Offshore programming news

2004-02-13T01:03:00.000+02:00

The debate about pro and contra for offshore programming are very present in many newspapers.
I found a very good article in the International Herald Tribune about : Exporting jobs: Offshoring is the way to go .

This article quotes a very good study of MGI (Mc Kinsey Global Institute)
Here is an extract :
Exporting jobs

SAN FRANCISCO, California The debate over American jobs, globalization and free trade is back in the headlines. This time, one of the reasons is the growing practice of offshoring, with unions and some politicians accusing countries like India of ‘‘stealing American jobs’’ as companies in a range of industries relocate to lower-cost regions everything from call centers to data entry to software development.
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Several states are considering laws to prohibit or restrict offshoring, and unions are lobbying Congress to stop it. Just last month, a provision in the spending bill passed by Congress said that when the federal government decides to allow private companies to do work now being done by government employees, the private companies can’t do the work outside the United States.
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While a backlash over jobs is understandable, resorting to protectionism would be counter-productive. A study by the McKinsey Global Institute has found that offshoring benefits the American economy far more than previously thought.
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Many people believe that the U.S. economy simply loses money spent for services abroad. But far from being a zero-sum game for the economy, offshoring is a story of mutual gain.
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It’s no news that because of advances in telecommunications and computing, large firms can arbitrage labor costs globally. Still, the magnitudes are startling. Software developers who earn $60 an hour in the United States get $6 in India; data entry agents who cost $20 an hour in Topeka run $2 in Calcutta. Since service offshoring is so labor-focused, and doesn’t require the massive capital investment of offshore manufacturing, these differences translate into outsized returns.
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Beyond an individual company’s mandate to maximize earning, the ability to capture cross-border labor efficiencies actually creates enormous value for the world economy, and disproportionately for American firms.
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Our study found that the United States receives 78 percent of the new economic value created by offshoring, versus the 22 percent that goes to the lower wage countries where these services are relocated.
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2004-02-03T17:40:00.000+02:00

Intel Capital crosses into Russia
Last modified: May 15, 2003, 10:20 AM PDT
By Michael Kanellos
Staff Writer, CNET News.com

Intel Capital has begun to operate in Russia and has placed its first investments there.
The planned investment, announced Thursday, extends the Santa Clara, Calif., chipmaker's involvement in Russia. Some of the complex math underlying software coming out of Intel's labs in recent years was developed in its research center in Nizhny Novgorod.
"Russia is a critical market for Intel," Claude Leglise, vice president of the company's venture capital arm, said in a statement. "Intel Capital has invested in companies in emerging markets worldwide to support Intel's strategic objectives. A wealth of technology expertise distinguishes Russia from most other emerging markets, and we are excited about the opportunities to invest in the unique and innovative technologies developed here."
Russia and the rest of Eastern Europe are shaping up to be one of the hot new frontiers for technology companies, according to several technology executives. Sales of PCs, servers and other computing equipment continue to grow at a rapid rate in these markets, a trend that has benefited local manufacturers such as Kraftway, Russia's leading PC maker. Additionally, universities such as Moscow State Technical University are often flush with underemployed Ph.D. scientists and engineers.
Moscow-based Ru-Net Holdings, which invests in technology companies such as system integrator TopS Business Integrator Group, has received the first Russian funding from Intel's venture capital arm. The money will be used to help TopS develop products, based around Intel silicon, for Russian corporations.
In addition to system integrators, Intel said it will look to invest in companies specializing in software, new semiconductor materials, nanotechnology and wireless. The company will make investments in companies in both Russia and Ukraine.
Intel Capital currently has investments in approximately 475 companies. The net worth of the group's portfolio is around $870 million. Financial details of the Russian investment were not disclosed.

2004-02-03T17:36:00.000+02:00

By Michael Kanellos
Staff Writer, CNET News.com

Like India and China before it, Russia is revamping national policies to expand its presence in the global information technology industry.
Although raw materials have been the cornerstone of Russia's economic growth in the last decade, the country will increasingly attempt to derive wealth from its technological backbone, said speakers at the U.S.-Russia Technology Forum taking place at Stanford University this week.
In two weeks, for example, the national government will issue a decree that will permit state scientific institutions to grant patents and other intellectual property rights to the actual inventors, who will then be allowed to commercially exploit them, said Andrey Fursenko, the acting minister for Industry, Science and Technologies for Russia.
"We want to tell them that, as a result of their work, they will be the ones, not the state, that will own it. It is a big motivation," Fursenko said. "Our motive is not to give them something, but to give them motivation."
Although Fursenko declined to identify the fields where technology transfer would begin (or the exact terms of the grant), he said Russia's strengths lie in information technology, life sciences and alternative energy.
The inability to profit from inventions has long been a problem with Russian science. A Russian institute invented Velcro to fit space suits together, said Fursenko, but "no one ever got a dollar" for the invention. In 1998, when the national government passed a law that decreed the government owned all patents, patent applications dropped to zero, he said.
Similarly, Alexander Galitsky, a Russian entrepreneur who worked with Sun Microsystems in the '90s on various projects, had to prove to the government that his independent businesses in no way leveraged the 30 patents he obtained while working with the state. He also had to prove that he didn't use rubles to start his businesses, he recalled.
Russia does have many of the elements to become a technological power, panelists and attendees said. The country has a long history in mathematics and computer science. The scientific institutes created in the Soviet era are also strong in basic science. Unlike with their western counterparts, profit wasn't an issue back then, so the institutes were free to explore any area that seemed interesting. Engineers also cost less there.
To date, Russian technological exports have been fairly limited. Other than a few companies like Kaspersky Labs, most Russian companies serve the domestic market. Virtually all of the panelists noted that business and managerial skills were lacking in Russia.
"We've got to learn the trees from the forest," Galitsky said. "In the past, we didn't need to develop marketing efforts. I just handed my results to Sun."
The pattern, though, is starting to slowly change. The IBS Group, a technological company that performs research and programming for hire, is currently performing offshore programming for, among others, Dell and IBM, said President Anatoly Karachinsky. Similarly, Epam Systems has around 450 employees (400 in Belarus and 50 in Princeton, N.J.), and is performing programming work for a variety of U.S. companies, said President Arkadiy Dobkin.
American companies are also hiring more in Russia. Intel, for example, maintains labs in Russia that concentrate on wireless technology (a vestige of the Cold War science). Sun Microsystems also retains Russian programmers and has started to make venture investments in Russian companies.
"They aren't so hung up on titles," said Vadim Temkin, of the Java Card Group at Sun. (Temkin was an attendee, not a speaker.) Temkin's group runs quality assurance programs. Typically, American and Indian programmers try to avoid working on QA teams, viewing it as secondary in importance. Russian engineers "try to make it interesting."
In September, Vision Capital, Intel and others will participate in a three-day "tech tour" that will allow U.S. venture investors to meet with Russian start-ups, said Sven Lingjaerde, general partner at Vision Capital. Similar tech fairs have taken place in Italy, Israel and Switzerland, said Lingjaerde, that have led to U.S. investments in European companies.
Still, Few U.S. companies have made direct investments in Russia, noted former Secretary of Defense William Perry.
The exception, Perry said, is Boeing, which participates in Sea Launch, a United States-Russia-Norway-Ukraine venture that launches commercial satellites from a platform in the Pacific Ocean.
Piracy also remains a major problem. Five years ago, 95 percent of foreign software was pirated, now only 79 percent is pirated.
To increase U.S. investment, the U.S. government has devised a number of programs. The Market-Based Commercialization Initiative is seeking to obtain U.S. funds for Russian start-ups in the hope of stabilizing the local economy, said George Atkinson, special science and technology advisor to the U.S. secretary of state.
The U.S. Export Import Bank is initiating a "sub-sovereign" lending program that will allow cities and provincial governments to obtain loans on U.S.-Russian joint ventures, said April Foley, first vice president for the bank. The loans largely exist to benefit U.S. companies seeking to expand into Russia, she said. Generally, U.S. banks won't issue loans for these ventures.
Although some may see these as foreign giveaways, that is not the case, said Esther Dyson, chairman of Edventure Holdings. "If we make a strong, local economy in Russia, we Americans will benefit from an export market," she said.

2004-01-30T11:23:00.000+02:00

European outsourcing and offshore programming to catch US market in 2004
Growth outstrips that of US due to "remarkable increase" in deals... (source taiga)

Outsourcing is continuing to boom in the UK and Europe, with the total value of contract awards in 2004 predicted to match that of the US.
The latest quarterly statistics from outsourcing consultancy TPI reveal that while the global market remained flat in 2003 with a marked decline in contract values in the US and Asia, Europe experienced a "remarkable increase" in outsourcing activity.
The figures, based on private sector deals that TPI has advised on, show that Europe enjoyed an increase of 66 per cent in contract award values from €15.8bn in 2002 to €26.4bn in 2003, whereas the Americas saw a decline of 15 per cent from €45bn to €38bn.
In 2002, the outsourcing contract volume in Europe was one-third that of the Americas and last year it was 68 per cent. TPI claims this trend will increase as Europe rapidly closes the gap.
Duncan Aitchison, managing director at TPI, said: "It is a very real possibility that the volume of deals signed in Europe could approach that of the Americas in 2004."
The statistics also show that the business process outsourcing (BPO) market still has some way to go before it justifies the current hype, although again Europe is showing signs of early adoption with an increase in total contract values in 2003 - up almost 50 per cent on the previous year to €2.6bn.
"The trend towards BPO is actually not increasing at the rate than many market-watchers had predicted. The global BPO wave is at the early stages of adoption in terms of award volumes. The transactions are not yet in the marketplace," said Aitchison.
Companies are also no longer offshoring IT services to places such as India purely for cost cutting and cheap labour, and are considering it as part of a wider "globalisation" business strategy, TPI found.
2003 also saw a significant change in the service provider landscape with some of the major outsourcers losing market share.
"One point stands out," said Aitchison. "CSC and HP took market share from EDS in 2003."
IBM Global Services remains top dog, however, competing for 40 per cent of deals TPI was involved in, with EDS and Accenture next down the list. In the BPO market Accenture and IBM are out in front.

2004-01-29T16:54:00.000+02:00

Leader: Offshoring is about more than bad PR
silicon.com
And never totally wrong or right per se...

This publication today carried a story about IBM and its own moves to offshore certain operations, mainly for reasons of cost. It was notable because here we have - though IBM isn't in a hurry to confirm media reports - an outsourcer outsourcing, or at least using offshore facilities.
Indeed, the highest-profile trend of the year so far, following on from the last few months of 2003, has been major companies offshoring IT and call centre operations. In the UK, the financial sector in particular has seen a host of offshoring projects.
When we broke the story last December of Barclays sending some application development work to India, it was notable because it became apparent a statement was due to be released a couple of weeks earlier, only the flak caught by Aviva's Norwich Union insurance arm postponed any public announcement.
Understandably, most organisations considering such a move are sensitive to how it will play with the media, among Britons in general and, most importantly, affected workers.
But having a good PR machine in place shouldn't be top of corporate wishlists.
Undoubtedly the most important factor should be whether offshoring - or outsourcing even - is the right idea. We're talking about the fundamental business decision. There should be no dogmatic answer, either for or against it.
If, on its merits, offshoring does prove the best course of action - and it quite often isn't, as some users will find out to their cost - then it must be done properly. That means facing up to the xenophobes and ignorant and communicating what exactly is being done and why.
The more enlightened in business realise offshoring is a product of globalisation and normally means exporting the most tedious, most unrewarding jobs. It wasn't that long ago that call centres, for example, were held up as sweatshops, modern 'dark Satanic mills'. And now we want to keep those positions?
It might be asking a lot but any company should be honest about where and how they conduct business. The labour market has gone through countless changes in the last 50 years and adapted. When a large company such as IBM announces cut backs in one area, it very often expands elsewhere. This week it said it will hire 15,000 more staff as the economy rebounds.
Offshoring is an unstoppable tide and PR spin isn't the way to handle it. Presenting the whole picture and long-term benefits - where they truly exist - is the right way.

2004-01-28T14:21:00.000+02:00

In Forbes I found many very good articles about Offshore and aoutsourcing.
Here is a good example of the situation about Off-shore programming. It is a fact that India still has the bigger part of the cake, but Russia and China are just behind with a lot of very good skills.

Hope this will help the world to share its money amoung all the countries.

People
Face Of The Year
Lisa DiCarlo, 12.19.03, 7:00 AM ET

NEW YORK - Recently, our readers voted "offshoring"--the movement of traditionally high-paying jobs from rich countries to poorer ones--the most significant business trend of 2003. We agree, so for our Face Of The Year, we have selected Kiran Karnik, a man trying to direct the path of the offshoring tsunami.

As president of the National Association of Software and Service Companies, or NASSCOM, Karnik is in a unique position to do just that. NASSCOM is the self-proclaimed voice of the Indian information technology industry. Its charter is to promote India's technology strength to the world, and to foster a business-friendly environment for companies setting up shop there.

And a lot of foreign companies are doing just that. Over the last few years, many crucial "white collar" tech jobs such as application development, database design, integration and services have moved to India. Tech currently accounts for some 3% of India's gross domestic product, or $16.5 billion, up from just $1.7 billion nine years ago. The big driver? Exports of software and services to the United States.

By 2015, experts predict that 3 million U.S. white collar jobs will be farmed out to other countries, up from about 300,000 today. Whether that is good or bad news for the U.S. economy long term is a matter of considerable debate, but it could already be having an impact. Consider that in the third quarter, U.S. GDP grew 8.2% but the unemployment rate dropped only two-tenths of 1%.

"Offshore outsourcing was triggered by the intention to cut costs, but now it's not just driven by cost factors," says Karnik, 56. "We are helping [U.S. companies] tap into talent that is scarce in the United States."

It's the "scarce" part that grates on some American captains of industry, such as Intel's (nasdaq: INTC - news - people ) Andrew Grove and IBM's (nyse: IBM - news - people ) Sam Palmisano. Both have pointedly expressed fear that the Unites States is losing its technical edge to other countries. Palmisano says that IBM will pledge $200 million to train employees for jobs that might otherwise leave the country. (It's somewhat ironic, since unconfirmed reports recently said that IBM will send up to 4,700 software jobs outside the United States.)

A backlash may already be beginning. Both Dell (nasdaq: DELL - news - people ) and Lehman Brothers (nyse: LEH - news - people ) recently elected to bring back some jobs to the United States.

Karnik acknowledges the rumblings. "We began to see some concern [about loss of U.S. jobs] in 2003 that has not been there in the past, but by and large, that is not the mainstream view."

In the meantime, Karnik says it's his goal to more than double India's share of the global software production to 6%.

Dennis McGuire, too, acknowledges growing protectionism but says U.S. companies will search the world for whatever makes them more competitive. McGuire is president of TPI, a Houston-based consultancy focusing on outsourcing deals. He says companies need to outsource commodity processes so they can focus on their own competencies. "Does it matter if you have world class accounts payable?"

Karnik, who is a physicist by training and spent two decades with the Indian space agency, is keening aware of an impending shortage of sciences and engineering-based talent in the United States.

India, with a population topping one billion, turns out 75,000 IT graduates annually, by far its most popular area of study. In the United States, the number of students graduating with computer and information science degrees have grown more than 70% since the mid-nineties but are still far outpaced by business, social science and education degrees.

Offshore outsourcing has been quietly building up for years but 2003 will likely be remembered as the year that it burst into the mainstream. Despite concerns in the United States about unemployment and lost innovation, there is no turning back. The pressure on U.S. companies to cut costs and compete globally is too compelling.

Will India continue to receive the lion's share of outsourced jobs from U.S. companies? Probably, but Karnik needs to be aware of growing competition from professionals in China and Russia. Skilled labor there is equally plentiful, and equally cheap. And equally hungry.

Says McGuire, "China has seen the Indian miracle, and they want a piece of it."

2004-01-28T12:31:00.000+02:00

Some precisions about Russia as an offshore programming contry Vs India :
It is interesting to notice that Russia and satellit countries have definitely a huge amount of very good developers for same or better prices than India.

In developed economies there is a large—and growing—gap between the demand for and supply of software engineers. In the U.S. alone, the Information Technology Association of America, an industry trade group, estimates that some 840,000 IT jobs stand unfilled. The Gartner Group predicts that 40% of U.S. software projects will have to be curtailed or canceled if the gap is not closed. The problem bedevils technology companies in Europe and parts of Asia as well.

Meanwhile, talented computer engineers in many developing countries go begging for work. But the industrialized countries' governments restrict the number of work visas that can be issued to foreign IT workers. Hence the outsourcing solution: contracting programmers in Ireland, India, Israel—and now, Russia—to develop software at home and ship it over the Internet to customers in the developed world.

India is the reigning king of software outsourcing, but its advantage is beginning to fade: An Indian computer programmer earns, on average, $4,000 to $7,000 a year, whereas the same level of talent can be purchased in Russia's outlying regions for about $3,000 (Moscow techs earn about the same as Indian). And the heavily populated parts of Russia are much closer to the West than India is, making it easier to do business.

Outsourcing is perfect for Russia. Every year the country's elite universities graduate 100,000-plus students with degrees in computer science, engineering, physics and math. There is also a vast network of applied scientists and academics who were laid off after the collapse of communism. These tech workers are great problem solvers. "Life in Russia is difficult; we have to solve problems every day of our lives,"says Anatoly Gaverdovsky, the Moscow-based vice president of R&D for VDI. "This makes us good at working in an undefined environment—which means we can take an idea and turn it into a program. I don't think Indians are as good at that."

Philip Myers, founder of Typhoon Software in Santa Barbara, California, tells about the first technicians he hired in St. Petersburg in 1992. He gave them a three-month project using Microsoft Windows but had heard nothing after two months. When he investigated, he found out that the Russians had no Windows manual and had reverse-engineered the software to learn how it was written.

Software development could be a huge growth business for Russia. Right now, about 500 small Russian software outsourcing firms employ 10 to 200 programmers, but there are also thousands of independent code writers scattered across the country. Russia's software exports are growing 60% a year, about the same as India's—although from a much smaller base.

2004-01-26T11:17:00.000+02:00

In France, Outsourcing and offshoring are rising, but abit slowly. But I am sure this will gorw and grow again in the next 2 years. The cost effectiveness and US example will lead to such an increase.

Here is an article about that point in France. Hope this will be easy to read for everybody.

La délocalisation des services informatiques s'accélère... doucement

Boris Mathieux, 01 Informatique, le 09/01/2004 à 00h00

Afin de rester compétitives, les SSII s'orientent davantage vers la main-d'oeuvre offshore. En fin 2003, elles précisaient leurs objectifs pour les prochains mois.

Pour redresser leurs marges tout en s'adaptant aux besoins d'économie de leurs clients, les grandes sociétés de services informatiques multiplient les implantations dans les pays à faible coût de main-d'oeuvre. D'abord taboue, l'approche offshore est progressivement devenue un avantage concurrentiel à mettre en avant. Les annonces de plans de délocalisation se sont ainsi multipliées tout au long de l'année 2003, avant d'être précisées en fin d'année. Nombre de projets d'implantation offshore ont ainsi été revus à la baisse ou décalés dans le temps, d'autres étant plus rarement confirmés.

Dans la plupart des cas, l'Inde apparaît encore comme la destination privilégiée. Le sous-continent fournit, en effet, une part croissante de la main-d'oeuvre des sociétés de services informatiques. Accenture, par exemple, y créera 5700 emplois au cours des douze prochains mois, estimant pouvoir atteindre un effectif de 10 000 personnes à la fin de l'année. Selon Business Week, IBM Global Services atteindra le même effectif, mais d'ici à 2005. Tandis qu'EDS comptera autour de 3 500 salariés indiens dès cette année.

Destinations : Mexique, Brésil, Argentine, Bulgarie...

Bien sûr, l'Inde est loin d'être la seule destination à bas coûts pour les SSII. Entre ses activités de services applicatifs et de BPO (Business Process Outsourcing), EDS s'est donné pour objectif de compter 14 300 employés nearshore et offshore d'ici à la fin de 2004. Or, une bonne partie des employés de ce programme dit « best shore » seront localisés au Mexique, au Brésil et en Argentine. De même, CSC, qui abrite environ 10 % de son effectif total dans ses centres nearshore et offshore, est implanté aussi bien dans différents pays asiatiques qu'au Canada, en Australie, en Irlande ou en Bulgarie.

En France aussi, les grandes SSII affinent leur politique de « multisourcing » en complétant leurs centres de compétence en région par des implantations offshore. Ainsi Cap Gemini Ernst & Young (CGE&Y) dénombrait 1 500 informaticiens à Bombay à la fin 2003, contre un millier seulement trois mois plus tôt. Le groupe compte, en outre, développer cette année un nouveau site à Bangalore. Une ville investie par Valtech depuis mai 2003, avec déjà une centaine d'employés. Atos Origin bénéficie, lui, de la présence historique d'Origin à Bombay (1 000 personnes) et au Brésil (600 personnes). Plus récemment, Atos Origin s'est implanté en Chine (100 personnes) et en Pologne (100 personnes), alors que la fusion en cours avec SchlumbergerSema devrait encore changer la donne au cours des prochains mois.

Cependant, si le marché français de la sous-traitance offshore décolle actuellement, sa progression ne doit pas faire oublier sa jeunesse. Il représentait à peine 1 % de la sous-traitance possible en offshore en 2002, contre 9,4 % aux Etats-Unis, selon Pierre Audoin Consultants (PAC). Et plu-sieurs freins permettent de douter d'un quelconque rattrapage. D'abord, le « delta » du coût de main-d'oeuvre entre la province et l'Inde demeure très inférieur, par exemple, à celui constaté aux Etats-Unis ou au Royaume-Uni. « Pour la tierce maintenance applicative, la province demeure compétitive par rapport au prix du marché » , illustre Francis Meston, président d'EDS France. Ensuite, sur un marché du travail informatique déjà fortement dégradé, « la vision de l'offshore comme étant potentiellement destructeur d'emplois (...) peut avoir un certain écho auprès des syndicats , explique ainsi Elisabeth de Maulde, de Pierre Audouin Consultants. Limitant ainsi son usage. » Enfin, les réservoirs francophones de main-d'oeuvre informatique off-shore Maroc, Roumanie, etc. étant beaucoup moins importants que leurs équivalents anglophones, la langue demeurera un frein majeur.

Lire l'article et d'autres liens

2004-01-26T11:07:00.000+02:00

BANGALORE, Jan 24 (Reuters) - India's software industry association on Saturday criticised a United States Senate bill that imposes curbs on overseas outsourcing of government business, calling it an attack on free trade.

"We are dismayed to learn about the Bill in the U.S. Senate that restricts offshoring of work contracted by the U.S. government," Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said in a statement.

Indian newspapers prominently displayed on their front pages the passage in the U.S. Senate on Thursday a federal spending bill, which includes clauses restricting outsourcing.

"The bill is yet to become law, and we hope that wiser counsel will prevail," Karnik said.

However, NASSCOM said the business impact of planned U.S. restrictions on outsourcing would be "very small" as the share of U.S. federal government contracts in Indian software exports was less than two percent.

India's software service industry and an accompanying sector that runs call centres and back-office work conducted over high-speed telecoms have been growing aggressively, triggering protectionist talk in the west.

The industry's exports based on strong English language skills and cheaper wages grossed $9.5 billion in the year to March 2003, and are expected to grow at least 26 percent in the current fiscal year to March, 2004.

While recent state-level bills in the U.S. have been minor irritants for India, the federal bill this week in an election year for both United States and India caused unease between the two nations warming up as strategic partners.

Alarm bells have been sounded in the U.S. over a potential loss of jobs in the services sector to India, while China is already seen as having taken a huge chunk of manufacturing jobs.

On the Indian side, where a huge economy has become increasingly globally integrated due to a decade of reforms, fresh fears have arisen over whether Washington is unfair in trade.

Karnik said India's government had itself awarded computerization contracts for its income-tax department to U.S.-based companies, raising a hint there was scope for retaliatory trade action.

"Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by the World Trade Organisation and long espoused by the United States," the statement said.

Bangalore-based companies like Nasdaq-listed Infosys Technologies Ltd (nasdaq: - news - people) and New York-listed Wipro Ltd (nyse: INFY - news - people) have been among leading gainers from outsourcing by U.S. Fortune 500 giants.

Copyright 2004, Reuters News Service

--> read the article on Forbes :
www.forbes.com

2004-01-22T12:25:00.000+02:00

Making Sense of Offshore Initiatives

By Jon Huntress

Kip Martin is Vice President of Outsourcing and Service Provider Strategies at the META Group. Kip said the main purpose of his talk was to make sense of outsourcing, since he gets many questions from people looking for the right outsourcing “answer.” But there isn’t one, he said, “The magic slide doesn’t exist in this PowerPoint presentation”.

Kip’s primary concern is with the outsourcing of applications. He explained that applications are straightforward. They are the fundamental software that businesses run on, and outsourcing just means that someone else runs that application. But applications affect a business, and that means business processes are inherent in them. Outsourcing your processes is not a straightforward endeavor.

Outsourcing isn’t about location, and picking a region isn’t the first step. The outsourcer is what’s key. Outsourcing means that something is leaving you, and therefore managing it from afar is going to involve more work than if it stayed in-house. There are a lot of variables in outsourcing, location being one of many.

There is high interest in offshore now, and a lot of money is being made and saved. Kip explained that the offshore market became important because of Y2K, when businesses first used outsourcing to help alleviate the problem. The 2001 economic downturn increased interest in offshore to save costs. Users are asking when, where, and how to make outsourcing initiatives work. Offshore vendors are presenting strong cases to CIOs on how to save money, and CIOs are actively investigating whether this is a viable option.

Kip said the critical issues are:

•Dealing with the perceptions and misperceptions of offshore sourcing and compare them with real-world results.
•Developing models to determine offshore compatibility and mitigate potential risks.
•Mapping the shifting sands of the service provider and the offshore vendor landscapes.

There are many misperceptions about going offshore. The first is the cost savings that can be realized by IT organizations through offshore outsourcing. There are real savings, but there is also a price to pay. Another misperception is that the development cycles at Capability Maturity Model (CMM) Level 5, can be achieved by using an offshore vendor with that level. A third misperception is that offshore vendors are increasingly able to provide facilities management and operations support. Kip dissected each of these misconceptions and added that offshore vendors can provide many benefits, but none of them appear automatically, or “auto-magically”, as he put it.

Potential savings do exist. Direct labor savings can be as high as 40% - 50%, but offshore is a “code factory” concept, which requires a different operating model. The best things to outsource are stable applications that don’t change much, and don’t need tweaking. The lowest costs come out of places like China and Vietnam, but they come with their own set of problems. Kip said that in China, the demand for skilled workers is so great that you could lose people who are specifically trained for your project to a poacher. There are no fixed prices either, only baselines. As your technology changes, so do the prices.

CMM Level 5 is a major asset, but you can’t take advantage of it unless your business processes are at least CMM Level 2. If your systems and processes are a mess, then you are paying your outsourcer to clean it up. Most offshore vendors are CMM Level 5 but the average ITO shop doesn’t need that level, nor can they make use of Level 5 skills. The majority of outsourced projects are being performed at Level 3, which is still a challenge. The ability and risk of internal change is a major consideration when choosing offshore options, and both IT and a business’s ability to change need to be considered.
Kip recommends that IT organizations include CMM transformation with the outsourcing services.

Kip compared the transition to outsourcing to a long-term relationship or marriage. It takes a good 18 months to establish. And it will take another 18 months to bring it back in-house if you change your mind. The average cost savings for IT organizations is 15% to 20% during the first three years.

Offshore is ideal for routine maintenance and support. Applications that have well-defined end-user requirements and common business knowledge are the best candidates. Other good areas to outsource include call centers and help desks; these are proven and effective. E-business development and integration are becoming increasingly mainstream, but facilities management and operations work are still experimental and involve high risk and uncertainty.
Operations generally lack adopted process models, making it more difficult to outsource. Kip advises carefully evaluating any outsourcing of proprietary knowledge. Offshore best practices include ramping up internal operations to comply with CMM processes and choosing applications that best align with the offshore model.

The offshore market is becoming homogeneous. Pure-play offshore providers and their domestic offerings are getting increased competition from domestic vendors expanding their offshore capabilities. Pure-play vendors are increasing their local skills and knowledge with domestic talent and are expanding into new service areas. Kip says that by 2005, a few offshore vendors will emerge as full-service outsourcing providers.

In summary, Kip restated the need to develop realistic expectations about offshore opportunities and capabilities. Can your IT organization adopt CMM principles and can your business units allow a “process” culture? Determine which applications are candidates for offshore sourcing.

Expect the line between domestic and offshore vendors to continue to blur. Domestic vendors will always have broader offerings, but you need to know the quality of their subcontractors. You have to stay current in your research, and have your own people on site regularly to ensure quality. There are a lot of benefits to outsourcing, but it takes work and commitment to get there.

2004-01-19T17:41:00.000+02:00

BusinessWeek Online
The Changing Face of Offshore Programming
Wednesday December 31, 8:28 am ET
After nine months of exposure to the overseas outsourcing market, I'm ready to give an update on the realities of outsourcing for small businesses. This is an emotionally charged issue for a lot of people in the U.S., so let me start by saying up front that the results are mixed. Like a lot of larger businesses, I've discovered a number of hidden risks and costs. While I don't think those issues will end the trend of sending jobs to cheaper labor markets, I do think the wholesale enthusiasm for outsourcing overseas is quickly waning.
I'm not going to recount all the issues and arguments about why I started exploring overseas labor markets, as it tends to spark an explosion of angry mail. Instead, I'm going to stick to the results I've experienced, and some trends that I've seen that confirm my belief that while outsourcing represents a serious risk to the stability of our economy, I doesn't spell the end of American enterprise, as many critics claim.
Let's start with the details. Since the first project I outsourced to Argentina and wrote about in this column, I've worked on projects outsourced to Brazil, to multiple groups in India, and I've reviewed proposals from China, Poland, the Philippines, Taiwan and Russia (see BW Online, 4/11/03, "The Woman behind the Code"). On every project that I considered outsourcing, I also solicited bids from American programmers, and about 60% of the time, Americans won the business. I see no sign of that success rate diminishing for American programmers, and in fact, I see a few signs that lead me to suspect it may grow.
A big disclaimer here: I'm dealing with outsourcing on a per-project basis. There are forces shaping my market that don't apply to big companies outsourcing overseas, so my views are limited to small businesses and not to the market as a whole. The one thing that I believe applies to both small and large businesses is that hidden costs add up quickly.
CUT-PRICE EDUCATION. The first thing area of hidden costs relates to project management -- costs that are included when you have a development team under your own roof. That sounds obvious, but in practice, it's eye-opening. I've spent a lot more time than I expected in project management, quality assurance, contract issues, and communication. These issues have added significantly to the bottom-line costs of outsourcing. In some ways, however, they have also provided me with a valuable education.
I've realized that with programmers under my own roof, I used to get away with a lot of shaky project practices in scope management, discovery, documentation, and testing. If you don't have these processes well under control, outsourcing will burn you severely. If you don't know what I'm babbling about, don't even think about outsourcing overseas. It may sound cheap and easy, but I've seen two companies get in over their heads, and with disastrous results.
The second area of hidden costs relates to business risks and requirements. As many outfits doing business overseas for the first time are discovering, there are few reliable standards for intellectual property protection and contract enforcement. A contract is only as strong as your ability to effectively enforce it. If you can't afford the enormous costs of fighting an international legal battle, you should think twice about sending anything proprietary overseas. In a future column, I'll tell you about two companies I know fighting legal battles over intellectual property (IP) stolen by overseas vendors.
RISKS AND REWARDS. One strategy for dealing with IP risks is to break a project up into components that can be outsourced to different vendors, all blind to the complete project. One of my clients requested this kind of arrangement so it could benefit from cheap labor costs on a piecemeal basis, but the added cost of project management and integration required to bring the separate pieces back together eliminated most of the savings while introducing new risks in quality control.
And this brings up the third area of hidden costs I've discovered with my own outsourced projects -- quality control. While the general quality of projects I've outsourced overseas has been high, I have employed local programmers to provide oversight on both the outbound and inbound side of project deliverables. Call me crazy, but I don't think it's smart to deliver a code base with comments and variables written in a language you don't understand.
A general strategy that some companies use to deal with all of these risks is to outsource the project to a domestic company with overseas development partners. The local company takes on all the risk and accountability for the project. But there are risks here, too. One of my clients who took this route discovered that while their localized vendor was passing along savings on programming labor, it was front-loading costs on project management, which is where they make their money. I don't say that impugn every domestic outsourcing agency, as I'm sure there are some good ones, but you better know the pitfalls before you sign up.
EXPANDING EQUILIBRIUM. All of this has led me to be very particular about the types of projects I'm personally willing to outsource overseas, and to be increasingly diligent about my own project management process to ensure that I actually realize the margins I expect. In general, I'm outsourcing non-sensitive projects that include a significant programming labor component. Anything sensitive, including projects with intellectual property or risky e-commerce components, goes first to a trusted American partner who can, in turn, outsource whatever they're comfortable sending out. To me, it's just not worth the risk of winding up in court over something that provides marginal savings -- savings that seem to be diminishing regularly.
I mentioned in one of my contentious articles on outsourcing that I didn't believe the trends that have caused the epidemic of outsourcing would continue indefinitely (see BW Online, 4/25/03, "Grasping, Greedy, Unpatriotic? Not Me"). My major arguments were that overseas labor costs would rise with increasing demand, and that increasing patronage would gradually empower workers overseas and inspire more of the local labor regulations and controls that add to labor costs in the U.S. One of those trends is already happening, at least in the labor markets I've been exploring.
Six months ago, I could find high-level programmers in India willing work for $15 an hour, vs. the $100-plus an hour I was paying Americans for the same work. In only six months, that rate has climbed to $25 an hour in India, while my domestic rates have dropped to around $35-$50. On the last project I bid out, two proposals from India came in higher than domestic contractors. Admittedly, I'm in a very small sector of the larger market, and it's too soon to tell even here whether the trend will last, but I've heard similar reports from other businesses (see BW Online, 12/2/03, ). My major arguments were that overseas labor costs would rise with increasing demand, and that increasing patronage would gradually empower workers overseas and inspire more of the local labor regulations and controls that add to labor costs in the U.S. One of those trends is already happening, at least in the labor markets I've been exploring.
Six months ago, I could find high-level programmers in India willing work for $15 an hour, vs. the $100-plus an hour I was paying Americans for the same work. In only six months, that rate has climbed to $25 an hour in India, while my domestic rates have dropped to around $35-$50. On the last project I bid out, two proposals from India came in higher than domestic contractors. Admittedly, I'm in a very small sector of the larger market, and it's too soon to tell even here whether the trend will last, but I've heard similar reports from other businesses (see BW Online, 12/2/03, "U.S. Programmers at Overseas Salaries").
COLD COMFORT, HIGH HOPES. The speed with which this trend popped up suggests not so much that outsourcing overseas is already losing it's value, but that the factors driving cheap labor in foreign markets are a lot more fluid than we may believe -- especially in countries with the talent and infrastructure to provide quality of service.
In the end, I believe labor markets will equalize more rapidly than we might think -- just how long that takes is a question I can't honestly address. I realize that's of small comfort to the American developers who are out of work this holiday season, or to those taking a much smaller wage than they enjoyed three years ago. If you're one of them, I can only say that I understand your circumstance more than you might think.
Despite what some readers seem to think, writing this column doesn't make me wealthy or successful. The truth is that I'm still struggling mightily to recover my own business after the recession, and glowing economic numbers notwithstanding, the outcome is still far from clear. All I can do is continue to work as hard as I can in the new year, and to try to understand what it takes to run a viable and honorable business in a global economy that I truly believe in the long run will provide a better world for my son. Happy New Year.

2004-01-12T12:02:00.000+02:00

Offshore : Are you ready ?

Sorry for non french readers. I did not find an off-shore company to transate this article for free ;-) Anyway, this is about the offshore opportunities in France, a market which still needs to make its revolution to fully benefit on the profits of Off-shore.

Offshore : êtes-vous prêts ?

Boris Mathieux, 01 DSI, le 01/12/2003 à 07h00

Encore marginale en France, l'externalisation offshore de l'informatique séduit un nombre croissant d'entreprises, obnubilées par la réduction des coûts. D'autres avantages sont à trouver, à condition d'être préparés.

Maintenance applicative, développements, administration et support systèmes... Malgré les récentes levées de boucliers politico-médiatiques aux Etats-Unis, Forrester Research estime que 30 % des entreprises américaines confieront une partie de leurs travaux à des prestataires offshore en 2003. De son côté, Gartner prévoit que, en 2004, 80 % des comités exécutifs américains auront examiné leur stratégie de sourcing informatique dans une perspective mondiale, nearshore ou offshore.
Alertées par le phénomène, les directions générales des entreprises françaises se mettent à rêver à leur tour à de substantielles réductions de leurs dépenses informatiques. De nombreuses multinationales sont déjà concernées, et les « grosses PME » leur emboîtent tout juste le pas. « Au moins une centaine de grandes entreprises françaises utilisent des services informatiques offshore », juge Elisabeth de Maulde, de Pierre Audoin Consultants. Dans son étude « L'offshore, menaces ou opportunités », l'analyste estime que le marché français a ainsi sous-traité 100 millions d'euros en offshore l'an dernier. Soit moins de 1 % de la sous-traitance adressable contre 9,4 % aux Etats-Unis. Alors que l'offre mondiale de prestations informatiques offshore est à 80 % indienne, la demande est, pour l'essentiel, bien américaine. Ce que confirme un rapport de juin dernier, réalisé par l'association des SSII indiennes Nasscom : sur ses 9,5 milliards de dollars d'exportations de logiciels et de services informatiques pour 2002-2003, 71 % étaient destinées aux Etats-Unis, 14 % au Royaume-Uni, et 9 % seulement au reste de l'Europe.
Dans les années quatre-vingt-dix, les multinationales américaines avaient, en effet, ouvert la voie de l'informatique offshore. General Electric (GE) a notamment donné l'exemple avec sa politique de référencement mondiale des prestataires. Aujourd'hui, l'ensemble de ses filiales bénéficient de ce réseau de partenaires, dont les avantages ne se limitent pas à la seule réduction des coûts.
De l'Inde à la Hongrie
« Des bénéfices intangibles sont à trouver dans l'immense réservoir de talents de notre partenaire et sa capacité à adapter son effectif en fonction de nos besoins », affirme Raymond Reculard, CIO Europe de GE Capital Real Estate, à propos de son prestataire indien Tata Consultancy Services (TCS). Cette capacité de « time-to-market » accéléré permet à l'utilisateur de délivrer plus rapidement les projets prioritaires. Situé à Paris, le service informatique de GE Capital Real Estate Europe a fait appel à TCS pour participer à l'interfaçage des systèmes de gestion locaux avec le système mondial de GE. Essentiellement bâtie par croissance externe, la branche européenne de GE Capital Real Estate avait hérité des logiciels de ses différentes filiales, qu'il s'agisse de la gestion locative ou de la gestion d'actifs. Ainsi, les briques locales sont interfacées par les consultants de TCS, à la fois sur place et en offshore. D'abord basée en Inde, l'équipe de TCS dédiée à GE Capital Real Estate a ensuite migré vers la Hongrie en fin 2001. Grâce à une connexion réseau, l'équipe de TCS a alors pu directement travailler sur le serveur et réduire le nombre de personnels onshore (délocalisé sur site).
Et d'autres particularités géographiques sont rapidement apparues, marquant leur importance dans la recherche de prestataires offshore : « Nous apprécions le niveau de qualification technique et le multilinguisme de la main-d'oeuvre hongroise, sa situation au centre de l'Europe - réduction du temps de voyage, même fuseau horaire, etc. -, l'absence de restriction import/export dans l'Otan sur les logiciels et matériels informatiques, l'absence de visa, la stabilité de la monnaie et du climat politique... En somme, nous pouvons prévoir des économies substantielles, sans délais importants de mise en place », se réjouit Raymond Reculard.
Une capacité de développement exceptionnelle
La direction des services bancaires de la Société Générale, elle, a sélectionné TCS pour son offre logicielle de traitement des moyens de paiement et de gestion des comptes clients. Le coût n'était pas non plus le seul critère d'appréciation. « La capacité de développement et de mise à disposition d'importantes ressources dans un domaine particulier est exceptionnelle, insiste Thierry Roehm, responsable des projets de moyens de paiement. Nous apprécions aussi la bonne compréhension de nos attentes, la clarté de la documentation sur des spécifications, et les livrables quasi mensuels. »
TCS est également chargée de la maintenance et de l'amélioration du Secom, le système suisse de règlement et de dépôt de valeurs au niveau international. Son opérateur, SegaInterSettle (SIS), se réjouit de dix années de relation de travail de qualité. « Pour des SSII telles que les majors américaines nous serions insignifiants, alors qu'à leurs yeux nous sommes encore très importants, confie Donald Thomas, CEO de SIS. TCS a été sélectionné pour sa compétence, la garantie de prix fixes et son respect des dates de livraison », résume le dirigeant.
Priorité aux projets sans implication sur la clientèle
Bien sûr, toutes les expériences d'externalisation offshore de l'informatique ne se passent pas aussi bien. « Certains prestataires sont plus professionnels que d'autres, rappelle, s'il en était besoin, Peter O'Kane, Senior Vice President de Citigroup Global Transactions Services (GTS) Emea, un utilisateur traditionnel de services informatiques offshore. Les prestataires indiens vous présentent généralement des ingénieurs de haut vol - du moins, lors des premiers rendez-vous. Mais il leur manque souvent la maturité business. Ils ont plus un profil ingénieur que de véritable consultant. Par exemple, ils sont prêts à choisir le " best of breed " d'une famille de progiciels plutôt que la solution qui a fait ses preuves. » Ce directeur en charge du développement recommande ainsi de commencer avec des projets sans risque, c'est-à-dire sans implication possible sur la clientèle. « Nous savions que le rôle de conseil de notre prestataire serait moins développé que pour une SSII européenne, semble confirmer Thierry Roehm (Société Générale). Cela exige une grande maturité du client dès la phase de spécification, ce dont nous avons été conscients tout au long du projet. » La relation tripartite client/chef de projet SSII/responsable produit a ainsi dû être rapidement orientée de manière à affirmer le rôle leader du chef de projet client. « La contrepartie de cette approche" taylorienne " du service informatique est, bien sûr, sa rigidité : appréciable pour le respect des délais, mais permettant une moindre adaptation dans une phase post-tests. »
Des indicateurs pour déjouer les pièges
Avant toute démarche d'offshore, les entreprises doivent décider si elles sont mûres pour gérer ce type de projet et prêtes à s'engager dans un processus à long terme. Il faut ensuite définir les objectifs de l'externalisation offshore - réduction des coûts, recherche de compétences, etc. - et sélectionner les projets qui s'adapteront le mieux à cette démarche.
Une analyse du risque et des indicateurs permettent de déjouer nombre des pièges liés à l'offshore. « En amont du projet, la direction de la qualité industrielle a notamment évalué les compétences des acteurs, leur turnover et les problèmes de communication - langue, techniques - avec les utilisateurs internes », explique François Bethemont, responsable de la maintenance applicative pour les opérations monde chez Essilor. Le leader mondial de la production et de la distribution de verres optiques a ensuite lancé la phase pilote de son premier projet informatique offshore. Concernant la maintenance des applicatifs de la supply chain, ce pilote a été l'occasion de mettre en place des indicateurs permettant, à terme, de valider ou non l'opération en cours : taux de service, capacité à travailler avec l'équipe TMA française de Cap Gemini Ernst & Young et les équipes projets Essilor, respect des procédures, qualité de service, autonomie de l'équipe... Après validation du pilote, Essilor envisage également de mettre en place un plan d'action pour limiter les risques, ainsi qu'un plan de communication destiné aux utilisateurs des différents sites. D'autres projets offshore pourraient être envisagés si celui-ci fonctionne. Mais François Bethemont prévient : « Nous devrons toujours garder l'expertise et la maîtrise des projets en France, et nous appuyer sur nos partenaires. »

2004-01-12T11:55:00.000+02:00

Want to jump to cost effectiveness ?
Want to visit countries and reduce your costs ?
then read who to achieve your goals ;-)
Thanks to Forrester Research

Commentary: Four stages of going offshore
By Forrester Research
Special to CNET News.com
December 22, 2003, 12:30PM PT

By John C. McCarthy, Research Director
Offshore governance changes dramatically, as companies migrate through the four stages of the offshore journey. What starts as an administrative function evolves over three or more years into a program management and development discipline.
Forrester recently attended a panel on "offshoring" in the insurance industry, at which offshore users revealed divergent levels of insight and experiences. These companies represent a reality that the move offshore is not a simple six-month project businesses can dial up instantly. As we have observed in our research, there is a four-stage migration companies go through over a period of 24 to 60 or more months.

• Bystanders. Despite the rising tide of offshore hype, the reality is that most companies are either doing nothing or just starting their journey to locations like India, Russia and the Philippines. Today, more than 60 percent of the Fortune 1000 falls into this segment. These companies have no offshore relationships. Research shows that the perceptions of those with no overseas experience vary dramatically when compared with the perceptions of companies that do have offshore information technology or business process outsourcing expertise.
• Experimenters. Another 25 percent to 30 percent of Fortune 1000 companies have offshore experience and relationships with offshore vendors, but offshore is not a key element of their overall IT strategy or spending plans. This segment is typified by its use of multiple offshore providers--often more than 10 different firms--as well as its perception of offshore as providers of staff augmentation or low-cost contractors. For experimenters, offshore spending often represents less than 20 percent of their overall IT third-party services (in most cases less than $2 million) budget.
• Committeds. A small group of companies--5 percent to 10 percent of the Fortune 1000--has scaled its offshore efforts to incorporate sophisticated governance techniques, such as creating an offshore-specific sourcing office and focusing its spending with only two to three key providers. These companies employ the offshore suppliers for more complex application maintenance and mission-critical development services.
• Full exploiters. At the top of the offshore pyramid sit those companies--less than 5 percent of the Fortune 1000--that take complete advantage of offshore activities through the combination of development of global sourcing as a core skill and investment in the IT process maturity to take a high percentage of work offshore. They have retrained their staffs to use a consistent methodology and processes based on the capability maturity model (CMM) to drive their higher utilization of offshore suppliers. For example, one company in this camp has 95 percent or more of its legacy maintenance being done in India.
The evolution of governance
Directly tied to the four stages of the offshore journey is a parallel evolution of the offshore-governance and the global-sourcing function. The role and responsibilities of the offshore governance/sourcing function change dramatically over time--it is not a short-term or stopgap position. There are three primary stages companies go through, as they bolster their reliance and utilization of offshore resources.
• Phase one: establishment. The strategic focus in this period is on developing and articulating the overall offshore strategy. With a clear plan in place, the CIO can articulate which IT jobs will be phased out, preserved or partially affected and the plan for retraining redundant staff. This was the consensus best practice on internal communication from a recent governance workshop.
• Phase two: encouragement. In this stage, governance evolves to drive use. Internal resistance to taking mission-critical development and maintenance offshore has to be overcome through joint workshops with vendors on successful projects and cultural training. The program office will also work with human resources to develop and implement offshore usage metrics for senior IT managers.
• Phase three: advancement. In the final IT phase, attention shifts to upgrading IT processes and methodologies. This process discipline is what enables early adopters such as General Electric and Citibank to send such a high percentage of work offshore. The scope of vendor management also shifts from providing the supplier with a to-do list to pushing the vendor to deploy precious domain expertise and proactively offer up shared risk/reward-based projects.
A variety of approaches
The growing diversity of the customer or prospect base means that it cannot be treated as a single constituency. A new level of investment and a higher level of sophistication is required--especially in the area of marketing and services segmentation--from offshore players such as Infosys Technologies, Cognizant Technology Solutions and Satyam Computer Services. Clients and prospects in each of the four stages have different challenges with different support requirements.
• Bystanders need to feel comfortable with security risks. As neophytes, their lack of activity is driven by management concerns and a perception that the savings in offshore are overstated. They need to hear about vendors' base-level security investments and processes, as well as disaster recovery plans. Bystanders also need simple spreadsheets that lay out the costs and savings based on case studies to allay their skepticism.
• Experimenters require assistance to put program management in place. The biggest challenge for experimenters is their lack of a centralized global program management office and the resulting hodgepodge of vendors with hit-or-miss project results. As they move to the next stage and winnow down their suppliers, experimenters represent the primary sales battleground for suppliers. Vendors need to bolster their soft project management skills so that they can help clients develop their program management office. Suppliers with consistent on-time and on-budget delivery track records can use their resulting credibility to share best practices from committeds or full exploiters on consolidating and managing multiple vendors.
• Committeds are open to new services and locations. These clients are looking for help with driving additional usage across the organization and pushing a higher percentage of the work offshore. This means that vendors need to deliver workshops on best practices and consult on how to bolster the client's CMM capabilities. Small multiclient events for sharing best practices on driving offshore usage and developing and implementing utilization metrics will help accounts move to the next level. These clients are also open to hearing about more advanced packaged application implementation and business process outsourcing services.
• Full exploiters want to hear about innovative pricing and relationship models. The most sophisticated accounts are looking to evolve their relationships into full partnerships. This is where vendors need to deploy their bolstered domain expertise and train account teams to have business-level discussions with non-IT executives. These investments in business acumen will allow vendors to proactively suggest innovative risk/reward pricing models. The complexity of full exploiters' projects dictates this level of pricing and delivery creativity.
© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.

2004-01-08T15:06:00.000+02:00

Some elements about outsourcing and confidentiality.

Legal Outsourcing: Confidentially Yours!

By William B. Bierce

Outsourcing can be scary. When getting started in outsourcing, the customer must learn to trust and rely upon the external service provider. That trust includes disclosure of one‘s deep, dark secrets: confidential data.

This leads customers seeking an effective outsourcing to begin with a self-analysis akin to psychotherapy: where did I come from, where do I want to go, and what‘s holding me back? Am I paranoid, or can I trust my outsourcing vendor to keep my secrets?

In this article, we consider the strategies, life cycles, sources of law, interest groups and public policy relating to confidentiality of information in outsourcing, with some possible “best legal practices“ for consideration by outsourcing decision makers and their legal advisors.

Business Strategy
From a legal standpoint, such concerns can be summarized in the concept of business strategy. Protecting that business strategy requires a starting place and an intended destination. And such policies must intertwine with other policies, particularly security, risk management, disaster recovery and business continuity plans.

Life Cycle of Confidentiality in Outsourcing
Confidentiality as a tool of business strategy has its own life cycle. In outsourcing, confidentiality is essential to avoiding legal risk and preserving legal rights, up till the point where confidentiality ceases to be feasible or legal. But certain information must be disclosed at specific times to implement the strategy. Thus, in the process of conducting an outsourcing strategy, customers must plan and time the process of gathering information, protecting existing information and disclosing sensitive information at the right time.

Interest Groups in Confidentiality in Outsourcing
In an outsourcing, several constituencies are affected. These include shareholders, directors, officers, employees, agents, customers, suppliers, regulators and competitors. For each, the desire, need and right to know may differ. Consultants, lawyers and internal leaders who support the outsourcing process should share their understanding on the timing, scope and legality of disclosures concerning the outsourcing process in relation to each such “constituency.“

Best Legal Practices on Confidentiality in Outsourcing
Confidentiality is a perennial problem in business. It is even worse when sharing confidential information with business partners. Certain “best legal practices“ might be considered.

Outsourcing Decision-Making Process
To preserve the customer‘s rights and limit its risks, the early processes in outsourcing should be kept confidential. Outsourcing might not provide the solution to the type of transformation, change in business model, cost savings or other strategy.

Outsourcing Contracting Process
After the decision to pursue an outsourcing process, the details of the process need to be kept confidential to preserve the customer‘s bargaining power with multiple vendors under consideration. But fairness and self-interest (to preserve credibility for future outsourcing initiatives) dictates that each bidder should receive the same information from the customer including bid questions and answers.

Outsourcing Service Delivery
Customers should make sure that the service provider has the capacity and skill to protect the rights of third parties. Nothing could be more embarrassing (and damaging) than incurring liability to third parties by reason of any unauthorized use or copying of third party confidential information. See, e.g., In re Pharmatrak, Inc. Privacy Litigation, No. 02-2138 ,__ F.3d __ (1st Cir. May 9, 2003), citing the 1986 Electronic Communications Privacy Act, 18 U.S.C. § 2511(2)(d).

Alignment of Confidentiality and Security Policies
The policies and procedures for preservation and confidentiality of data used by the outsourcing services provider should be aligned with, or more strict and secure, than those of the customer.

Periodic Policy Review
Like any “managed service,“ the outsourcing relationship needs “care and feeding.“ Customers should consult with service providers on responding to the emerging demands of a business environment that is increasingly subject to external threats, internal risks and environmental risk.

Author:William B. Bierce
Email:wbierce@biercekenerson.com
Website:www.outsourcing-law.com

2004-01-07T11:12:00.000+02:00

Another point of view on pro and contras for Outsourcing your IT.
Honestly I do not totally agree when he says "you can outsource almost anything". I would be more cautious.
About the real cost effectivness of outsourcing, Mc Kinsay Institute published a very accurate study.

Outsourcing IT Development: Advantages and Disadvantages

By Basil Tesler

You can outsource almost anything. Maybe you don‘t know it yet, but it‘s true. A couple of days ago, when I was drinking coffee in the kitchen, my wife pointed at the faucet that was leaking big time. The good ole faucet was there when we moved in about ten years ago, and trying to fix it again didn‘t make sense any more. Since I religiously believe in DIY, I bought a new faucet and set about working. When the old faucet was gone, I found out the metal pipe under the sink had to be replaced, too. There was no way I could do it without recourse to welding. I realized I was ready to outsource that part of the project, so I called the plumber.

IT development outsourcing isn‘t much different than any other kind of outsourcing. When you face an insistent need to start a new IT development project, you have to weigh your current in-house capacity first. If your experience and budget allow you to cope with the task without resorting to any outside expertise, you should probably take full advantage of your potential and do it yourself. However, if there‘s danger that you‘ll bite off more than you can chew, it‘s about time to consider the advantages and disadvantages of outsourcing.

ADVANTAGES
Basically, outsource service providers offer you higher quality services at a lower cost. This makes the advantages of IT development outsourcing obvious, so let‘s have a look at just a few of them.

Outsourcing IT development is a most effective way to stretch your budget. When managers plan IT development outsourcing, they usually make it their aim to cut down the company‘s expenditures by 30%. This is a figure that speaks for itself. Of course, there‘s always the risk of failure, but if you outsource prudently, you‘ll afford to implement projects of such a scale that would be impossible for you to reach on your own.

If you need to have state-of-the-art IT solutions worked out and innovations implemented with small losses, outsourcing may be the only way out. It will save you from the nightmare of retraining your employees (or even hiring new ones) and/or paying for re-equipment.

Cutting your costs and upgrading the quality of the services you offer will allow you to expand the competitive capacity of your business. I suppose the state the IT market is in today makes this simple argument a crucial one.

When you outsource IT development to an outside company, you can concentrate on your core activities. You won‘t be able to completely forget all about the project or its part that you have chosen to outsource as soon as you sign a contract with an outsource service provider, but you won‘t have to get scattered, either.

If you deal with an experienced and highly qualified vendor, you‘ll be able to gain valuable expertise in support of your IT capacity. Almost any vendor will surely try to set a dependency trap for you, but it doesn‘t mean you have to acquire the dependency pattern instead of learning everything you can derive from the vendor‘s expertise.

DISADVANTAGES
So, you have finally decided in favor of outsourcing. Will it automatically make you wealthy and happy? This is far from true. Various studies show that 20% to 35% of IT outsourcing contracts are not revived after they expire. Needless to say that most customers in these cases are not satisfied with the quality and/or price of the services. Outsourcing as a nightmare was eloquently illustrated by Beth Cohen, president of Luth Computer Specialists, Inc., “There was a company in Dayton that decided to outsource much of its IT and production to a foreign company about five years ago. After about nine months of outsourcing, the company realized that there was a huge loss in quality for both production and IT support. The company decided to cancel the contract and rehire their old employees. They ended up getting most of their old employees back but at a higher wage than before. Most people would think that the story ends there. However, as hard as it is to believe, the company is actually considering outsourcing again. They think it will be different this time. It will be interesting to see what happens.“

If you need to have state-of-the-art IT solutions worked out and innovations implemented with small losses, outsourcing may be the only way out. It will save you from the nightmare of retraining your employees (or even hiring new ones) and/or paying for re-equipment.

Cutting your costs and upgrading the quality of the services you offer will allow you to expand the competitive capacity of your business. I suppose the state the IT market is in today makes this simple argument a crucial one.

Forewarned is forearmed. This is why I suggest we discuss the pitfalls expecting a business that puts out to the sea of outsourcing.

You will lose control over the project or at least over the part that you have chosen to outsource. This is the problem that frightens almost any manager who has little or no experience in outsourcing. This is the challenge any business involved in outsourcing faces. This is the risk you have to take. It is inevitable that outsource service providers should take control - at least in part - over outsourcing projects. However, they are not supposed to abuse the confidence reposed in them by their customers. In order to minimize the risk, you have to be extremely careful studying the background of your potential vendor. Once you decide in favor of this or that company and begin negotiating the contract, you should try to make the whole process of the project implementation as transparent for you as it is possible.

It‘s usually difficult to avoid the inherent problems of communication.
• Telephone conversations are bad enough, but email and communicating via some instant messaging program online takes even more time. You‘ll have to put up with an endless amount of emails to be sent and received. Besides, if you are dealing with an overseas vendor, the time zone problem will surely arise - the difference between your vendor and you may be seven hours or more. Just imagine: you arrive at the office at the same time when your vendor‘s employees are going to leave. The best way around this problem is to set the mutually acceptable time for online meetings and to require that your vendor should stick to the schedule. In fact, you can even benefit from the difference in time between your overseas vendor and you. For instance, you transmit a rush order to the vendor at the end of your working day, the vendor receives it in the morning (their morning) having those seven or more hours behind, and by the time you arrive at the office, a considerable amount of work will have been done.
• Standards of correspondence may be different to the extent of misunderstanding. If you are having any problems like that while corresponding with your potential outsource service provider, you should try to work out some standards that both of you will find easy to follow, or you‘d better start looking for another vendor.
• Language and/or cultural problems might contribute to all kinds of mix-up. For instance, a lot of people knowing some fundamentals of English are sure that when they ask your opinion about something and you say, “It‘s okay,“ it means you like it a lot. Don‘t waste your time on foreign vendors communicating in something like “Pidgin English,“ and even if the person you‘re contacting has a fairly good command of English, ask for the resumes of those employees who are going to be responsible for each part/stage of the project to make sure they are fluent in English.

An outsource service provider might be trying to diversify the business so zealously that achieving progress in one particular area becomes questionable. The solution to this problem lies in the company‘s portfolio. Examine the relevant case studies and success stories, ask the vendor for references, and, if you are still uncertain, do not hesitate to check these references.

Some vendors advertise services and even take up projects having little or no experience in the corresponding areas. Apparently, they intend to farm out at least some parts of such projects to subcontractors - which certainly doesn‘t look very attractive to the customer. This problem resembles the previous one, and the recommended solution is the same.

Almost all outsource service providers place the highest emphasis on the most advantageous projects. It‘s only natural, but it surely doesn‘t make the life of the customers with lower profit potential easy. In order not to become a neglected customer, you should:

• insist on appending to the contract a project implementation schedule that includes as many milestones and deadlines as you find it necessary;
• stipulate for tough financial sanctions in case the vendor fails to meet any of the deadlines;
• agree on some incentive payments for completing the project on schedule (or even ahead of schedule);
• last but not least, build partnership relations with the vendor whose work you are satisfied with and whose high-value customer you want to become.

Most vendors try to accumulate as many projects as they can. It‘s also easy to understand. However, the burden might appear to be beyond the vendor‘s strength, and this will most likely wreck the project schedule, if not the whole project. If you don‘t want it to happen to you, you can:

• find out the scale of the vendor‘s operations including the approximate number of employees and customers - of course, if it‘s possible;
• request the resumes of all the vendor‘s employees that are going to be involved in the project implementation;
• ask the vendor to describe in detail these employees‘ responsibilities;
• follow the advice given in the previous paragraph.

An unscrupulous vendor may be simply unqualified for the project that an imprudent customer has chosen to outsource. One of the ways to solve this problem is to focus your attention on the expertise of your potential outsource service provider at the selection stage.

A number of problems may arise due to the incompetence of a customer who is a novice in outsourcing. That‘s right, you don‘t have to think that an outsource service provider is the root of all evil. Incompetent customers tend to make modifications in standards and procedures that have been long established. A vendor who knows that the customer is always right tries to implement the project the way the customer wants it, which finally leads to a total mess-up. In order to avoid this kind of situation, try to find out as much as you can about IT development outsourcing from your contacts and… from articles like this.

CONCLUSION
Will outsourcing IT development really profit your business? Uh, maybe yes, or maybe no. In other words, it depends.

If you don‘t possess in-house expertise and/or budget necessary to implement a vital IT development project, outsourcing it - in full or in part - to an outside company seems to be the best solution you can find.

However, you should be discreet selecting the vendor, examining the vendor‘s expertise, negotiating the contract, and monitoring the project implementation. In this case, outsourcing IT development will be rewarding, and the return on investment might be the greatest you have ever had.

Then again, if you are not cautious and thorough enough, you might end up paying through the nose for much worse service than you expected to get. This is what I‘m thinking of right now, when the plumber‘s bill is laying before me.

Author:Basil Tesler
Email:editor@web-space-station.com
Website:www.web-space-station.com

2004-01-06T16:23:00.000+02:00

Offshore

A désigné à l'origine tout ce qui se passe au large des côtes : on se souvient des plates-formes pétrolières offshore, en pleine mer. Puis le terme s'est appliqué plus généralement à tout ce qui se passe à l'extérieur du territoire. Dans le contexte de l'e-business en particulier, le développement offshore désigne le fait de confier à une équipe étrangère la réalisation d'une application informatique. L'intérêt ? Réduire les coûts de réalisation. En effet, les pays à qui l'on confie ces travaux sont moins industrialisés et les salaires y sont donc moins élevés. C'est le cas de l'Inde, qui absorbe 80% des contrats offshore, mais également du Vietnam, des pays de l'Europe de l'est, de la Russie et du Maghreb. Après l'effondrement de la bulle Internet fin 2000, la recours au développement l'offshore s'est beaucoup développé : 40% des entreprises américaines y feraient désormais appel.

2004-01-06T16:21:00.000+02:00

Développement offshore : le pour et le contre

L'argument de poids qui joue en faveur du développement de projets offshore réside dans la croyance, justifiée ou non, qu'il existe des quantités de personnels qualifiés dans des pays où les salaires sont bien moins élevés que dans les pays dits industrialisés. Pourtant les choses ne sont pas si simples : le management d'un projet à distance, impliquant des équipes de langues, de cultures différentes des nôtres peut se révéler assez délicat et générer des coûts non négligeables.

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2004-01-05T15:54:00.000+02:00

Offshore in Russia:
More of what you don't know about doing businesses in Russia; a visit with Boeing and IBM, a look at opportunities and challenges.

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