...IT Outsourcing & Trends - The Closure

As it just got interesting, I decided to finish this blog with some research comments and give my opinion to the HECian Strategic Consultant I met. We had debates and arguements, all moving in the positive direction, talking about how the future trends could be shaped up. Taking these information into account as well as the market research work from various sources, I recommended and stressed on the following points as the key trends in the near future for IT Outsourcing to my HEC network.

• IT Outsourcing could reach USD $ 200 Billion by 2010.
• Of 25 Global “Breakout” companies identified by Fortune Magazine in 2005, 22 are in IT and Bio-Tech.
• The list of 10 richest people in the world in 2006, 6 came from IT or invested in IT and bio-tech area.
• Information Technology can create more jobs than other fields. One job in IT can facilitate more than 25 jobs growth in other areas.
• IT workers in China & India are pushing their regional economic levels to new highs.
• Asia’s IT outsourcing business continues to grow > 20% annually
• Russia’s outsourcing business predicted to grow a little over 30% in 2007 and could compete with leading IT giants in India & China within next few years

One thing is for sure...information technology is everywhere and the outsourcing trend is here to stay. You cannot just ignore it. The important point is that how you embrace the technology and based on the business model, use it to make your business much more profitable and reachable to the different consumers. With IT, it's a matter of winning in this Flat Flat World. After all it brings in the global competitiveness. It is a major force that can help you change your business as well as to adapt your business globally. IT outsourcing trend will continue to increase due to business conditions (e.g. cost, quality, skills, access to market). Some companies will move fast in the value chain and occupy a key advantage in IT industry. Companies that prepare to do business globally will succeed when others may fail - in the long term. Continuous education & training are the keys to succeed in the fast changing Outsourcing world.

I hope the experience of this conversation was informative to some extent, atleast it helped me reach my audience at HEC academic management, as I went on to meet the director of Fortis to discuss on more current issues and global concerns. I also remember having similar conversation with a Economics professor of the Said Business School, until I met the representatives of IE :)

...IT Outsourcing & Trends in Asia Pacific and Europe

I think I just couldn't wait any more, so decided to do immediate research on this topic. I started pondering on how things started working for each of the countries in Asia Pacific, Western and Eastern Europe. So I came up with the following SWOT analysis (Source of research from Carnegie Mellon University Benchmarking Study):

What does the Asia Pacific Region offer in Outsourcing?

• Some of the fastest growing software industry in the world are located in Asia
• Growth rate > 35% annually over the past 5 years
• Highly educated & motivated workforce (India, China, Japan ...)
• Strong engineering & manufacturing focus (Japan, S. Korea, China)
• Well-established infrastructures (Japan, S.Korea, China)
• Strong government support (S.Korea, China, Singapore)
• Many countries have adopted “India’s IT Model” as the growing vehicle for economic prosperity
• Highly entrepreneurial & innovative
• Some countries are well adapted to global business but many are still experiencing language and cultural issues
• Some geo-political risks

What does the Western Europe offer in Outsourcing?

• Software industry is steady at > 8 % growth rate annually
• Highly educated in some areas (Ireland, UK, Scandinavia)
• Strong engineering & telecommunication focus
• Very protective of legacy systems & applications
• Governments are still the largest consumption of software
• Very high overhead cost due to bureaucracy & liberal laws
• Outsource “near-shore” to Eastern Europe
• Culturally diverse (languages, legal, business practices etc.)
• Economic polarization – some fare better than others
• IT Polarization: Scandinavia and Ireland are very active where France and Italy are more conservative
• IT education in many countries is slow to catch up with fast technological changes
• High unemployment among the younger generation

What does the Western Europe offer in Outsourcing ?

• Software industry is growing fast but still immature
• Highly educated & large untapped talent pool
• Strong mathematical focus, limited practical experience
• Lack IT infrastructure & support environment for global business
• Governments are the largest consumption of software
• Low labor cost but not well managed
• Receive outsourcing works from Western Europe > USD $ 500 Million
• Culturally diverse (languages, legal, business practices etc.)
• Economic uncertainty due to growing pains – change is difficult
• Political uncertainty - Several social models and directions resulting in high risks business environments
• High unemployment among IT labor force - Most skilled workers left for Western Europe – significant “Brain Drain”
• Limited project management & relationship management skills

More on Trends and final closure comments in the next blog...

IT Outsourcing & Trends

I was very impressed with the way the Information System classes concluded at IE Business School for the first term (Nov '08 - Feb '09). Working as an IT/Telecom /Travel Services Consultant for the past five years, I had to constantly deal with the concept and the modelling of the offshore-onsite model, also known as Outsourcing/Offshoring. So before the economic downturn officially came into picture I was researching on the different trends in outsourcing, and how it is being perceived especially in the western and eastern europe, taking into account the different unions and regulations these countries have. Before I joined IE Business School, I had met with one of the Strategic Consultant from HEC Paris somewhere in 2007 and he sort of interviewed me on why people go for MBA and as well opened upto what he intended to do after the life as a consultant. He was seeking opinions on outsourcing some part of his business, and this is were I thought I was good at. Taking in numbers through my experience.

We all know, earlier it was the pre-historic man who took charge of the world by looking for food and shelter. Somewhere between 5,000 BC and the 18th Century (I would like to call it as the "Agricultural" period), it was the Kings, land owners, emperors seeking to conquer land and crops and build onto their assets. Between the 18th Century and the 20th century began the industrial period. Factories adn equipments came into picture. OIL, Steel, Finance were teh key jargons then. And then finally the technological age, skills, knowledge, talent, people and process. Software Entrepreneurs and Technologists were on a roll. (Lets learn and forget the .com bubble burst here :)) This is were Outsourcing, along with various other technology and concepts, kicked in.

So I thought, what can I offer him for his business. I started noting key requirements and started making some suggestions on the regions he can start picking up on. So the IT Outsourcing market increased 80% from USD $19 Billion in 1999 to more than USD $100 Billion in 2006 according to the sources from IDC http://cdn.idc.com/. The IT outsourcing market was lead by India with 45% of the outsourcing market share, 18% to Canada & Europe, 18% to China, 8% to Russia & E. Europe, 6% to South America, and 5% to Southeast Asia (Singapore, Malaysia, Philippines) (Say the sources of University of Michigan Business School)

More on the research in the next blog...

Outsourcing my Job !!

First and foremost, sincere apologies for the delayed write-up. The recent recessions of 2008 took some toll on me, with changes in net access, job function, and yes to some extent the food crunch. In this survival of the fittest, I happened to grab some action-packed Euro 2008 (well Azzuri’s didn’t play their heart out), and some Wimbledon. I decided to take some break from the routine and went onto join Business forums in Brussels. Now that my audience is convinced (or not so convinced) with my excuse, I would start with where we left…outsourcing in the flat world.

The World is Flat provided mixed insights over the concept in context. On one hand, I found the history of the digital revolution very fascinating and one that would keep the target readers glued (the book had a forward-looking nature - I’ve always been a science fiction fan). At other times, I got a little tired of the repetitive nature of Friedman’s examples – here comes yet another story of how someone makes a lot of money; followed by another example of how the Chinese and the Indians are preparing to conquer the world. After analyzing at some of the criticisms leveled against it, I can see that there is some merit in them. The central point of Friedman’s book is that globalization is removing barriers to competition, and reducing everything to the lowest common denominator: cost.

So why outsource? The following points can be considered as factors that drive outsourcing (points in order of importance)
1. Reduce Costs
2. Gaining access to skilled IT resources that are not available within the company that decides to outsource.
3. Free up internal resources, so that they can focus on product marketing and strategy
4. Accelerate company transformation
5. Accelerate the project
6. Reduce time to market, so that the organization is always in the race to satisfy the customer. After all customer is the King.

Reference: http://shipsoftware.files.wordpress.com/2007/11/distributedteam.jpg

Like every coin, that has two sides, the concept of Outsourcing has its advantages and disadvantages too.

I have been in Europe for a few years now with a leading Telecom firm in Belgium, presenting regular sessions to clients and resolving issues with/of my users and my team. While working for a team in the Product Readiness department, I identified a fairly critical issue/ bug with one of our vendor’s application system and called it to their technical support team, and this experience reminded me of one of the chapters in the book (as well as of O’reilly’s experience, similar to the one I will be presenting). In the process of resolving the bug, I contacted the developer from Czech/Israel, and explained the problem. After some investigation from the offshore development team, I obtained typical responses like – Please analyze the scenario introduced, Can you shut down all the instances of your server, and restart the scenario again? None of these things worked, not did I expect them to work, and the developer on the other side of the world was left scratching his head with a typical answer – I will get back to you after I investigate and identify the problem, if any!

I have faith in my thinking, analytical and cognitive abilities more than anyone else. I question basic assumptions and its validity when and where required. With this notion, I decided to go ahead and give them a hand by resolving the issue which was delegated to a member of my team. I started debugging the problem area and pointed out actual line numbers in their source file so they could take a look. My colleague noted down everything I’d said for his reference, and pushed an urgent patch of the bug fix later that evening.

I believe what I described is a good illustration of interaction that’s probably becoming more and more typical in the Flat World. I recognized a similarity between the above experience and the software industry. The off shoring of software development and testing is real, but does that mean I am afraid that someday my job maybe outsourced by a third world nation, like Somalia or Afghanistan as well? Perhaps it will be. But by that time it may not be a bad thing because I would have ‘retooled’ my skills and acquired the knowledge necessary to compete and continue to add value to my professional pursuits.

Brad Silverberg, Microsoft’s Hero, once said, “The role of every Microsoft employee is to work them out of job.” What he meant was that we should find ways to eliminate fire drills and provide solutions so our jobs “just happened.” The world is in constant change, and with it we must constantly change. We must never rest on our laurels because the moment we do, the world will surely pass by us.

P.s: The experiences described in this chapter are more or less similar to the experiences shared in the web by some of the bloggers. Though the examples set and the words used might be different, the underlying concept remains the same.