GLOBAL IT OUTSOURCING

Dr. Subbu K. MurthyVP & CIOQTC

Discussion Themes

IntroductionHistoryDriversTypes of OutsourcingMajor PlayersFramework

CSFs and SFFsEstablishing a World Class IT OrganizationThe Small CIO and Outsourcing

History

Outsourcing is not new – from agriculture to clothing to “trivial” tasks to “non-core activities”Two key parts of outsourcing are:

Out (External)Sourcing (generally refers to finished products or services)

Not limited to “businesses” Your Subtopics Go Here

Drivers for IT Outsourcing

Voluntary OutsourcingCostFocus on “core” activities (maintain balance)FlexibilityScalability

Involuntary OutsourcingLack of competence/resourcesLack of leadership

Types of Outsourcing

CommunicationsData/Data CentersDesktop/Helpdesk

ApplicationsTargeted

Product DevelopmentNew Custom Applications

Buy & Customize

Revenue Based (Strategic)Cost Based (Tactical)

Fusion (JV, Investment)E V E R Y T H IN G

A P P L IC A T IO N S

M A IN T E N A N C E

IN F R A S T R U C T U R E

Who are the players?I guesstimate upwards of 4 million companies claiming to be experts in IT (more than 50% are one person shows)A majority want our dollars

> 60% do business in/with US20% of the companies are located in California

Everyone knows IT and how to design, fabricate and manage IT (!ha ha)

World Wide Software Market

Software Products

22%

Products and Services

42%

Software Services

36%

The Players

G R O C E R YM O D E L

T R A C TM O D E L

C U S T O MM O D E L

T h ree B ro adC a te go ries

Provide everything

(EDS, IBMGS*)

Provide a focused Product or

Service(SAP)

Fixed fee Project based

Delivery(ALL)

* Some of the more famous offshore vendors include Tatas, Infosys, Wipro, HCL, Satyam

World Class IT

ProcessProducts &

Services

PeopleC

UST

OM

CM

M, I

SO

XP,

Agi

le

Delivery

Organization

Anthony

AutonomyGovernance

Sourcing

In source

Out source

Off source

Domain

Communications

Business

Skill

s

.NET/J2EE

Legacy

COTS

Archi

tectu

re

Audience

Internal

External

Mixed

People (Sourcing)

Sourcing depends on …CostCapabilityCulture

Understand all parties involved (look for hidden motives)Project based - not T & MClear understanding of expectationsProtect IP

Critical Success Factors

BBS (The Big is Better Syndrome) Three mismatches to look out for:

Sourcing and Strategy Sourcing and Governance Strategy and Governance

Sure Failure Factors

People (Skills)

Skills depends on …Complexity of ITTarget audienceStrategy

Balance between heterogeneity and homogeneity of skills (algebraic, domain, communications)Balance between intrinsic and extrinsic motivators

Critical Success FactorsFocus only on Technology – lack of business skillsFocus only on Business – forgetting it is still bits and bytesDormancy of skills – not keeping up with changes

Sure Failure Factors

Process (Organization)

Organization Structure depends on …

Industry type, size, ageManagement maturityBusiness maturity

Customize to fit your IT cultureFlexibility in management styleIncremental Build on small successesManage change

Critical Success FactorsUse same strategy for all projectsLack of analogical data (metrics)Rely only on anecdotal decisionsRely only on analytical decisionsOversimplify complex problemsAssume that 80 + 80 = 160 IQ

Sure Failure Factors

Process (Delivery)

Delivery models depend on …

MaturityFlexibilityAdoptabilityAdaptability

Customize to fit your IT cultureFlexibility in tools, people and processes is criticalProper training and acceptance (people and process must enjoy a love affair)

Critical Success FactorsCMM will do the trick (Remember that CMM is tautological)Lack of project modularityMismatches between Architecture, Process and StaffAssuming that a good process can overcome a weak staff

Sure Failure Factors

Real World Issues - Technical

Requirements VolatilityInability to define and establish scopeInformation explosionGaps between Users and IT

TechnologyVendor hypeLack of “true” standardsEvolution

Metrics, Metrics and Metrics

Information – analogical models, Function Points, Customized Function Points, LOC, # of web pages, etc.Financial – ROI, time to break even, reduce operational costs …Market based – improve customer service, increase revenue …Risk Based – Cost of not doingIntegrated metrics – balanced score cardCost of contracts/SLAsCost of safe “exit”

Cost$15

$5

$10

$15

One of …

Tight Fisted

R & D Centric

Strategic

ManagedDevelopment

Centers

Offshore Outsourced

Vendors

On-shoreOutsourcing

25 to 100% more thanManaged Centers

50to 100%more than Offshore

Why are the costs lower?

Buying power of US$ Education is much cheaper Heavy emphasis by all

“governing bodies” Cost of living is lower Perhaps the West is wrong

about the epistemology of life – Theory of Karma is a fact

Why is outsourcing so popular?

Lowering CostsPerceived misconception of lowering riskGovernance, Security and increasing IT awareness is making IT organizations top heavy Aging IT population coupled with radical technology changes is contributing to this reversalThe 80-20 rule is reversed – most of us in IT are spending time on 20% of the issues

DOERS

Are we all out of a job?

The total number of U.S. IT workers currently stands at 10,129,000 (10+ million) compared to 9,896,000 in January of this year. In other words 1 out of every 30 persons in US is in the IT field … The fact remains that by 2005 only less than 2-5% of US jobs will move overseas - not a lot considering the talk you hear about India, China, etc. Off-shore outsourcing is still a small fraction of IT expenditures. For example, all of India's IT and IT enabled services is only 10B $. This is a very small fraction (< 2%) of the IT expenditures in US.

OCM

Off-Sourcing Cost ModelSuggests whether off-sourcing makes sense or notDependent variable = True Cost of Off-SourcingIndependent variables

• Number of projects, type, size, schedule

• Duration of relationship• Architecture• Skills (fuzzy)• Organization (fuzzy)• SLA

OCM “Curves”Net Benefit

Early Gains(Honeymoon,Giveaways)

Period of Adjustment(Finger-Pointing,

Cancellations, CIO changes,Litigation)

Maturity(Partnership,

Trust, Excellence) t

Dr. Murthy – QTCWorld Class IT Organization*Jeff Reid – Conexant Offshore Applications Development and Support*Dr. P.K. Seshan & Dr. Murthy SriSoftOCM – Offshore Costing Model

* Presentations to OC CIO group

Acknowledgements