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GLOBAL IT OUTSOURCING

GLOBAL IT OUTSOURCING. Dr. Subbu K. Murthy VP & CIO QTC. Introduction History Drivers Types of Outsourcing Major Players Framework CSFs and SFFs Establishing a World Class IT Organization The Small CIO and Outsourcing. Discussion Themes.

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GLOBAL IT OUTSOURCING

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  1. GLOBAL IT OUTSOURCING Dr. Subbu K. Murthy VP & CIO QTC

  2. Introduction • History • Drivers • Types of Outsourcing • Major Players • Framework • CSFs and SFFs • Establishing a World Class IT Organization • The Small CIO and Outsourcing Discussion Themes

  3. 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 History

  4. Voluntary Outsourcing • Cost • Focus on “core” activities (maintain balance) • Flexibility • Scalability • Involuntary Outsourcing • Lack of competence/resources • Lack of leadership Drivers for IT Outsourcing

  5. Types of Outsourcing Fusion (JV, Investment) Revenue Based (Strategic) Cost Based (Tactical) Product Development New Custom Applications Buy & Customize Applications Targeted Communications Data/Data Centers Desktop/Helpdesk

  6. 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 US • 20% of the companies are located in California • Everyone knows IT and how to design, fabricate and manage IT (!ha ha) Who are the players?

  7. The Players Fixed fee Project based Delivery (ALL) Provide a focused Product or Service (SAP) Provide everything (EDS, IBMGS*) * Some of the more famous offshore vendors include Tatas, Infosys, Wipro, HCL, Satyam

  8. Domain In source Skills Communications Out source World Class IT Off source Business Sourcing People .NET/J2EE Architecture XP, Agile Legacy CMM, ISO CUSTOM Process Products & Services COTS Delivery Audience Organization Mixed Anthony External Autonomy Internal Governance

  9. Sourcing depends on … • Cost • Capability • Culture People (Sourcing) Critical Success Factors Sure Failure Factors • Understand all parties involved (look for hidden motives) • Project based - not T & M • Clear understanding of expectations • Protect IP • BBS (The Big is Better Syndrome) • Three mismatches to look out for: • Sourcing and Strategy • Sourcing and Governance • Strategy and Governance

  10. Skills depends on … • Complexity of IT • Target audience • Strategy People (Skills) Critical Success Factors Sure Failure Factors • Balance between heterogeneity and homogeneity of skills (algebraic, domain, communications) • Balance between intrinsic and extrinsic motivators • Focus only on Technology – lack of business skills • Focus only on Business – forgetting it is still bits and bytes • Dormancy of skills – not keeping up with changes

  11. Organization Structure depends on … • Industry type, size, age • Management maturity • Business maturity Process (Organization) Critical Success Factors Sure Failure Factors • Customize to fit your IT culture • Flexibility in management style • Incremental • Build on small successes • Manage change • Use same strategy for all projects • Lack of analogical data (metrics) • Rely only on anecdotal decisions • Rely only on analytical decisions • Oversimplify complex problems • Assume that 80 + 80 = 160 IQ

  12. Delivery models depend on … • Maturity • Flexibility • Adoptability • Adaptability Process (Delivery) Critical Success Factors Sure Failure Factors • Customize to fit your IT culture • Flexibility in tools, people and processes is critical • Proper training and acceptance (people and process must enjoy a love affair) • CMM will do the trick (Remember that CMM is tautological) • Lack of project modularity • Mismatches between Architecture, Process and Staff • Assuming that a good process can overcome a weak staff

  13. Requirements • Volatility • Inability to define and establish scope • Information explosion • Gaps between Users and IT • Technology • Vendor hype • Lack of “true” standards • Evolution Real World Issues - Technical

  14. 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 doing • Integrated metrics – balanced score card • Cost of contracts/SLAs • Cost of safe “exit” Metrics, Metrics and Metrics

  15. On-shore Outsourcing Cost Offshore Outsourced Vendors 50 to 100% more than Offshore Managed Development Centers 25 to 100% more than Managed Centers

  16. 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 are the costs lower?

  17. Lowering Costs • Perceived misconception of lowering risk • Governance, Security and increasing IT awareness is making IT organizations top heavy • Aging IT population coupled with radical technology changes is contributing to this reversal • The 80-20 rule is reversed – most of us in IT are spending time on 20% of the issues Why is outsourcing so popular? D O E R S

  18. 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. Are we all out of a job?

  19. Off-Sourcing Cost Model • Suggests whether off-sourcing makes sense or not • Dependent variable = True Cost of Off-Sourcing • Independent variables • Number of projects, type, size, schedule • Duration of relationship • Architecture • Skills (fuzzy) • Organization (fuzzy) • SLA OCM

  20. Dr. Murthy – QTC World Class IT Organization* • Jeff Reid – Conexant Offshore Applications Development and Support* • Dr. P.K. Seshan & Dr. Murthy SriSoft OCM – Offshore Costing Model * Presentations to OC CIO group Acknowledgements Net Benefit OCM “Curves” Maturity (Partnership, Trust, Excellence) Period of Adjustment (Finger-Pointing, Cancellations, CIO changes, Litigation) Early Gains (Honeymoon, Giveaways) t

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