies deliberate seriously before outsourcing this function," Balaji said.

The Vice-President of Evalueserve, Mohit Srivastava, said the KPO industry in the country is estimated at about $1 billion. Both demand side requirements and supply side pulls are fuelling its growth. Indian knowledge workers have clear edge. KPO services can reduce design times, manage hardware efficiently and provide research on markets thereby helping in informed-decision making.

The Associate Director of Knowledge Services at WNS, Mudit Kulshreshtha, said KPO is not a natural progression to BPO. This has gradually emerged as a huge opportunity for Indian manpower given the consolidation witnessed in the industry. The deal sizes too have increased. While the Gesics deal was worth about $500 million, IBM-Daksh was $120 million and Citibank Eserve was about $100 million, reflecting the changing patterns in the industry landscape.

The KPO services fetch higher returns than the BPO deals offer. However, this calls for high investments. The high income and associated investments in KPO translate into the higher revenues bringing in a multiplier effect, Kulshreshtha said.

The Managing Director of Kale Consultants, Vipul Jain, said: "Kale was a predominantly a products company, which chanced upon the KPO handling transaction processing. As we partner companies, companies seek to outsource more and more services if they are convinced about the deliverables".

The Chief Executive Officer of SciTech Patent Art Services, a company that helps companies offering patent related services, Uma Parameswaran, said increasingly companies are concerned about data security related issues. Once they are sure that their valuable information is secure, they do not hesitate to outsource. In fact, some of them demand a separate server to host their invaluable information.

The Vice-President of Satyam Computer, Sridhar Srigiriraju, said cross selling of services offers great opportunity in KPO. This is being addressed through the business intelligence and data warehousing division of the company.

BPO, KPO to see upswing in revenues

The global offshore business process outsourcing (BPO) revenue is projected to grow about 35 per cent by 2008, according to a study conducted by Scope e-Knowledge Center.

The study was presented at a seminar held today under the National Association of Software and Service Companies (Nasscom) umbrella.

In the 2003 fiscal, the revenue from global offshore BPO was about $9 billion, of which knowledge process outsourcing (KPO) alone contributed about $1.3 billion.

It is estimated that an approximately $7-billion market potential exists for KPO services such as data search and analysis, while remote education is likely to create a $3-billion market.

A Nasscom-McKinsey report estimates the BPO opportunity for 2008 as $141 billion . Other markets such as biotechnology and pharmaceutical research, and engineering and design services are expected to grow to $5 billion and $3 billion respectively.

The KPO services market is expected to grow from $1.3 billion in 2003 to $25 billion in 2010, representing a compound annual growth rate (CAGR) of 52 per cent.

KPO services are projected to account for more than 40 per cent of the total BPO revenue in India by 2010.

Impact of stagflation on outsourcing from India

As the world plunges into a renewed stagflation with Gold making 17 year high and western economies failing to keep up with the inflation, Indian outsourcing sector is going to take a major hit.

The stagflation in western economies will eventually take its toll into India and China as the outsourcing will dry up and the West will slowly close its door to these extra jubilant economies.

U.S. President George W. Bush told a U.N summit on Wednesday he was willing to drop all trade barriers if other countries did the same, issuing a challenge that could invigorate critical talks on world trade.

Trade experts saw little chance of the pledge becoming a reality but some said the attention Bush gave to trade in his speech could spur interest in the World Trade Organization talks on trade and development, known as the Doha Round.

But the stagflation will kill the international trade initiatives, experts say. Stagflation makes all poor. Countries become increasingly protective and eventually close doors to foreign goods and services. Investments slow down as the rich hide behind the escalating precious metal prices.

Indian outsourcing sector will collapse in two to three years. The BPO and Information Technology companies will first get wiped out then they will reinvent themselves to do business within India and China.

Outsourcing product development

The future of a product-focused company largely depends on the ability of its marketing division to strategically plan and more importantly implement a product release.

The volatile nature of high-tech marketing perhaps best exemplifies the challenges. The enormous task of building products better and faster to keep up with rapid changes in technology and market demand for innovative features will certainly see companies failing to traverse the chasm between growth phase and maturity phase. This particular challenge has forced many product-focused companies to opt for an outsourced product development team (OPD) with expertise in building products. The implausible combination of technology, expertise, flexibility and costing the OPD offers becomes an alluring proposition for most software product companies. This phenomenon is certainly not new. The pharmaceuticals, automobiles, and consumer electronics industries are replete with outsourcing trends that are so complete. BMW outsources the entire product development and manufacturing to Steyr - Daimler Puch Fahrzeugtechnik (SFT). SFT also undertakes manufacturing for Daimler Chrysler in Europe. There is no reason why this manufacturing trend cannot be repeated in software product development.

Objective

With intense competition for mind and market share, product companies are under enormous pressure from all quarters - sustaining growth, operating margins and retaining customers. More importantly, the global market of today is witnessing a paradigm shift in competition itself. Companies are investing more on initiatives to aid "disruptive innovation." This kind of an innovation is radical and extends new value proposition besides bringing about a significant difference in existing consumer habits and behaviour that will enable them to create new markets and business models. Gone are the days where companies will only invest in innovations to sustain their current business. The rapid change in technology is forcing companies to work strenuously on "disruption" and prolong the maturity stage of its product in the lifecycle. And, this is precisely why companies should seek the help of an OPD team.

OPD's role in early stage

Any start-up with a robust product idea should ideally engage an OPD early on. This is the stage when top management would channel their energy towards attracting funding, tweaking up business plan and also gather market understanding. The early stage is when creating awareness about the product and its benefits is high. With the objective of establishing a market and creating demand for the product, spending on advertising, market research and distribution is very high, which entails significant cost for the company. These higher costs coupled with low sales makes this stage quite tough for the company. It is hence ideal to leave drawing product roadmap, defining product features, technology selection, development of beta version of the product, creating the first version and benchmarking against competitors with experts in OPD.

Growth stage

A very critical stage in a product's lifecycle as this is the stage when the company sees a spurt in the number of customers. Sales increases and newer segments are targeted for marketing. There is also a step up in spending on advertising and distribution to tackle competition that is gradually asserting its presence and eating up the market share. The task for the company is to stress on competitive differentiators. In such a situation, while the company can focus on building customer relationships, creating customer bandwagon, product management and product release planning, the OPD team can aid in highlighting competitive differentiators through product enhancement, product migration, product re-engineering, product implementation and product testing thereby significantly bringing down costs through carrying out the tasks from an offshore site.

Maturity stage

Brand awareness is at its peak and hence advertising expenditure can be reduced drastically. However, with intense competition, market share diminishes with price. This is also a stage when there isn't any particular differentiator between competing products. Efforts are on to encourage competitors' customers to switch, increase usage per customer and also converting non-users into customers. There is also a significant amount of investment to increase shelf space than competitors by influencing retailers.

Decline stage

The market is saturated and the product is gradually showing signs of becoming technologically obsolete. This is the time when the company has to focus on diversifying the product line or find new uses for the product. With most of the maintenance work and customer support outsourced to the OPD team, the company is strongly positioned to invest more time in initiating a disruption.

There are several strategies that can extend the lifecycle and increase the return on the original investment in the product. However, this requires careful planning and investment of time and capital by the management.

Conclusion

The intense competition in the global market place today indicates that companies should explore growth based on disruption as that offers enormous benefits. This infact is increasingly becoming an imperative so as to prolong the declining stage in a product's life cycle. However, an organisation in pursuit of disruption needs to adopt a strategy that is conducive for such innovations. This is where an outsourced product development team will play a vital role. With most of the technology initiatives outsourced to experts, the company can have a strategic team that focus on disruption in products, technology, marketing and distribution.

Saturday, September 17, 2005

Bangalore to Improve Its Infrastructure

Authorities in Bangalore, India's technology hub, promised to improve the city's sagging infrastructure after business leaders protested the state of the city's crowded, potholed roads, an official said Friday.

The Karnataka state government agreed to repair 19 potholed roads in Bangalore within the next few weeks, build new roads in fast-growing neighborhoods and speed up transport projects, such as expanding the bus network, said Shankaralinge Gowda, who heads the state's information technology department. Bangalore is the capital of Karnataka.


The announcement came one day after some members of the city's $6 billion software outsourcing industry and its main trade body, the Bangalore Chamber of Industry and Commerce, threatened to boycott the government-sponsored annual technology convention in November if the city's infrastructure was not improved.

The steps announced were among the demands made by the business leaders.

"With this, we hope that the issues raised by the industry over the past week have been resolved," Gowda said.

For more than two years, business leaders have complained that the city's infrastructure has not kept pace with its economic growth, and its emergence as the favorite destination for Western outsourcing.

Narrow, potholed roads are the biggest problem _ workers often arrive late for work due to traffic congestion _ but companies also have to suffer an aging bus system and frequent power outages. Karnataka, which has 60 million residents, has only one-tenth of the electricity-generating capacity of California, where about 35 million people live.

The government's latest promises seemed to have pacified the business leaders.

"Officials now appear to be action-oriented and we are very happy with the steps they have promised," said Ananth Koppar, president of BCIC.

Members of his trade body are "in a mood to reconsider their decision" to boycott "IT.in," the city's annual technology fair, and will meet over the weekend to decide whether to take part, Koppar said.

Some of their concerns have been addressed in recent months. A new international airport is being built, and land acquisition for a city rail service is set to begin. But the industry also wants quick action to improve roads.

"It is a good sign the government has made these promises, but we have to make sure they are also executed," said Mohandas Pai, chief financial officer of software exporter Infosys Technologies.

US call centre jobs worst hit by offshore outsourcing

A quarter of outsourced US call centre jobs will be lost over the next three years as companies are increasingly forced to move the work to cheaper overseas locations or use automation, according to a new report by analyst Datamonitor.

The US had 37 per cent of the world's outsourced call centre positions in 2004 but the Datamonitor report, Contact Centre Outsourcing in the US predicts that global market share will shrink by a quarter by 2008, from 315,000 jobs to 291,000.

Outbound telemarketing positions will be worst hit, accounting for 90 per cent of the US call centre jobs lost, mainly due to the introduction of the 'Do Not Call' registry and the higher revenues available from inbound call centre work.

Narrow profit margins are increasingly forcing outsourcers to move call centre work from the US to cheaper locations such as Canada, India and the Philippines, or to automate the service altogether where viable. This will lead to a corresponding increase in the number of outsourced call centre positions in offshore locations such as India.

Ri Pierce-Grove, associate analyst at Datamonitor, said call centre outsourcers are also combating this threat to revenues by reinventing themselves and extending into the more lucrative business process outsourcing market.

He said in the report: "The boundaries between US-based contact centre providers and other business process outsourcers are dissolving, and firms are invading each others' territories. There have been at least eight publicly announced acquisitions since 2003, and Datamonitor expects this trend to continue."

The report follows statistics earlier this month showing that UK IT and call centre jobs have not been hit by offshore outsourcing. That report by the Office for National Statistics showed employment growth in call centre positions has been three times that of overall employment growth since 2001, and that redundancy levels have also fallen consistently.

Friday, September 16, 2005

Use An MRD To Control Your Outsourcing

Is your software development process as unpredictable as the weather? Is your software casting a shadow causing six more weeks of programming? Are you using a marketing requirements document (MRD) or magic to predict your software release schedule?

Early in my career, I worked in a lab for a company that sold microwave devices. I was responsible for the HP computer system that ran the software used to design the circuits. One day a tech support guy from HP came by. He asked what we did in the lab. When I told him "designing microwave circuits", he said, "Oh, I hear they use a lot of FM".

I paused and tried to remember if Frequency Modulation was really used in these circuits. Before I could respond, the guy from HP continued, "Yeah, it takes a lot of F-----g Magic to make those circuits work!"

He was right. A major issue with microwave circuits in those days was creating them with a high-yield manufacturing process. Too often there was much tuning and tweaking of individual devices with toothpicks and tweezers to make shipment dates.

Since then I have worked on a few software projects where some amount of "FM" was required to get the software released.

How about your software projects? Do they drift along never seeming to finish? Do they require the heroic efforts of a few individuals to make your shipment dates?

Outsourcing can solve the issues of delayed software releases by imposing more process on your software development - more process than is typically used in an organization where everyone is working in close proximity.

Outsourcing vendors need to have a well-defined process and excellent communication to be successful. Software development is all that they do. Outsourcing not only gives you the benefit of having your software developed for less cost, but also a process that provides improved predictability, results and success.

But many remain fearful of outsourcing. The number one concern is losing control of the software development process.

One client expressed it this way. "I can't just tell the programmers what to do on a day-to-day basis. It would be like hiring a contractor to build a house and telling him to put a window over there and a door over here. You have to understand what impact that will have on the plumbing and electrical and the building of the rest of the house."

He is right. You need to have some idea of the architecture and the plan for construction. Working together with a few programmers in the same room can sometimes let you make some shortcuts and share the plan by informal word of mouth. !0Just put a pop-up window over here.!1

Except for small and simple projects, this informal communication does not work. You need some description of the requirements for the software. You need to find a way to efficiently communicate the requirements of your software so you can move beyond the "idea" stage with the vision for your software.

The first step in creating a software product is to write a Marketing Requirements Document or MRD. It contains a brief description of all the features, functions and benefits your product must have to be successful in the marketplace.

Some companies make a distinction between an MRD and a PRD - a Product Requirements Document. The PRD has more details on what the software should do. For example, you need both an MRD and PRD when you are creating several services and products. The MRD describes the product strategy, market positioning and sales channels required to deliver the products with specific sets of functionality to the market. The PRD on the other hand focuses on the detailed requirements of the software itself.

The MRD or PRD should include basic architecture and the critical user interface for your software:

* Software architecture

* Hardware platform selection

* Functional specification

* User interface design

*Multiple !0use cases!1 describing how users will interact with your software

* Story board demo (optional)

* Major release milestone schedule

* Quality Assurance testing

* Technical Documentation requirements

* Detailed schedule (up to completion of first major milestone)

* Cost estimate for cost-efficient and time-effective outsourcing development

Your marketing requirements document or MRD describes the functionality of your software product and how it will be sold and distributed. It is also a device to control your software development process, especially if you outsource. Otherwise you run the risk of delays, poor quality and just not knowing what you are doing.

Thursday, September 15, 2005

Overseas outsourcing on the rise

OFFSHORING is becoming an increasing trend among global banks and financial services companies, according to a new survey.

Currently more than 80 per cent of financial companies conduct some form of offshoring of their business activities, a survey by accounting from PricewaterhouseCoopers (PwC) has found.

In three years' time, 94 per cent of financial companies expect to offshore.

They can do this by one of three ways: setting up their own business in a foreign country, establishing a joint venture or entirely outsourcing their business to another company in a foreign country.

India was the most popular country for outsourcing, especially for IT-related functions, with China coming in second.


But other potential countries for offshoring include Ireland, Romania and the Philippines.

PwC partner Rahoul Chowdry said Australian banks were also looking to offshore some of their IT functions, despite public concern that it would mean moving Australian jobs overseas.

Mr Chowdry said the Australian banks were much slower than their global peers in offshoring but were now finding they had run out of options for reducing costs.

"Every organisation has a responsibility to maximise customer value and shareholder value," he said.

"If outsourcing is one of the ways of enhancing that, then they have a duty to at least explore the opportunity."

However the survey found that offshoring did not always produce the cost savings expected, with more than 15 per cent of respondents dissatisfied with the level of cost savings achieved.

The survey questioned executives from 156 financial institutions around the world, but did not specify whether any were from Australia.

Wednesday, September 14, 2005

Legal work outsourcing remains untapped

Right from filing patents to drafting transnational contracts to creating necessary information back-up for global corporations in litigations and providing support in contract management - - ,one can outsource a wide range of legal work, bringing in similar scale of economies that business process outsourcing brings to companies.

Indian companies have come of age offering legal outsourcing and making a difference. They are eyeing the $200 billion US market. Significantly, while there are different projections as to what is in store for the Indian market place, one estimate by Forrester puts this at about $3.9 billion by 2010.

Interestingly, this is not just about attorneys, law grads or practising professionals of law at the bar alone. A host of other professions such as engineers and technology experts would be part of this trend, bringing in different domains and pooling resources to provide the end product and service.

The co-founder, Chairman of Pangea3, a legal outsourcing services provider based in the US with operations in India, Sanjay Kamlani, said, "a patent-related services can be offered from outsourced centres at a fraction of the cost needed to process it there.. That means for the same amount, a US company can file for more patents."

Speaking to Business Line, Kamlani, a co-founder of OfficeTiger and its general council and Chief Financial Officer then, said that Pangea3 has been seed funded by Sunil Wadhwani, a co-founder of iGate and Avinash Bajaj, former CEO of eBay India.

"There is lack of clarity in what constitutes legal services in the outsourced mode. This has created different assessment of the current market size and the future potential India holds in the international marketplace, given its advantages.

If you look at all major IT firms, and leading business process outsourcing companies, they all handle legal services in one form or the other. But when it comes to classifying them, they are clubbed with general BPO players. This brings in disparity," he said.

If you analyse the market size from a different perspective, it clearly emerges that the market is now about $1.5 billion and is projected to grow to about $3.9 billion to $4 billion by the year 2010.

This is something which research firm Forrester also predicts.

They come to us

"If what can be offered under the ambit of legal services is analysed, we are just looking at the tip of the iceberg. This can be expanded to a range of related services including content and support services. It brings many advantages. This can be gauged from the fact that we don't have to market our services. In fact, law firms approach us for services," Kamlani said.

"Often people believe that such services require different skills covering a range of services. It is not the case. What it needs is knowhow, and not just knowledge. Since the approach is more or less similar be it in the US, the UK or India, it is pretty easy to adjust to requirements," he said.

Tuesday, September 13, 2005

Forrester urges European outsourcing re-think

European businesses need to change the criteria they use for assessing outsourcing contracts, according to analyst Forrester Research.

In a new report, Europe's Services Firms Seek Outsourcing Success, Forrester urges CIOs to consider new criteria, such as the ability to manage advanced tools such as asset management and diagnostics, when choosing their outsourcing provider.

Forrester principal analyst Pascal Matzke, says that companies looking to outsource all or part of their IT infrastructure must take into account a number of areas.

'The first and most important thing that every end user needs to do is ask the question, why they want to outsource? Three answers to this question are valid: reducing cost, increasing the efficiency of a certain business or IT process or to enhance the competitiveness of the company,' he said.

'In an outsourcing situation you have many stakeholders involved, and everyone always has a different answer, so the compromise over the valid answer is very important. The problems there have been with many outsourcing contracts is that there has not been a valid, agreed answer arrived at beforehand.'

The Forrester report also says that due to rapid expansion, the outsourcing activity of some service providers may be immature, insufficiently structured and staffed, and reveals a lack of skills.

'While at a technical level there is a good depth and breadth of skills among outsourcers, they all have a skills issue at the business front end. Most of them need to recognise that there is now a much greater interdependence between IT and wider business functions,' said Metzke.

Apple Misses a Beat by Outsourcing ITunes Phone: Mark Gilbert

Apple Computer Inc. is missing a beat by outsourcing production of its first mobile phone able to parley with iTunes, the ubiquitous software that powers 21 million iPods and dominates the market for legitimate music downloading.

The world doesn't want an iPhone made by Motorola Inc., any more than it wanted an iPod sporting Hewlett-Packard Co.'s logo. The world wants Apple Chief Executive Steve Jobs to don his black turtleneck and prance around a stage in California waving a bona fide Apple iPhone encased in white plastic, preferably featuring the intuitive software and click-wheel hardware interfaces that helped make the iPod such a hit.

Millions are happy to plug Apple's distinctive white earbuds into their heads, even though police authorities have suggested it's the visual equivalent of slapping a ``mug me for my iPod'' sticker on your forehead. White headphones are a not-so-subliminal signal that you're a real music fan, hip to downloading and podcasting and with a desperate need to carry as many as 15,000 of your favorite tunes with you wherever you go.

Instead, Jobs is trying to cozen Apple enthusiasts with Motorola's ROKR handset, which he unveiled last week. The name alone (``Rocker'' -- geddit?) is likely to deter any genuine music fan from going within 10 decibels of the device. It's ugly, chunky and boring. More to the point, it's completely anonymous. It looks like, well, any another phone. IPodders aren't into incognito.

Goodbye, Moto

``We were disappointed with the specs of Motorola's long- awaited music phone,'' wrote analysts at Merrill Lynch & Co. in New York in a note to clients last week. ``We suspect Motorola was struggling between its desire to provide a complete hardware and service solution to carriers, and Apple's concerns of cannibalizing its own product portfolio.''

The phone has an ``outdated look and feel,'' while the storage capacity of 100 songs is ``low,'' the analysts wrote. Moreover, the only way to get music into the phone is by plugging it into a computer, rather than by downloading through the ether. Music phones from Nokia Oyj and the joint venture between Sony Corp. and Ericsson AB are ``much superior offerings,'' the Merrill analysts wrote.

Speaking of Sony, who's the genius there who decided to unveil eight new digital Walkmans on Sept. 8 just hours after Apple stole the front pages with its new iPod Nano? Apple already has more than 37 percent of the Japanese market for digital audio players, twice the market share of Sony, according to research company BCN Inc. Sony, which dressed its salesmen in specially made shirts with oversized breast pockets when creating the market for portable music in the 1980s, has clearly lost the plot.

Sound Prospects

Apple sells 1.8 million songs every day through its online iTunes store. The 10 million subscribers to iTunes have bought an average of 60 songs each, and Apple has sold more than 500 million songs in total.

And that's with just 21 million iPods. Compare that with the 779 million phone handsets that will be sold this year, up from 674 million in 2004, according to Stamford, Connecticut-based research company Gartner Inc., and the potential for Apple's white headphones to be dangling from a lot more ears is clear.

``We question Apple's motive to partner with Motorola,'' wrote Mike Walkley, the senior wireless technologies analyst at Piper Jaffray & Co. in Minneapolis, in a note to clients last month. ``If the long-term threat to iPods is a cell phone/MP3 player combo, Apple should make its own iPhone, turning the threat into an opportunity.''

Stagnant Spending

The mobile-phone network operators would love to grab a slice of Apple's music download business to boost the amount their customers spend every month. Average revenue per user has stagnated; the monthly bill for German customers of Vodafone Group Plc, the world's biggest mobile phone operator, was 24.50 euros ($30.13) in January, down from an average of 25.16 euros in the preceding 12 months. Italian users paid 29.60 euros, compared with a 12-month average of 29.96 euros.

Mobile-phone users are a fickle lot. Nokia, the world leader with about a third of the market, fell out of favor after failing to offer so-called clamshell phones that flip open. Sony, the world's second-biggest producer of consumer electronics, joined forces with Ericsson after struggling alone to crack the handset market.

Still, Apple has proved with successive iterations of the iPod that it has a good grip on what consumers want in their pockets. The newest version of the iPod, the nano, is 80 percent smaller than the original model introduced four years ago, with a battery life of 14 hours and a color screen. Apple should find a way of transferring that technology into a full-blooded iPhone -- preferably in time for Christmas.

Oh, and an iPod that plays videos would also be nice, Santa Jobs.

IT firms eyeing ING Bank outsourcing contract

Buoyed by the success of the ABN Amro deal, top-tier Indian IT companies now hope to win a sizeable pie of the outsourcing contract of another European major, ING Bank.

Indian companies expect ING to float the request for proposals (RFPs) shortly, an industry official said on Monday.

An industry official expects outsourcing contract from ING bank to be “broadly similar to the ABN Amro contract in size and scope”.

The request for proposals is yet to be sent out to companies and the whole process may take a full year before the deal is finalised. That is not unusual: the ABN Amro contract took nearly a year to be concluded.

Early this month, ABN Amro said it has inked a five-year global services pact with five IT vendors including three leading Indian companies - Infosys Technologies, Tata Consultancy Services (TCS), and Patni Computer Systems.

Total value of the deal is 1.8 billion euros, or roughly Rs 9,800 crore.

An Infosys official said his company’s share of the order is valued at 108 million euros. TCS put the value of its share at 200 million euros.

Reportedly TPI, an information technology services advisory firm, is advising seven mega contracts totaling $13 billion, to be concluded over the next two quarters.

Of these contracts, TCS is bidding for two totaling $1.33 billion, Infosys Technologies for four totaling $532 million, Wipro for three worth $250 million, and HCL Technologies for a $100-million deal.

In a note to clients last month, UBS Warburg said offshore vendors are bidding for 25% of global contracts handled by TPI that are likely to close in the near-term. This is significantly better than historical win-rate of offshore vendors, it said.

Monday, September 12, 2005

Playing on a new court

The Indian IT industry has a new court to play on — Legal BPO. But as global firms outsource work to India, domestic players will have to address concerns of data security and service quality to score in the game.

THE Indian IT industry has a new court to play on - Legal BPO.

With international law firms, the in-house legal departments of MNCs, and legal publishing and research firms, particularly in the US, increasingly looking at sourcing services from India, Legal BPO may well be the next big opportunity for Indian firms.

Indian firms, till now, have cornered only 2-3 per cent of the potential market, says a Nasscom report.

"While the size of the Indian legal BPO segment is still very small, the success achieved by early movers has established the proof-of-concept, which is the key to unlocking the potential in new waves of offshore-outsourcing.

Estimates of the current addressable market potential for legal services outsourceable from the US alone are pegged at $3-4 billion.

Though there is little hard data available to quantify the legal offshoring segment of the Indian BPO industry, it is estimated that only about 2-3 per cent ($60-80 million) of the potential market has been tapped so far," says the latest Nasscom report on Legal BPO.

The increasing maturity of the business process outsourcing industry has prompted businesses to review their service delivery models, in order to seek ways of leveraging resources from lower-cost offshore locations, it says.

"The legal services segment is a relatively newer segment that has witnessed recent interest and is believed to hold significant market potential.

Though a bulk of the legal services work considered offshoreable comprises para-legal and secretarial support, a few companies are beginning to `push-the envelope' to offer a broader range of more value-adding services such as contract review, patent writing, litigation support, general research and review," it says.

Global spending on legal services is estimated to be at least over $250 billion, with the US accounting for more than two-thirds of the market.

The report observes that increasing levels of interest in offshore-outsourcing of legal services to India have been aided by a steady growth in demand for legal services.

Other factors tilting the scale in favour of India include:

# The demonstrated benefits of offshore-outsourcing.

# Access to skilled managerial and technical resources at a significant wage differential.

# Time-zone advantage enabling 24x7 operations; and

# English language expertise.

"The legal services outsourcing segment in India is still at a nascent stage, with no known large `one-stop' service provider.

Currently, the market comprises a fair mix of captive centres established by large law firms/multinational corporations as well as third-party providers," it says.

Firms providing offshore legal services from India include the in-house legal departments of large multinationals such as General Electric, Oracle, Sun and Cisco, that have moved some parts of their in-house legal departments to their India-based units and units of large multinational law firms (Schwegman, Lundberg, Woessner and Kluth have a subsidiary called Intellevate, which has two centres located in India, Nishith Desai and Associates has incubated IPPRO in Bangalore, and Patent Metrix, a US firm based on the west coast, has a subsidiary in India).

In addition, there are offshore-centric service providers, which include pure-play legal service providers such as Pangea3, Atlas Legal Research, Lexadigm and Lawwave; as well as other service providers with a division focusing on providing legal or patent support services such as Evalueserve, Office Tiger, and Manthan Services.

"It is reported that there are about a dozen pure-play firms offering offshore legal services from India, and the total number of companies offering some form of offshore/outsourced legal services is about 50," it says.

The total employee base engaged in providing legal BPO services from India (both captive and pure-play third-party units) is estimated at about 600-700 employees, while the billing rates for legal BPO in India range between $12-125, depending on the nature of services provided.

A note of caution

The report, however, points out that despite the huge potential of legal BPO, the experience of early movers has thrown up a few issues given the sensitive nature of legal work.

"Buyer markets have expressed concerns about data security and service quality. Some lawyers also have concerns about outsourcing work to professionals whom they have not trained themselves," it says.

Moreover, the ability to outsource can also be impacted by the fact that lawyers cannot represent two businesses on opposing sides of a legal dispute unless both sides waive the conflict of interest prohibition.

"On the supply side, since resources trained in US legal case laws are quite scarce, firms often have to invest a fair amount of time to train professionals in legal writing and for undertaking work beyond the basic levels," the Nasscom report says.

Differences in the academic curriculum and their acceptability in each country, as well as regulations governing the profession across geographies, may also restrict the scope of offshore legal service delivery.

For instance, lawyers qualifying the bar in India need to take the corresponding examinations in the US — before they can practise there.

"In spite of these challenges, legal BPO holds significant potential for offshoring and there is enough room to manoeuvre around the constraints by redesigning the existing models for delivering legal services.

Underlying this belief is the fact that demographic shifts in countries such as the US are expected to make it necessary for organisations to rely on offshore resources," concludes the Nasscom report.