Wednesday, June 29, 2005

Outsourcing link to share price

Outsourcing can help lift a company's share price by up to 10 per cent if the commercial benefits are explained clearly to the markets, a study has found. The research, commissioned by LogicaCMG, the IT consultancy and outsourcing services group, compared the share price of companies that had announced outsourcing deals with that of others in their sector. It found the shares of those that had contracted out part of their business activity on average performed 1.7 per cent better than their peers that kept everything in house a month after the outsourcing deal was announced.

Monday, June 27, 2005

Overcoming outsourcing

After two rounds of layoffs, Ellen Wagner still had a job — training the programmers brought in from India to replace her co-workers. But frustrated and tired of resisting the changes, Wagner decided to take a bold step.

She outsourced herself.

She quit her job in Seattle and took another paying half as much. She sold her house and traded it for a split-level overlooking a pasture, for a third what it would cost in the frenzy she left behind.

She piled into an SUV with her golden retriever, Ginger, and two cats, and turned away from the offshoring trend that has siphoned thousands of white-collar jobs from the U.S. economy.

The journey took Wagner to this town of 1,435 — a self-dubbed "oasis on the western horizon," nearly 50 miles from the closest traffic light — and a job in an office fashioned out of an old John Deere tractor dealership. The company Wagner works for, Eagan-based CrossUSA, is one of a handful of mostly smaller firms trying this blend of business plan and social experiment.

The slate blue cubicles around hers, decorated with pictures of faraway skylines, include programmers from Chicago, Pittsburgh and Jacksonville, Fla.

"I've been here six weeks," says Larry Cross, who migrated from Halifax, Nova Scotia, after his last job was shifted to India. "And from the door of the office, I've already seen three antelope and five deer."

Watford City will never be mistaken for Bangalore, the nucleus of India's thriving outsourcing industry. But some U.S. workers and companies are looking to places like this for a way to if not beat offshoring then at least compete on similar terms.

They're betting that by doing business in cheaper locations, and paying workers much less than their big-city counterparts, they can secure jobs that might otherwise go offshore.

It's still not as cheap as India. But companies tell customers they'll be doing business with workers who better understand their needs, in a time zone within an hour of their own. They pitch workers on a less chaotic, more affordable lifestyle.

But will it work? As skilled labor becomes a global commodity and economic realities keep shifting, neither the workers nor their companies can be sure.

Most companies have chosen locations less remote than Watford City, in the rolling grasslands of far western North Dakota. All believe they've found a foothold against foreign competition.

In Jonesboro, Ark., and Portales, N.M., startup Rural Sourcing Inc. has opened programming centers staffed by fresh graduates of nearby universities, working for less to stay close to home. The company also is setting up in North Carolina and West Virginia.

"There is talent in areas that have a low cost of living and have no knowledge-work," says Kathy Brittain White, Rural Sourcing's founder and president.

In Oklahoma City, Ciber Inc., a computer consulting firm with $840 million in annual sales, opened its first low-cost programming site this year in a vacated call center, using the work stations and telephone operators that were left behind.

Computer work "is going to go somewhere else cheaper, and it can either go to Bangalore or it can go to Oklahoma City," says Tim Boehm, the executive in charge of Ciber's low-cost initiative. The company plans five or six centers in the next two years, all in mid-sized cities.

Other companies are trying to work the fringes of large metropolitan areas, including Chicago, Pittsburgh and Silicon Valley, away from the premium office space and an easy draw for workers who live even farther out.

Pay varies. But at CrossUSA's North Dakota site, programmers make about $40,000 a year. Some of those who have moved to Watford City from metropolitan areas say they used to earn twice that or more.

"I look at my check and I'm crying," says Gerald Williams, a programmer from Chicago.

Still, workers have good reasons for coming here. Many are in their 50s and say they were being pushed from jobs because of age, or were having trouble finding new positions. Some came for a lifestyle change, tired of long commutes and expensive housing. Others had simply run out of choices.

Jim Near, 59, lost his last job when his Minneapolis company was sold and 500 mainframe programmers were sent home. About the same time, other area employers cast another 1,500 information technology workers into the job market. Near went for two years without work and lost his family's home to foreclosure. When CrossUSA called last year to ask if he'd consider a move to North Dakota, he grabbed the lifeline.

"My wife wanted to get into a smaller town," he recalls. "I said, 'How small do you want to go?' "

Wagner, also 59, felt secure in her job, but she'd long mulled moving closer to her Wisconsin birthplace and a grandson in Minnesota. When her company let go many of her fellow programmers, she found herself doing the work of four people and snapping at the Indian programmers brought over for training.

"The people I worked with from India... were concerned about people from China taking their jobs and I was like, excuse me guys, aren't you taking our jobs?" Wagner says.

CrossUSA's center represents efforts by both the company and the town to reinvent themselves. Watford City, long dependent on oil drilling and cattle ranching, installed broadband Internet service a few years ago to attract other businesses. CrossUSA set up shop after winning a contract to do computer work for the state government.

Not long after, the company's primary customer, Eagan-based Northwest Airlines, canceled work after the 9/11 terrorist attacks. Then the state contract was pulled, and CrossUSA closed its center. It reopened last year, when the company was hired by a New York insurance firm to help program its mainframe system.

CrossUSA's operation here is small — about 20 programmers. But the firm recently landed a contract with a second large insurer. That will require adding 25 to 30 more workers by summer's end, and a similar number at the company's Minnesota site, a former carpet warehouse. The company also plans to open another center in rural Montana.

"My dream is to have five centers like this, distributed and networked (across rural areas), because it doesn't matter where you are anymore," the company's CEO, Nick DeBronsky said.

Experience has persuaded more of his employees to buy into that vision.

"What I like about this company is they've figured out a way to compete with the outsourcing," Cross said. The workday over, he takes a swig from the prized special order of Labatt beer, and gazes across an endless vista of gray-green buttes and open sky.

"The only thing that gets me is, it's 47 miles to McDonald's."

Sunday, June 26, 2005

NiSource outsource: will the lights burn brighter?

A host of questions on NiSource's massive outsourcing of jobs to IBM was answered last week when the utility company announced details of its $1.6 million deal with the computer giant.

At NiSource operations spread across nine states, 572 white collar and technical workers were told they will start working for IBM July 1 or shortly after. Another 445 were told they will be let go by the end of 2006.

Workers at the Northern Indiana Public Service Co. call center in Merrillville were told their jobs are safe -- for now.

One question remains: Will it work?

That question gains added urgency because NIPSCO has ranked at the bottom of J.D. Power and Associates annual utility industry customer satisfaction surveys for the past several years. It also has battled consumer groups over the closing of service and maintenance hubs.

"Obviously both they and IBM are over a barrel; they need to show an improvement in how things are done," said Jeff Kaplan, managing director at consulting firm THINKstrategies. "And it's in both their best interests to do so."

NiSource's effort in managing the relationship with IBM will be the key to getting the job done right, Kaplan said.

Kaplan has written on a trend dubbed "backsourcing," a process where companies outsource services, become dissatisfied with the result, and bring the work back to their company.

One of the most prominent instances of backsourcing was JPMorgan Chase's canceling of a $5 billion outsourcing contract with IBM last year. In May, Sears Roebuck said it had ended a $1.6 billion technology services contract with Computer Sciences Corp.

In the utility industry, the wholesale outsourcing of business processes, such as was done by NiSource last week, has a shorter track record, Kaplan said. The biggest deal so far is Dallas-based TXU Energy's outsourcing of 2,700 jobs to Capgemini.

In one utility outsourcing snafu, Tennessee natural gas distributor Atmos Energy two weeks ago was fined $40,000 by state regulators for a subcontractor's failure to read customers' natural gas meters. At NIPSCO, that work still will be handled by its own employees.

Some analysts see a slowdown in outsourcing in the industry as a whole, but most agree there will be more outsourcing in the utility industry.

"You will definitely see more of these outsourcing deals, despite these little foobahs, because it's the easiest, quickest way to cut costs." said Rodney White, an associate editor at Platts' Gas Daily.

NiSource estimates it will save $530 million over 10 years in operating and capital costs.

So far, TXU reports its outsourcing deal is going well.

NiSource officials say the same will be true of their outsourcing deal with IBM.

The utility company, with headquarters in Merrillville, will spend $5 million per year to manage the contract with IBM.

"We continue to manage our company, and we manage the collaboration with IBM," NiSource spokeswoman Kris Falzone said Tuesday, when the outsourcing deal was announced.

"We still maintain control over strategy, policy-making and decision-making around all our activities."

The Citizens Action Coalition, the state's largest grass-roots consumer group, thinks controversy over NIPSCO service and rates may have influenced NiSource's outsourcing decision.

"I think they went a little softer on NIPSCO, because of public anger at the whole situation up there in Northwest Indiana," said Grant Smith, Citizens Action Coalition Executive Director.

He pointed in particular to NiSource's decision to keep the NIPSCO call center in Merrillville. Other NiSource call centers will be consolidated to a call center in Pennsylvania.

NIPSCO officials say their utility has a unique profile among NiSource's family of companies, because it serves both gas and electric customers. That is one reason the call center will be kept where it is, according to Colleen Reilly, a company spokeswoman.

NiSource officials long had said call center jobs and others where employees interact directly with customers would not be shipped overseas.

On Tuesday, they stuck to that pledge while confirming "a small portion" of the overall outsourced work will be done overseas.

Overseas outsourcing stirs passions in Northwest Indiana, a region battered by foreign competition in steel and other industries. White said there is nothing to stop utilities from shipping some types of work overseas to cut costs.

"If the job requires customer interface where someone has to answer questions in English and know the nuances of the language, then it will stay here," White said. "But if it can be done digitally, it's going far, far away."

Saturday, June 25, 2005

Outsourcing in India In Crisis Over Scam

India's booming outsourcing industry struggled with new political and security worries Friday after a British tabloid reported that one of its reporters purchased private financial data on British citizens from an Indian outsourcing worker as part of a sting operation.

The Sun newspaper reported Thursday that a reporter posing as a businessman purchased the bank account details of 1,000 Britons -- including customers of some of Britain's best-known banks -- for about $5.50 each.

The worker who allegedly sold the information bragged to the undercover reporter that he could "sell as many as 200,000 account details a month" and declared that "technology is made by man and it can be broken by man," according to the newspaper. The Sun said the worker received the information from "a web of contacts who work in call centers."

The newspaper's report, which was widely covered in the Indian news media, has renewed criticism that outsourcing firms have failed to erect adequate protections against fraud in their zeal to take advantage of the booming demand from foreign companies seeking to lower costs by shifting some office operations abroad.

The incident also has played into the hands of workers and politicians in Britain, the United States and other developed countries who see the outsourcing phenomenon as a threat to employment and prosperity at home and are eager to find ways to discredit it.

The report comes on the heels of another scandal in which several Indian outsourcing workers in the western city of Pune are alleged to have used their positions to steal $426,000 from New York-based customers of Citibank.

"This is California" during the Gold Rush, said Shankkar Aiyar, a business journalist and senior editor at India Today magazine who has written widely on outsourcing. "Everybody who sees an opportunity sets up shop. They want to start fast, they've got a contract in hand, and some of them are taking shortcuts."

India has no monopoly on such fraud. This month, MasterCard International Inc. announced that more than 40 million credit card numbers belonging to U.S. consumers were accessed by a computer hacker who breached security at a processing center operated by another company in Tuscon.

India's National Association of Software and Service Companies, known as NASSCOM, has said the industry was already taking a number of steps to promote better security, including the development of a national registry of outsourcing workers that will help screen out potential criminals. Outsourcing companies in India typically bar workers from downloading or printing information, and often from carrying cell phones or even pens into their work areas.

"The problem is not unique to any single nation," the group said in a statement Thursday. "It is one that can affect any country, and each of us has a responsibility to take on the criminals."

The Sun identified the outsourcing worker at the center of its sting as Kkaran Bahree, 24, a computer expert and college graduate who lives with his parents in New Delhi. It said he provided the newspaper's reporter, Oliver Harvey, with "account holders' secret passwords, addresses, phone numbers and details of their credit cards, passports and driving licenses." The newspaper said that some of the information was contained on a CD and that Harvey's three meetings with Bahree had been secretly recorded and filmed.

The Sun said that Bahree "gathers supposedly secret information from corrupt call center workers in Delhi" and that it had verified the authenticity of the information with "a security expert." The newspaper said it had given investigation details to the City of London police.

Bahree could not be reached for comment Friday. But in an interview with the BBC on Thursday, he denied any wrongdoing, saying he had been asked by an associate to give a CD to the Sun's reporter, did not know what it contained and had not received any payment.

The newspaper said Bahree had worked for several years at Daksh eServices, now a subsidiary of IBM, and currently works for an outsourcing company called Infinity eSearch in the fast-growing New Delhi suburb of Gurgaon.

At a news conference Friday, Infinity's managing director, Rahul Dutt, said the firm had no banking clients in Britain and did not handle financial information for clients, according to the Press Trust of India news service. Dutt said Bahree has worked at the company for about three months and had been given until 5:30 p.m. Friday to give an explanation "about his alleged role in the scam." Calls to the company's Gurgaon office went unanswered late Friday afternoon.

India's outsourcing industry performs a range of customer-service and other back-office functions for Western and multinational firms in areas such as banking, insurance and health care. The industry is creating jobs at the rate of nearly 100,000 a year, and its revenue is growing at more than 40 percent annually, according to NASSCOM. But analysts warn that the industry's rapid growth has stretched the supply of educated English speakers, prompting some companies to lower their hiring standards.

Indian BPO is safer than UK's: Brit firms

Twenty-four hours after a British tabloid sting apparently clouded prospects for India's sunshine BPO industry, the UK's leading data protection experts and lawyers masterminding data transfer contracts between British companies and Indian call centres have stepped in to the row and defended India.

Tim Pullan an IT & Outsourcing partner at London law firm Lawrence Graham LLP told TOI on Friday that his clients, who signed some of the biggest outsourcing contracts with India over the last two years, were eminently satisfied with the security standards in place in call centres across Delhi, Mumbai, Bangalore and elsewhere in India.

Though Pullan would not name names, his law firm's clients are understood to be some of the biggest British banks and telecommunications companies to set the outsourcing trend going with India. Pullan admitted his firm had overseen seven of the biggest deals in the last 24 months.

Pullan said at the time his clients were finalising rigorous data transfer contractual terms with Indian call centres, the Indian companies had been willing and able to prove they compied with ISO1799, which are internationally recognised security standards, and BS7799, the British equivalent of the ISO.

He said, in stringent and possibly unexpected defence of India's furiously-growing call centre industry, that data security standards were actually more rigorous in India than in British call centres.

"We've found the Indians more focussed on such issues," Pullan pointed out, adding that Britain's leading government regulatory body, the Financial Services Authority (FSA) had recently issued a similar report giving the thumbs-up to Indian call centre security standards. Leading British lawyers said, sotto-voce that The Sun tabloid's sting operation and reporting of an Indian call centre worker's crookedness smacked of "racist overtones".

Pullan agreed that "The Indian outsourcing industry is an easy target because of popular fears about the transfer of jobs overseas."

But carping critics said the defence of India's call centres did not tally with their recollection of the FSA's May report, which was written after its inspectors toured Indian call centres and assessed security standards.

Financial experts said the FSA report, as they recalled it, had warned that overseas calls centres posed "a material risk" to its goals of cutting financial crime, protecting consumers and retaining confidence in Britain's financial markets.

But Pullan insisted the FSA gave a clean chit to India. He added that Indian call centres were, in any case, under tremendous pressure to comply with strict data protection rules commonly observed within the UK and the European Union. The Indians, he said, agreed to sign up to "highly enforceable" contractual terms.

These included the right for a British client to take "immediate action" such as "switching off" the outsourced job without a time lag. He said the legal action signed up to by Indian call centres, put them legally and financially at huge risk if they failed to comply with stringent security standards.

"The financial consequences for the Indians could be costly, they are unlimited and without a financial cap," he said.

Pullan added that most Indian call centres "potentially huge liabilities under data transfer contracts which are set up between banks and the outsourcing companies.

"These companies have a lot more to lose than their reputation, as reflected through their tight security measures." In an attempt to calm some of the hysteria over the alleged sale to a British reporter of 1,000 British customers' financial details, Pullan pointed out that "Corruption is a risk inherent in the financial services business, but rotten eggs are no more likely in India than they are here."

He insisted that "when it comes to security and rigorous data protection compliance controls, in our experience the Indian call centres are often streaks ahead of their UK counterparts."

India won't look into outsourcing scandal

British police sought help from Interpol on Friday, after a newspaper reported that one of its undercover reporters bought personal data on 1,000 British customers from an Indian call-center employee.

Karan Bahree, an employee at Infinity eSearch, a Web designing company in Gurgaon, a New Delhi suburb that has become a hub of outsourcing companies, did not report to work Friday but denied any wrongdoing.

Bahree "says he is innocent ... he told us that he was only trying to make a presentation to someone," said Deepak Masih, lawyer for Infinity eSearch. The company said that it had nothing to do with the scandal and that it had given Bahree, on probation for three months in the company, until Friday evening to formally explain his role.

"We face (a) jurisdiction issue," London Police spokeswoman Orna Joseph told the private NDTV news channel. "We cannot charge anybody in India. So we are working through the Interpol so that Indian police can speak to the people involved."

India's information technology minister said the government would not intervene.

"It is a matter between a company and its employees. It is also a subject matter between the call-center company and the company which has given this contract," Communications and IT Minister Dayanidhi Maran told reporters.

The allegations have put India's money-spinning outsourcing industry - with the largest share of call center business in the world - into a corner over whether the customer data to which it has access is safe.
The Sun newspaper said it paid 3.00 pounds ($5.40) each for details on the Britons' bank accounts, credit cards, passports and drivers' licenses, including numbers and pass codes. Addresses and phone numbers were also included, the tabloid said.

Scores of Western firms farm out office functions such as telemarketing, call-center operations, payroll accounting, and credit-card processing to companies in countries such as India, where wages are low and skilled professionals are abundant.

FACTBOX - Details of India's call centre, outsourcing sector

London police are investigating reports Indian call centre workers illegally sold British bank customer details.

Following are some facts about India's outsourcing-driven back-office industry:

  1. Industry has grown more than 50 percent a year since 2001/02 (April-March).

  2. Exports are expected by industry to touch $7.3 billion in the year to March, 2006, double those of 2003/04.

  3. The sector employs 350,000, mainly low-cost, English-speaking workers earning a fifth of their Western counterparts.

  4. Western unions oppose outsourcing and further transfer of jobs. Controversy figured in U.S. presidential elections.

  5. Companies use India-based independent firms or their own Indian units to carry out work such as credit card sales, helpdesks and insurance claims processing.

  6. Indian police are investigating a $400,000 credit card fraud involving MphasiS BFL workers.

  7. India's software and service industry body plans a worker registry to help background checks and tighten controls.

Thursday, June 23, 2005

Banks urged to check up on offshore security

The call comes in the wake of a Sun newspaper investigation that has revealed that customer details, including bank accounts, passport numbers, mobile numbers and even medical records, can be bought from poorly paid Indian call centre workers for small amounts of cash.

The paper reported that its investigator was able to buy financial details of 1,000 people for only £3 a time.

There are fears that such freely available details could be used by criminals to clone credit cards, buy goods over the internet or clear out customers’ bank accounts.

National Outsourcing Association (NOA) chairman Martyn Hart said, “What the Sun investigation reveals is that Indian employees are no less errant than employees in the UK or anywhere else in the world.

“What banks and offshore companies must do is ensure that they have the right security procedures in place to defend against fraudulent employees, and that offshore operations are managed carefully.

“There is always an element of risk where sensitive data is stored, and companies must do their utmost to reduce this risk and provide the tightest security procedures possible."

Donal Casey, a consultant at Diagonal Security, a division of IT services group Morse, said, “It’s shocking to see that one individual could get their hands on such complete, confidential information.

“Quite simply, this should not be possible. Banks have multiple layers of security, and they should be tracking and auditing who within both their organisation and the outsourcer has access to and is using confidential customer data.

"This should enable them to spot any suspicious behaviour. It shouldn’t be possible for one individual to collect this level of detail on thousands of customers. Something clearly has gone wrong in this instance."

Wednesday, June 22, 2005

Outsourcing flops blamed on tunnel vision

Hidden costs, high staff turnover and poor cross-cultural communications are the key causes of offshore outsourcing failures, according to new research from analyst house Gartner.

The analyst report predicts global spending on offshore outsourcing services will top $50 billion by 2007 but it warns too many companies are rushing into deals on the promise of unrealistic cost savings.

The biggest mistake that is common to all offshore outsourcing failures is to base the business case solely on reduced labor costs.

"Many hidden costs--including expenses associated with infrastructure, due diligence, communications, governance, overseas travel and cultural training--will offset the cost advantage of wage differentiation," the report said.

Organizations are also warned that a disproportionate amount of costs are incurred during the planning and start-up stages and that any savings will take longer to materialize.

"As a result, long-term offshore deals do not realize the projected savings until the 'steady state' stage 12 to 24 months into the engagement. For the same reasons, short-term offshore deals lasting less than one year are unlikely to realize any cost savings," the report said.

The high turnover of offshore staff, particularly in countries such as India, also has a negative impact on productivity.

"Such turnover contributes to productivity loss because new staff must be trained and overcome the learning curve for dealing with customer applications and relationships," said Gartner.

Poor communication between the onsite and offshore project teams as well as between management and employees is also picked out by Gartner as a critical failure factor.

"Effective communications are critical in offshore outsourcing projects. The reason many offshore deals fail is because of the propagation of misinformation and confusion due to inadequate communications among the project team and its contacts, as well as within the general employee population, executive ranks and local community," the report said.

Minimum Wage has Nothing to Do with Outsourcing

1. First, again, no study that hasn't been financed by a right wing/libertarian think tank (CATO, Heritage, AEI, etc...) has shown that minimum wage laws have caused an increase in unemployment. In fact, the period of history in the U.S. when the largest segment of population joined the middle class was during the New Deal period (1930s to 1960s) where such beneficial employment legislations took root.

2. To the individual who claimed he's replaced American workers with offshore workers — (a) I doubt they were minimum wage workers and (b) by bringing them back as temps you've engaged in corporate welfare, being that their health care is going to be now paid by other taxpayers, so in effect it is a subsidy. Now a minority of you believe that health care is not a right, that if you are sick, and you don't have the money to pay for health care, you should shrivel away and die — but most Americans take umbrage at that notion.

3. Cost of labor will always dip to next to subsistence level, no matter the level of technological prowess or industrialization. Just examine the factories of Asia, where young women work from sunup to sundown for pennies, and are locked into their "work stations", and must face abuse such as rape from their superiors. Labor is not the most significant cost — for instance, it costs about a dollar to manufacture a pair of tennis shoes that sell for $50 or greater in the states. And recently, tomato pickers in Florida had their **wages doubled yet the net effect on the subcontractor (to Taco Bell) was 300K dent out of 6M in annual profits**.

4. Interesting that many on these boards wish not for open borders, which would facilitate freedom of labor in a sense (labor free to migrate to best deal offered) whereas no proclaimations are forthcoming regarding inhibiting freedom of capital to move to locales where labor laws are non-existent and a company can buy into the legal racket with a small sum and guarantee themselves a national police force that serves the company's interests, not the worker (or citizen's) interests.

5. Outsourcing has many hidden costs — spreadsheet MBA jockeys never take into account the multitude of additonal costs, mostly because they are ** externalized ** to the public. For instance, Bank of America outsources its customer service positions to India, saving money for them, increasing profits for executives and those fortunate enough to own significant allotments of stock (but those are rarely passed down to workers or community, other than token charitable contributions). However citizens of the U.S. take it in the shorts, for the increased risk of identity theft and the fact that their personal information is accessible in nations with no protections (though those are being eroded away here) and $25 will get a nefarious agent a long list of SSN, credit card account numbers, etc.... Who pays for that? You do in more than one way — even if the bank bears the brunt (read the recent bankruptcy legislation enacted to see where they are dodging out of this too...) your credit report takes a hit, and you have to prove you're innocent of unworthy credit label wrongly affixed.

6. Shocking that people still don't learn from history. Economics is a more complex subject than simply an occasional read of WSJ or even a subscription to the Economist. If enough American workers get the boot or see significant earnings decrease, that in turn will lower demand for the consumer products that fuel our robust economy. That in turn, will drive us to the bottom, with the exception of luxury items for the upper 5% of us who profit while the bulk of Americans suffer financial pain. See the Gilded Age and the Great Depression for such examples. Revisionist historians have twisted the historical record, but even such notable conservative economists like Milton Friedman recognize the power of consumer spending (thus his negative income tax proposal). Of course, conservative these days means *neo-conservative* which means corporate welfare, not individual welfare, bloodlust and empire over fair trade, secrecy over openness, etc..

Tuesday, June 21, 2005

India's GECIS buys Nice systems for outsourcing sites

Nice Systems yesterday announced a multimillion dollar deal in which the Indian outsourcer, GECIS, has deployed the first mass production implementation of the NICE Perform software suite in three sites to streamline processes and increase revenues.

The company did not disclose the scope of the deal but industry sources believe it to be worth several million dollars for the Ra'anana-based company.

GECIS, a GE Capital affiliate, is a remote processing organization and one of the largest shared-services providers in India. The company's services include finance and accounting services, insurance services, customer fulfillment activities and processes and managed IT services.

The NICE Perform solution had replaced a competitor's existing system, Nice said.

"The outsourcing industry is choosing NICE Perform because it allows the enterprise to impact directly on the bottom line and significantly improve business processes," said Doron Ben Sira, president of NICE APAC, the company's Asia and Pacific division.

Monday, June 20, 2005

US pay cheques processed in Chennai!

Ronald, an employee of an IT company in the US, takes home his pay cheque on the first and 15th of every month. But he may not know that his pay cheques are being processed in Chennai.

SummitHR Worldwide, a US-based human resource business process outsourcing (HR BPO) firm, is one such company that makes out pay cheques from Chennai for thousands of American employees. It processes a million US pay cheques a year, about 22,000 a week, amounting to about $500 million of payroll, according to the company's Chairman, Ranjan Sinha. "We plan to double the number of pay cheques processed by the end of the current year," he told Business Line.

The company provides day-to-day support to over 25,000 employees across the US. It provides end-to-end HR outsourcing services, including payroll processing, contingent staffing (temporary staffing), recruitment process outsourcing, benefits administration and finance and accounting. The company has about 190 employees in Chennai, including chartered accountants, and plans to double the number by the year-end, he said.

SummitHR, through its outsourcing partners in the US, services Cisco, AON, Wells Fargo, Sun Microsystems, Komag, Lockheed Martin, Loral Aerospace, Synopsys, KLA-Tencor, LSI Logic, United Technology and Stanford University, he said. The clients range from a three-person office of doctors to a large firm of 1,400 employees. The company has its own end-user clients, and also partners with US-based HR outsourcing firms and does work offshore, he said.

In the US, the size of the HR outsourcing in the mid-market (less than 10,000 employees) is about $30 billion, payroll processing is about $80 billion and benefit administration is about $40 billion. However, the US-based firms have been outsourcing HR-related services within the US, and offshoring is still at a nascent stage. SummitHR, however, has migrated to Chennai from the US about six HR outsourcing contracts, he said.

SummitHR has on its advisory board Larry Pressler, Senator; Romi Malhotra, CEO, Dell India; Chris Casciato, COO - Global Investment Banking, Goldman Sachs; and Anupam Prakash, Managing Partner, Hewitt India out-location services.

It handles over 700 benefits, including health and vision and disability of its clients. It also takes fiduciary responsibility in filing federal and state taxes to the tune of over $125 million.

In the process, it has achieved the same level of productivity as its US counterparts, he said.

According to Sinha, mid market companies in the US spend around $4,000 per employee per year on administration. SummitHR enables over 50 per cent expense reduction in key HR services, including payroll, staffing HR information system and benefits administration.

Jeff DeLouch, President and CEO, US Personnel, a $300 million US-based company and one of SummitHR's outsourcing partners, said that the company looked at SummitHR mainly for the quality of work, and not just cost. "If it were a pure cost-based decision, we would not done have offshored work," he said.

Friday, June 17, 2005

'Outsourcing customers' dissatisfaction increasing

Buyers of outsourcing services are getting dissatisfied with offshore service providers, prematurely terminating contracts and struggling to harvest the full value of their outsourcing relationships, according to a recent study.

However, many of those same companies plan to increase their level of outsourcing over the next 12 months, the study by Chicago based management consulting firm, DiamondCluster International showed.

The number of buyers prematurely terminating an outsourcing relationship has doubled to 51 per cent while the number of buyers satisfied with their offshoring providers has plummeted from 79 per cent to 62 per cent.

China will be emerging as next outsourcing hot spot. In 2004, only six percent of survey respondents said they planned to establish offshore operations in China. Today, that number has soared to 40 percent, the study says.

"China is starting to look like India did 10 years ago," Tom Weakland, who leads the outsourcing advisory services practice at DiamondCluster, said.

"As outsourcing capability in China takes off, it will put deflationary pressure on the traditional providers of commoditised outsourcing services and set an entirely new price point. The most aggressive providers are establishing operations in China now to grab market share. Taking a wait-and- see approach is not an option," he said.

Countries that appeared to have fallen out of favour, the study said, were Israel and Russia.

Outsourcing exposes firms to fraud

The arrest last week of a man in western India in an alleged call-centre fraud case went unreported. This was despite the high-profile reporting on the case in April when 16 others were arrested.

This suited India's business process outsourcing (BPO) companies, especially Mphasis, whose four employees have been implicated in the case. They are yet to recover from the shock of the alleged fraud of nearly $400,000.

Amid calls for tightening BPO regulations and more effective cyber laws the country's call centres are busy taking adequate security measures. Another one or two such cases and the industry is doomed, they admit. Police, who are still investigating the case, believe it was well thought through and very organised. Investigating officer Sanjay Yadav says the latest arrest just highlights how well-planned and widespread the fraud was.

Backlash fears
Police say some of the 17 people currently languishing in jail opened fake accounts, and allegedly transferred large sums from the bank accounts of four American customers of Citibank whose back office work was being done by Mphasis in Pune near Mumbai.

Mr Yadav says they went on a luxurious holiday to Bangkok and kept transferring more money into their fake accounts from the Thai capital. The industry, fearing a backlash from clients in the West, has started to get its act together.

One of the security steps the BPO centres are taking is the stringent background screening of new employees.
Yogesh Bhura, whose company, Quest Research, undertakes this task, has more than 250 BPO customers. He has clients all over Asia, but many of his new customers are Indian.

But Mr Bhura's main challenge remains "educating people of the need to make this critical activity an integral part of their recruitment policy." He reveals that 10-25% of applicants to call centres provide false and incorrect information. "Fake degrees and documents are a major concern of our clients," he says.

Screening
But verifying an applicant's criminal background remains the most challenging task for companies such as Mr Bhura's and he admits it: "It's a grey area: there's no central data of criminals, there's no standardised process of data storage in police stations. It's a continuous challenge."

Many believe background screening is not enough. Mr Bhura is quick to add a rider: "It's a risk mitigation and not a risk elimination activity."

But one of his clients, Intellinet Global Services, a joint venture between HDFC and Barclays, says background verification is not the only security tool it's applying.
"We take a lot of precautions," says Manuel D'Souza, the company's HR head.

"We don't allow mobile phones in the office, no e-mail access is provided; pen and papers are not allowed in and all employees are screened when they leave the office."

But experts say call centres are a young industry in India. It still doesn't have a comprehensive security management system in place.

Vinod Singh, boss of Bangalore-based security management company Ilantus, is alarmed by the state of affairs the BPO companies are in.

"Our understanding of most of the BPOs that we have been surveying is that they have put the basic IT systems in place, they have put in a lot of money, but the management of IT infrastructure is not up to the mark," he says.

This is one of the major problems with the $4bn BPO industry, which began to flourish in India just five years ago.

Security hole
According to industry estimates, 80% of BPO companies don't use integrated security management tools. That probably explains why some current and former employees of Mphasis, which has a security certification from an international trade body, allegedly stole huge sums belonging to its clients in the U.S.

Ilantus surveyed seven call centres in Bangalore and to its horror found that the digital IDs of the former employees still existed, which potentially can be misused.

But Mr D'Souza says most companies would immediately delete the IDs of the employees who are leaving them.

Growth brings in its own pressures. Back office business is one of India's sunshine industries, growing at 30% annually. The workforce is young, loyalty is low as the young boys and girls move to greener pastures at the first opportunity.

For most of them it's not a career option, but a good first job out of college. The workforce turnover is as high as 40%. Work from the US and Europe is pouring in thick and fast.

Cyber squad
Industry players admit they know security is the top priority, but they say there is no time to implement all the security measures. Mr Bhura says background screening is just one of the security measures: "Internal security control has to be the most important component of the overall security system". Mr Singh of Ilantus too cannot guarantee a foolproof internal security system. "Our system is not 100%, but it dramatically reduces the risks." But one can take a lot of satisfaction from the fact that a relatively small city like Pune has a Cyber Crime Cell. The alleged fraud was committed in Pune-based Mphasis and it was busted by the city's Cyber Crime Cell.

As Mr Yadav of the Cell says: "We have acted swiftly to bust the fraud and recovered most of the money siphoned off. Pune police are providing a safe environment for BPO customers from the West."

Till the time the authorities come up with tighter legislations, the Cyber Crime Cells in Indian cities are the best bet.

Thursday, June 16, 2005

CAFTA will perpetuate outsourcing problem

Promoters of the proposed Central American Free Trade Agreement (CAFTA) claim that approval by Congress will stimulate the growth of commerce between our nation and five nations in Central America along with the Dominican Republic. However, the combined economic power of these nations doesn't have the ability to purchase our exports.

Instead, the nations of Central America have a large number of individuals whose low wage demands will entice U.S. business owners to move their manufacturing firms and American-held jobs into that region. After congress approved NAFTA in 1993, jobs and industry migrated to Mexico. CAFTA won't expand U.S. commerce, it will expand the already damaging aspects of NAFTA. Congress must say "No to CAFTA" when the measure comes up for consideration.

Outsourcing industry at the crossroads

Order books of software exporters are full and the guidance for the remaining period of the year looks positive. CEOs talk of India becoming the de-facto destination for software offshoring.

The list of companies waiting to jump onto the offshore bandwagon is increasing. Signs, which on the surface, looks rosy for the Indian software service exporters.

The reality, however, is different. Beginning from a growing number of dissatisfied customers and premature order termination, the outsourcing landscape is dotted with confused clients, unsure of the value they have gained by embracing outsourcing/offshoring, downward spiralling of rates, and the growing interest in China as an alternate destination for outsourcing services.

Making this startling announcement is a study on global IT outsourcing by DiamondCluster International, a Nasdaq listed global management consulting firm.

The 2005 IT outsourcing study includes the insights of 210 buyers and 242 providers of outsourcing services.

All participants were directly involved or highly aware of their company’s outsourcing-related decisions, states the study. IT budgets of participating companies ranged from less than $5 million to more than $500 million.

The survey points to a continuing growth in the outsourcing market, with 74% of buyers anticipating an increase in IT outsourcing.

However, for the first time – no one did it in the previous surveys — 7% of buyers have said that they would decrease the volume of onshore outsourcing and 5% would do the same for offshore outsourcing.

Though many buyers are several years into outsourcing relationships, they still lack an effective measure to gauge the success of their outsourcing initiatives. Providers say that one of the greatest concerns is meeting unrealistic or immeasurable buyer expectations. Buyer satisfaction in offshore outsourcing has plummeted to 62% from 79% last year.

Still shocking is in the increase in the number of abnormal termination of outsourcing relationships. In the past 12 months, the number of contracts aborted has doubled to 51% from 21% a year ago.

The other key findings of the study are employee backlash continuing to be a major concern of buyers, diminishing worries about US anti-outsourcing legislation and political pressure, and persisting skepticism on outsourcing mission-critical services.

For Indian software service vendors, the bad news is the alarming interest in China, with 40% of the buyers who participated in the survey expecting to outsource some IT function to China over the next three to five years. This compared to 8% who were making those plans just a year ago.

The survey points out that buyers that viewed outsourcing as a series of transactions over the last few years are now recognising the consequence of not having a sourcing strategy.

Due to the common practice of building relationships one transaction at a time, many organisations have overlooked the need to assess the overall impact on their training requirements, recruiting practices and career paths. The providers of IT outsourcing services too have realised that playing the price game alone is not a long-term strategy, but building deep technical skills and relationship is the way ahead. he survey says that though the rates appear to be stable – a view endorsed by top management of leading service providers – they will start to increase in the near term – that is, until China enters the market in a big way.

The report which provides an in-depth analysis on the reasons for premature cancellation of contracts, declining offshore satisfaction, growing concerns on outsourcing risks and the fast emergence of China as a hot spot for software outsourcing, is naturally bound to alarm senior management of software exporters. It surprisingly has not.

A few CEOs and senior management of software firms that Networked spoke to were dismissive of the study stating that buyer dissatisfaction and premature cancellation were far removed from reality. Buyer confidence in outsourcing and offshoring is peaking. So is the quantum of repeat orders. While threat from China cannot be taken lightly, it not something to lose sleep about, they say.

Sudip Banerjee,president, enterprise solutions division, Wipro Technologies, says that in the big outsourcing universe, which is teeming with companies of different sizes and shapes, several issues get thrown up in a study. Premature culmination of contracts and buyer dissatisfaction are more anecdotal.

The qualitative and quantitative aspect of a data has to be studied before making some sense of it, he adds. Unless buyers have strong data to validated their belief on the benefits that outsourcing and offhsoring would provide, why would the continue embracing it, he asks.

Studies that put outsourcing in poor light and highlight the perils of offshoring to destinations like India, often get more visibility, he adds.

A point echoed by other senior managers who say that outsourcing/offshoring is here to stay and in fact is growing stronger by the day, despite temporary glitches that prop up.

Wednesday, June 15, 2005

China to expand software outsourcing biz

China aims to grow its $2.6 billion software outsourcing industry as much as six-fold to rival that of India's in the coming five years.

China's domestic software industry is bigger than India's and hardware industry is much, much bigger than India's, but they plan to build an even larger outsourcing industry. India's software companies exported $17.3 billion worth of outsourcing services in 2004, almost six times the $2.6 billion generated by Chinese software exporters. China's software outsourcing exports have been growing by more than 70 percent a year for the past three years and they believe they can sustain this level of growth far into the future.

There are fundamental shifts in the way software is being developed globally and the opportunities for Chinese companies to grab global market share are enormous. The back-end of software services can be hosted in Beijing, Harbin or Shanghaias easily as they can be hosted in San Francisco or San Jose, and for much less cost, too. China's 8,700 software companies generated 220 billion yuan of revenues in 2004, with exports making up only 10 percent of the total, according to the ministry of information industry.

Software revenues have been growing at more than 30 percent a year for the past five years, with 2004 growth reaching 34.7 percent, according to data provided by the ministry. China's software industry could grow even faster if the government cracked down harder on piracy. China's software industry has been hampered by piracy, which U.S. officials say is the worst in the world. China's government said April 21 that it imposed almost 8,000 penalties and fines on copyright violators last year. On Dec. 21, the government lowered the threshold for prison terms and made piracy of intellectual property punishable by as much as seven years in jail.

Tuesday, June 14, 2005

Outsourcing over there is here to stay

Outsourcing is all around us, from database management to dry cleaning.

From last October the BBC began outsourcing its IT functions as part of a £2bn agreement, which will run until 2015. The deal encompasses the corporation's broadcasting technology, channel streams, programme archives and hardware components such as PCs.

The world's leading news agency, Reuters, recently announced that it was expanding its journalist roster in Bangalore. Reuters' global managing director, David Schlesinger, says subscribers will not notice where a story is drafted. This suggests that outsourcing changes will not only take place in back-office areas, such as IT, but at ground level too.

Business 2.0, a Time Warner magazine featuring technology and business news, conducted an experiment to determine the effectiveness of outsourcing by offshoring a section of the publication to India. The project cut costs by 50%.

What's more, the famous Grey Lady of journalism, the New York Times, has outsourced a variety of elements to a software company, which contracts its work to India.

Add IT and back-office processing at the major cable networks and it is hard to identify a medium not outsourcing at some tactical level. It has even been suggested that press office functions such as research and drafting press releases are open to offshoring, while the strategic client relationships are better supported onshore. This blending of resourcing aligns business imperatives with cost-cutting.

The primary reason for this surge in outsourcing is to reduce overheads. It has been said that the BBC will save between £20m and £30m a year, allowing the corporation to relocate resources to key areas such as new programming.

The traditional business models of the media industry are under severe pressure: revenues are being squeezed by a rising cost base, increased competition and changing advertising models.

A second key factor is the convergence of broadcast and IT technology and the addition of supplementary channels such as mobile. As broadcasters move towards greater digital output, more and more companies are realising the strategic benefits of outsourcing. Some outsourcing companies have extensive experience in IP technology convergence, content distribution and archive digitisation and the decision to outsource becomes even more logical.

However, outsourcing operations purely to cut costs in the short term rarely reaps any tangible benefit further down the line. It's important to analyse the entire organisation and use this examination to better the business.

While the cost savings on offer can be substantial, effective outsourcing is not just about saving money, but instead about transforming organisations for long-term results.

Procurement service outsourcing market hot

A hot and emerging market within the business process outsourcing (BPO), which will be of interest to Indian ITES/BPO companies, is the procurement service outsourcing (PSO) market, says a study by the National Association of Software and Services Companies (Nasscom).

Increasingly, more and more companies across the world are opting to outsource non-core purchasing function to enhance productivity.

While more companies are still outsourcing the non-core component of their procurement and non-strategic processes, some are evolving the system and outsourcing their key processes based on enhanced comfort levels with the service provider, the study pointed out.

While this is still a sunrise segment for India, there are a significant number of players in the country that have built capabilities in areas such as supply chain management, built industrial-strength technology infrastructure, expanded their global presence and committed themselves to achieving operational and service excellence.

Quoting the Accenture report on procurement services providers (PSPs), Nasscom said the key trends which drive companies to use PSPs was the need to focus on strategic procurement of the spending categories that had not been outsourced.

Cost cutting was also a key motivator for PSP as were issues such as acquiring category expertise, volume aggregation and faster delivery of improved procurement performance on the categories of processes outsourced.

The Nasscom study, quoting a report by another company Aberdeen Group, said that through PSO enterprises across the globe have attained a lot of benefits including reduced prices paid for goods and services by 18%; improved contract compliance by 60%; cut sourcing and procurement cycles by half and reduced procurement administration and procurement automation costs by more than 25%.

Monday, June 13, 2005

Outsourcing looks good

Obviously, this major consumer goods manufacturer's current ad hoc and decentralised IT approach has failed to support the company's corporate objectives adequately and has led to a severe deterioration in the reliability of its IT infrastructure and application services. As a result, IT leadership must take greater control of day-to-day IT operations end to end, and create a common vision for IT's overall role within the company.

IT leadership's first step must be to establish a stricter set of corporate IT priorities, policies and procedures for governing operations. This means that many of the company's IT decisions must be more directly based on corporate objectives. It also means that IT decisions must become more centralised to ensure better coordination and greater cost-savings.

Centralisation might not sit well with IT staffers who previously have been allowed plenty of freedom to make their own decisions and to operate independently or with business units that had been making IT decisions autonomously. Given potential political ramifications, the move to a more centralised operating model should be mandated and fully supported by the company's senior management, starting with the CEO and CFO.

Start with an audit
With its new authority, IT leadership must next initiate a thorough audit of IT and application service levels and assessment of current and future business requirements. To ensure an objective assessment, this audit should be either conducted by an independent firm or by an internal team of IT and business representatives that report its findings to senior management.

The audit should target specific performance problems that are hampering business success today and those that could adversely affect the company soon. It should determine which problems are directly related to technology issues vs. those that might be a result of poor IT management practices. Given the escalating impact of the IT operating problems, the company needs to make important changes quickly. This audit process should take into account typical business cycles, but should not take more than 90 days.

Move on to outsourcing strategy
Given the company's limited resources, IT leadership then should develop an outsourcing strategy based on the specific priorities resulting from this audit and assessment. An outsourcing strategy should determine what roles outside solution providers will play in resolving the current problems, building an IT infrastructure and deploying applications that best satisfy the company's current business needs and meet its future corporate objectives. IT leadership needs to do this with the understanding that revamping the IT architecture and applications entirely on its own would not make good business sense given the rapidly expanding array of outsourcing or "out-tasking" alternatives.

The upshot: corporate IT must take greater control of day-to-day operations, then consider outsourcing options for getting its infrastructure in new data centre shape.

While I don't recommend a wholesale transfer of the company's IT operations to an outsourcer because a majority of these deals fail, a growing number of managed services are available for addressing many of the company's problems. For instance, a managed VPN service could end sluggish performance on the 1Gbit/sec Ethernet backbone, and a managed storage service could satisfy the company's storage-area network needs and provide off-site back-up facilities for disaster recovery and business continuity.

Consider specific managed services
As they've matured, managed services have become beneficial for large-scale companies that want to offload specific IT functions. Independent managed service providers as well as a growing variety of hardware and software vendors, telecom carriers and resellers offer these services.

The rapid evolution of managed services is being matched by a resurgence of hosted software services. The success of Salesforce.com among small-to-mid-sized businesses has attracted attention from larger companies that are fed up with traditional CRM and salesforce automation software packages. Such on-demand services are available not only from major enterprise players such as Siebel Systems and Oracle, but also from other 'Net-native software service providers such as NetSuite. This consumer goods manufacturer might well be able to take advantage of a managed supply-chain management service.

Standardised platforms
Whether the company updates its hardware and software on its own or leverages third-party resources, standardising the hardware and software platforms should be a priority.

This not only should permit the company to achieve greater interoperability across geographies, but also should increase system and application reliability, and reduce management and maintenance costs. Standardisation also would permit the consolidation of systems and platforms, which could result in greater performance levels. Standardisation could enable the company to establish strategic sourcing agreements with key vendors, reducing procurement and support costs.

Finally, the company must remember that we are still in the middle of a buyer's market. In this environment, it has the luxury of selecting from a wide range of product and service alternatives. It also has the opportunity to negotiate favourable prices for these alternatives. The company should not make its choices based on price alone. But, it should be able to find good, economical solutions that address its short-term needs and long-term strategic objectives.

Sunday, June 12, 2005

Outsourcing strategic to global firms: Murthy

Infosys Technologies chairman and chief mentor N.R. Narayana Murthy Saturday said global outsourcing had become a strategic function for corporations worldwide.

Addressing the company's shareholders at its 24 annual general meeting (AGM), Murthy said corporations around the world had recognised the role of offshore development in streamlining and improving their core capabilities.

"Corporations have shifted away from the 'one-size-fits-all' approach to outsourcing. They now view global outsourcing as a strategic function, impacting their value chain, capabilities and competitive position.

"As a result, our clients have begun to see us as long-term partners working with them to contribute to their business goals," Murthy said.

Admitting that the IT industry was operating in a marketplace where client preferences were changing rapidly, Murthy said globalisation, advancements in technology and faster communication channels had made competitive advantage a constantly moving target for corporations.

"In this environment, we are reaping the benefits of the initiatives taken over the last three years. Our investments in new services and industry verticals have enabled us in the delivery of effective technology-leveraged, end-to-end business solutions to our clients," Murthy told about 1,000 shareholders.

Highlighting the company's robust performance during the fiscal 2004-05, which led to net profit of 48.5 percent and a revenue growth of 46.9 percent, Murthy said by the end of the current fiscal 2005-06, the consolidated revenue would grow to $2 billion as against $1.6 billion in the last fiscal.

"Our success hinges on our ability to manage rapid growth. Today, we have all the ingredients in place to manage growth. The restructuring of the organisation into integrated business units has created more focused and aligned teams."

In line with the company's policy of limiting the dividend payout to 20 percent of the net income, the total dividend for FY 2005 was declared 18.48 percent as against 17.79 percent in the last fiscal.

With an interim dividend of Rs.5 per share (100 percent) and a final dividend of Rs 6.50 per share (130 percent), the total dividend was Rs.11.50 (230 percent).

Outsourcing feels heat in US

If you thought the outsourcing debate had become passe in the US after George Bush returned to the White House, think again. Outsourcing or offshoring is back, and how. And India remains the favourite target.

In the first three months of 2005 alone, more than 112 anti-outsourcing bills were coursing their way through some 40 states in the US. In 2004, there were 107 bills in 33 states, of which only five became law, says the National Foundation for American Policy (NFAP) in a new study.

What's the reason for the quantum jump in protectionist legislation in the US and what is India doing about it? Well, 2006 is election year for the US Congress, and whatever else you may say about the state of the US economy, you don't need to read Thomas Friedman's book on globalisation to see that it's increasingly getting to be a bijli-sadak-paani issue in the American heartland.

Heightened concerns about jobs being snatched away by cheaper markets in the run-up to the elections are therefore natural. For politicians to cash in on this is par for the course.

The NFAP study lists several bills of concern— a New Jersey bill which prohibits state contract work from being performed overseas, bills in Oklahoma and Mississippi about call centres outside the US, aMontana bill keeping state work in the US, a Washington bill putting checks on outside contracts and a Maryland bill prohibiting the federal government from binding the state to international agreements.

Most of these bills will fall by the wayside, and some may violate the US' international trade obligations and so will be nonstarters. But the fact remains that in the next year-and-a-half, the outsourcing clamour could intrude into bilateral ties.

The Indian government has sensibly stayed out of the debate and left it to India Inc to tackle, which it is doing with increasing sophistication.

The strategy is simple— educate American people, politicians, lawmakers and companies that outsourcing is "good for America".

Saturday, June 11, 2005

Guess who's outsourcing to India?

The Indian arms of international consulting firms are making a beeline to work in Pakistan as the relations between the two countries thaw and cross-border travel becomes less cumbersome.

Consulting firms like HR specialist Mercer, Hay Group, Hewitt Associates, and strategy firms like McKinsey have been receiving enquiries from Pakistani arms of MNCs for projects across the border.

Many consulting firms are firming up plans to make India their base for servicing Pakistani clients.

According to sources, Hewitt Associates India has even managed to bag a contract with a large Pakistani public sector bank. Despite repeated attempts, the Hewitt Associates spokesperson did not respond to calls.

Another HR firm, Mercer, is joining hands with Pakistan’s leading consulting firm, Abacus Consulting to offer remuneration services to Pakistan. In the next few months, consultants from Mercer will train people in Abacus across various methodologies, review business opportunities and also explore other business lines in Pakistan.

“We will use this as a springboard to launch other services from our bouquet of HR services,” says R Sankar, CEO, Mercer.

And it’s not just HR firms. Consultants from McKinsey India are also understood to be working with select clients in Pakistan. However, the India office declined to comment.

The prime driver for these companies has been the incessant demand from Pakistani MNCs, which are currently being serviced by consultants from Dubai or other global offices.

“We do plenty of work for our global clients in Pakistan from our Kuala Lumpur and Dubai offices. But now we are in the process of developing relationships ourselves,” says Gaurav Lahiri, operations manager, Hay India. Hay has clients like Pakistan Tobacco and also works with some civic authorities in Pakistan.

And the Pakistani market is ripe for these consulting firms to spread their wings. GDP growth figures are rising and some industries, like telecom, are on the verge of taking off.

“The Pakistani economy is on the rebound. We grew by nearly 8% last year and future projections are also looking up for the next few years as economic activity renews. So, we are upbeat about the future of consulting services in Pakistan,” says Asad Ali Khan, CEO of Lahore-based Abacus Consulting.

Mr Khan is especially upbeat about the telecom and oil and natural gas sectors which have seen an influx of FDI in the last few months.

Friday, June 10, 2005

Cures for unhealthy outsourcing maladies

Demand for outsourcing services continues to rise, but so do the problems. It all begins when outsourcing providers send in the A Team to ink the deal, and when the transition is complete customers are often left with the F Troop.

By 2008, 70 percent of all outsourcing deals will face serious problems. A further 10 percent will break down completely with an estimated 50 percent expected to persevere.

Not a pretty picture, but Linda Cohen, Gartner managing vice president said at the analyst's IT Services and Outsourcing Summit in Sydney this week, that despite the problems, the growing demand for these services isn't going to slow down.

The big problem, she said, is that customers continue to take an ad hoc approach to outsourcing.

Highlighting the most common problems to beset such deals, Cohen outlined cures for what she calls outsourcing maladies.

Claiming customers can suffer an outsourcing or offshoring compulsion, she said this behaviour leads to deals that are non-strategic.

Then there is deal paralysis, she said, which involves unpredictable costs, service and delivery models.

Cohen said customers should also be wary of vendor tunnel vision where a lack of collaboration can create serious problems.

"You have to stop this ad hoc, compulsive outsourcing; if you perceive a service is overpriced, the best thing you can do is look into multisourcing best of breed," Cohen said.

"And don't outsource an unhealthy situation, it's just too unpredictable."

Companies also need to be aware of service providers who send in the A Team to ink a deal, and then replace it with the F Troop.

Gartner vice president Michael Gale said the A Team wins the deal, the B Team completes the transition and the C team stabilizes operations.

"Once you hit the D Team, you're probably in trouble, and you need to avoid getting to the D Team," Gale said.

"The A team makes all the promises but the D team has no incentive to deliver."

To avoid what he describes as the three-year depression, which is the time it takes for an outsourcing deal to fall apart, Gale said organizations need to be pre-emptive at the contract stage.

That means building in incentives that progress throughout the life of the contract and have a strong focus on governance.

"But good governance is not going to get you there, you need to refresh and realign the outsourcing arrangements every two to three years," Gale said.

"[Customers] recognize that long-term outsourcing arrangements must change to realign with the business."

On the subject of offshoring, Gartner says India is still the best destination for Australian companies.

Gartner Asia-Pacific vice president of the IT service group, Rolf Jester said India is more suitable than the other contenders including Canada, Ireland, Israel and the Philippines.

Jester said local companies should also consider nearshoring and take a closer look at New Zealand or regional Australia.

"Evaluate the country before you evaluate the vendor," Jester said.

Revisit and review your strategy

Australian Customs Service national manager of IT market testing Jo Hein is well aware of the importance of reviewing your outsourcing strategy.

After much deliberation, the organization extended its outsourcing arrangement with EDS for a further two years, with the $193 million add-on now extending until June 2007.

However, despite the decision already being made to stay with EDS, the review of the organization's outsourcing arrangement has been under way for five months and continues to be considered.

"We started this process about five months ago, and we're still in the thick of it," Hein said.

"The trigger for us to carry out this review was that our contract with EDS was ending in June 2007, and we thought we needed to take a look at where we had come from and where we were going."

Throughout this process, Hein and her team discovered five key lessons when reviewing and developing a sourcing strategy.

They are: include a strong governance framework; use a structured methodology; assess all sourcing models; assess the total IT environment and; remember that strategic priorities are the lynch pin.

"These five key lessons took five months, and with all the emotional and philosophical discussion that took place, it made the process a lot longer."

Thursday, June 09, 2005

More outsourcing = more unhappiness

DiamondCluster's annual survey of outsourcing providers and their customers reveals the market is still growing - but customer disatisfaction is growing too.

Just over half of buyers have prematurely ended an outsourcing agreement within the last twelve months, compared to j21 per cent a year ago. Contracts were terminated because of poor provider performance (36 per cent), moving the function back in-house, cited by 11 per cent of respondents, and failure to achieve cost savings (seven per cent).

DiamondCluster blames several factors for this including the explosion in providers between 2002 and 2004, which meant that some were below par. It also found many buyers who fail to understand the complexity of managing an outsourced contract.

Even more damning were figures from providers - in 2004 only seven per cent admitted a customer had prematurely ended a contract. But the 2005 survey found 49 per cent of outsourcing providers have had a contract terminated early.

But despite the discontent, outsourcing is still growing. Some 74 per cent of survey respondents expect to increase spending on outsourcing in the next year, up from 64 per cent last year.

India and the US remain favoured destinations, for contracts which are offshored as welll as outsourced - three-quarters of all respondents send some IT functions to one or both countries.

The biggest change is in attitudes to China. In 2004 none of the respondents was looking to outsource to China, but this year six per cent of buyers have operations there. In 2004 only eight per cent of buyers expected to have operations in China within five years, but now 40 per cent expect to do so. Israel and Russia are getting less popular as potential destinations for offshored work.

DiamondCluster spoke to 210 buyers of outsourced services and 242 providers of such services in companies with between 100 and 50,000 employees.

Indian outsourcing: skills shortage looms

India's rapidly growing software and outsourcing industry says the nation's university graduates lack the skills needed for an estimated one million jobs in the next four years.

The issue is so crucial that the industry will develop its own system to test the skills of the country's three million university graduates each year, Kiran Karnik, president of the National Association of Software and Service Companies, said on Wednesday at a two-day summit in Bangalore on outsourcing trends.

"The test is designed for entry-level candidates. It will gauge the skills necessary for call center and transaction processing jobs," Karnik said. "Most of the graduates ... currently are not employable."

India's software and services industry earned $US22 billion ($A28.73 billion) in the fiscal year ended March and is expected to grow 32 per cent this year, the software association said earlier this month.

The industry, which covers outsourcing services such as software programs, billing, customer management and accounting for companies abroad and in India, crossed one million employees last fiscal year, which is set to double by 2009.

The association represents 900 members including India's largest software and service companies.

Executives from Infosys and Wipro have complained that the government is not providing the tools needed for the industry to grow such as electricity and an updated education system.

"This will enable the industry to come out with a certain amount of standards. The pilot project is expected to begin in a couple of weeks," Mr Karnik said.

Even with skills testing and classes, the industry may not be able to fill 262,000 jobs of the one million estimate because of a lack of qualified people, particularly middle-level management, he said.

"The whole purpose is to create an employable talent pool and to enhance the size and quality of the" workforce," Mr Karnik said.

Wednesday, June 08, 2005

Outsourcing to India cuts costs by 50%

Outsourcing ITES-BPO work to India has helped companies achieve 40-50 per cent cost savings, according to the National Association of Software and Service Companies (Nasscom).

An analysis on the ITES-BPO industry, released at the India ITES-BPO strategy summit in Bangalore on Tuesday, said that companies are also able to generate higher free cash flows due to reduced investments in physical infrastructures, telecom and equipment.

Wage arbitrage has also led to increased cost savings, Nasscom said.

The need to focus on core competencies to remain competitive is driving more companies to offshore outsourcing.

"Offshoring helps free up resources and help higher management focus on core business requirements. Offshoring also allows for access to new technologies and talent to help strengthen business offerings," Nasscom said.

According to the Nasscom-McKinsey report, in the long term, the two parameters that would differentiate the business models of successful ITES-BPO (information technology enabled services-business process outsourcing) players would be the level of intellectual property and the breadth of offerings the player specialises in.

Nasscom said the rapid growth of ITES-BPO has contributed to a continued mismatch between the demand and supply of experienced resources in the industry.

"Consequently, employment generation and attrition levels remain high. Indian ITES-BPO added approximately 150,000 jobs in 2004-05. Even so, demand for experienced professionals outpaced their supply and attrition levels in the industry remain between 25-40 per cent," the analysis said.

Tuesday, June 07, 2005

Goodbye Call Centers: India Can't Bank on Outsourcing to Stay Competitive

With global competition heating up, New York Times columnist Tom Friedman, former Indian Union IT Minister Arun Shourie and IIT 2005 convention chairman Sudhakar Shenoy believe that India needs to shift course in order to maintain its lead.

Though it has been portrayed as the poster child of outsourcing by promoters and critics alike in the debate over the new global economy, India is now being viewed by some economic pundits as a "short-term phenomenon."

As the wages of IT workers in India have grown at a rate of 20 percent per annum, several American corporations are now looking northward than eastward when it comes to farming out jobs, since doing business in India is only slightly cheaper than in Canada.

Similarly, Mauritius and Dubai are aggressively promoting themselves as competitive players in the IT market. If India is losing traction, as the economists claim, India-West asked these three individuals, during the 2nd annual IIT convention here (I-W, May 27), what the country can do to stay in the game, or is it faced with troubled times ahead?

"If it were just about wage arbitrage, then Haiti would be the leader in outsourcing," Friedman pointed out. "If it were about (marketing) English and wages, then Egypt would be the capital of outsourcing for Europe."

The Indian branches of American companies that invested early on in the process, such as Texas Instruments and General Electric, "have already patented 1,000 products in the United States on the last 15 years," he noted. "So we're talking about something that is way beyond wage arbitrage."

The calling centers are on their way out in India, Friedman maintained. "They are going to move to Mauritius, they're going to move to Egypt, where they have a call center of 1,000 people now that works for Microsoft. That's a call center that would have gone to Bangalore five years ago; now it's in Cairo. So the low end is going to migrate."

The high end companies in India "will have to move up the value chain," he argued. In this world that's getting just not bigger in terms of the market but more complex, spinning off more and more new products is a good thing. India will be able to take advantage of that."

India will succeed in the global marketplace as long as it continues to emphasize education and keep its infrastructure moving ahead. "So I don't think India is a flash in the pan," Freidman declared. "This is not textiles. This is something much different."

The success of any industry or service is ephemeral, Shourie contended. "For that reason, (India) must always upscale its products. It must move away from call centers, for instance, and move to the next stage. It should move away from data processing and move into software products."

In time, the country should move away from software products into chip design, he asserted. "In each of these things, we must upscale any activity we are doing. It's not just in services, but in manufacturing, in agriculture (that) we have the potential. And I believe we will advance in other sectors, also. What about sending other people's satellites into space? We will be cost competitive in that, also. What about the pharmaceutical industry? With one drug, we catch up. But we should be into 23 other drugs."

Such is the world of tomorrow's global competition, "and in India, we can strive for excellence across a much wider spectrum than just call centers. In India, it is just one activity," Shourie stated.

Given India's economic reforms in the early 1990s, "corporations are now on their own," Shourie noted. "But of course, partnerships are required, infrastructure is required and sometimes scale is required, which government intervention can provide."

Shenoy does not believe India faces any real trouble in the foreseeable future. No company can afford to depend solely on low costs, "and India has to realize that," he told India-West. "And I think it is well on its way to realizing this."

India has to "bring in a lot of efficiencies in terms of manufacturing, in terms of quality, in terms of scaling, etc.," he said. "The only way that India can keep pace with the growth rates and all that is to make sure that there is a lot of efficiency brought in."

Wages will keep rising, "and that's a good thing," he said, "because when wages keep rising, the people have more disposable income. I'm not an economist, but even my common sense tells me that when that happens, there is more buying power in the country. And when there is more buying power, more things are going to be made and it will attract more foreign investment."