IT OUTSOURCINGIT OUTSOURCING

Jessica BaroneJessica Barone

Katie WhitmanKatie Whitman

Wei LiWei Li

IT Outsourcing Is GrowingIT Outsourcing Is Growing

IT outsourcing- A wind of changeIT outsourcing- A wind of changesome cry, some smilesome cry, some smile

Gartner: Gartner: Total US IT services spending:Total US IT services spending:2002 ~$53.9 billion 2002 ~$53.9 billion 2007 ~ Predicted $727.7 billion 2007 ~ Predicted $727.7 billion Compound annual growth rate of 6.3%.Compound annual growth rate of 6.3%.

Faces of OutsourcingFaces of Outsourcing

Onshore and Offshore Outsourcing Onshore and Offshore Outsourcing In onshore outsourcing, a company hires another In onshore outsourcing, a company hires another

U.S. company, such as IBM or EDS, to take care of U.S. company, such as IBM or EDS, to take care of an IT task. This has been going on for years. an IT task. This has been going on for years.

In offshore outsourcing, the cost savings are In offshore outsourcing, the cost savings are about 30% per year. But there are geographic or about 30% per year. But there are geographic or culture barriers, political and security risks. culture barriers, political and security risks.

IT GrowthIT Growth

Areas of IT growth and internal hiring: Areas of IT growth and internal hiring: Networking Networking Information securityInformation security Help desk and end user support Help desk and end user support VoIP, storage networking, network architecting, VoIP, storage networking, network architecting,

and network security are all skills in strong and network security are all skills in strong demand and less likely to be outsourced, at least demand and less likely to be outsourced, at least not offshore. not offshore.

Software DevelopersSoftware Developers

Jobs most likely to be outsourcedJobs most likely to be outsourced Reason: low-cost offshore programmers Reason: low-cost offshore programmers Big players in the “golden age of the Big players in the “golden age of the

software industry, such as GE, Dell, software industry, such as GE, Dell, Accenture, IBM, even Microsoft itself, are Accenture, IBM, even Microsoft itself, are among the companies outsourcing. among the companies outsourcing.

The number of software developers The number of software developers working in the third world will continue to working in the third world will continue to increase. According to NASSCOM, 800,000 increase. According to NASSCOM, 800,000 developers were working in India alone developers were working in India alone 2003 and 2004. 2003 and 2004.

Arguments Against OutsourcingArguments Against Outsourcing Arguments against outsourcing: Arguments against outsourcing: 1)1) Sending best staff members fleeing and Sending best staff members fleeing and

dampening morale throughout the organization dampening morale throughout the organization 2)2) Cultural differences and political instabilityCultural differences and political instability

Hidden costs despite the dramatic cost savings:Hidden costs despite the dramatic cost savings:1)1) Downtime costs can be significant over the life of Downtime costs can be significant over the life of

the contract. It is typically 1 to 3 percent of the the contract. It is typically 1 to 3 percent of the value of the contract. value of the contract.

2)2) Changed expectations and miscommunication.Changed expectations and miscommunication.

IBM Global ServicesIBM Global Services 72 % of large companies currently outsource at least 72 % of large companies currently outsource at least

one IT function of data center, network, desktop, help one IT function of data center, network, desktop, help desk, or applications (Knowledge Systems & Research, desk, or applications (Knowledge Systems & Research, 2004)2004)

Technology Assessment, consulting services & trainingTechnology Assessment, consulting services & training Goal to improve overall IT system performance, which Goal to improve overall IT system performance, which

can drive lasting business value, avoid missed can drive lasting business value, avoid missed opportunities, inefficient operations and lost revenues opportunities, inefficient operations and lost revenues (IBM, 2006)(IBM, 2006)

Automation & Faster Response timeAutomation & Faster Response time• Increase productivity and achieve optimal Increase productivity and achieve optimal

technology investmenttechnology investment•   Improve performance of your IT infrastructureImprove performance of your IT infrastructure• Reduce TCO and attain long-term investment Reduce TCO and attain long-term investment

protection protection

IBM ProjectsIBM Projects The GAP (Includes GAP, Banana Republic, The GAP (Includes GAP, Banana Republic,

& Old Navy)& Old Navy)• IBM will support data center, server & IBM will support data center, server &

networking outsourcingnetworking outsourcing• Help desk operations outsourced Help desk operations outsourced

independentlyindependently• Costs $1.1Billion for the GAPCosts $1.1Billion for the GAP

(Thibodeau, 2006)(Thibodeau, 2006)

IBM ProjectsIBM Projects

Campbell’s which includes Pepperidge Campbell’s which includes Pepperidge Farms, Prego, Godiva, Swanson, V8 and Farms, Prego, Godiva, Swanson, V8 and others, hopes to grow revenues, business, others, hopes to grow revenues, business, & technology for better business & technology for better business strategiesstrategies

IT Proposal (Campbell Soup Company, IT Proposal (Campbell Soup Company, 2005)2005)

1.1. Distribute IT resources in line with business Distribute IT resources in line with business needsneeds

2.2. Global planning with company IT standardsGlobal planning with company IT standards3.3. Web-centric work environment to enhance Web-centric work environment to enhance

collaboration between employeescollaboration between employees

Outrigger Hotels & Resorts Outrigger Hotels & Resorts (in Honolulu)(in Honolulu)

Currently outsource some call center Currently outsource some call center applicationsapplications

Aim at outsourcing all call center Aim at outsourcing all call center operations to home-based customer operations to home-based customer serviceservice

Can reduce bookings & processing a Can reduce bookings & processing a reservation by 35%reservation by 35%

Currently 112,000 home-based reps Currently 112,000 home-based reps worldwide (Thibodeau, 2006)worldwide (Thibodeau, 2006)

McDonaldsMcDonalds

Recently introduced test drive-thru Recently introduced test drive-thru outsourcing in the Pacific Northwestoutsourcing in the Pacific Northwest

CBS News Radio Correspondent Lou CBS News Radio Correspondent Lou Miliano reported, “The strategy is based Miliano reported, “The strategy is based on the theory that mistakes come from the on the theory that mistakes come from the order-taker, not the cook line” (2005)order-taker, not the cook line” (2005)

"You have a professional order taker with "You have a professional order taker with strong communications skills whose job is strong communications skills whose job is to do nothing but take down orders," said to do nothing but take down orders," said Matthew Paull, the chief financial officer. Matthew Paull, the chief financial officer.

McDonaldsMcDonalds

McDonald’s reports it’s still too early to McDonald’s reports it’s still too early to determine if this strategy will be determine if this strategy will be implemented system wideimplemented system wide

Currently McDonalds in Hermiston, Oregon Currently McDonalds in Hermiston, Oregon sends orders to Grand Forks, North Dakotasends orders to Grand Forks, North Dakota

Minimum Wage (Would you like fries, Minimum Wage (Would you like fries, 2005)2005)• Oregon - $7.50Oregon - $7.50• North Dakota - $5.15North Dakota - $5.15

Wal-martWal-mart Planned on 250 new IT jobs in 2006 (King, 2005)Planned on 250 new IT jobs in 2006 (King, 2005) Goal of managing email, inventory, and dot-com Goal of managing email, inventory, and dot-com

remotelyremotely Failed in original IT Outsourcing projectFailed in original IT Outsourcing project New plan to share data from radio-frequency New plan to share data from radio-frequency

identification tags through automated EDI identification tags through automated EDI transmissions with a handful of suppliers (Sullivan, transmissions with a handful of suppliers (Sullivan, 2006)2006)

RFID tags would trigger advance shipping notices RFID tags would trigger advance shipping notices through the EPC Information Service network each through the EPC Information Service network each time a supplier ships products out its doors, but its still time a supplier ships products out its doors, but its still a year from being implemented into the marketa year from being implemented into the market

General MotorsGeneral Motors GM CEO Ralph Szygenda announced GM’s GM CEO Ralph Szygenda announced GM’s

required 40 IT operations standards for vendors required 40 IT operations standards for vendors including:including:• Software developmentSoftware development• Asset ManagementAsset Management• Monitoring of Computer operationsMonitoring of Computer operations• Notification of users when problemsNotification of users when problems

GM spent the last two years coordinating its GM spent the last two years coordinating its vendors togethervendors together

Plans on outsourcing $15 Billion of IT over next 5 Plans on outsourcing $15 Billion of IT over next 5 years with multiple vendorsyears with multiple vendors

Analyst Robert McNeil said “GM’s use of multiple Analyst Robert McNeil said “GM’s use of multiple vendors will give it flexibility, drive competition vendors will give it flexibility, drive competition and manage risk” (Thibodeau, 2006) and manage risk” (Thibodeau, 2006)

Future of IT OutsourcingFuture of IT Outsourcing

Current TrendCurrent Trend

““There were 293 outsourcing contracts There were 293 outsourcing contracts awarded last year, up from 269 in 2004.” awarded last year, up from 269 in 2004.” (Thibodeau, 2006) (Thibodeau, 2006)

IndiaIndia

Hiring more IT workersHiring more IT workers U.S. company would normally charge 80 to 120 U.S. company would normally charge 80 to 120

dollars per hour dollars per hour • cost around 40 dollars to accomplish in India cost around 40 dollars to accomplish in India

(Reynolds & Stair, 2006).(Reynolds & Stair, 2006). Slowly becoming a problem:Slowly becoming a problem:

• Increased salariesIncreased salaries• Decreased qualityDecreased quality• Competition being addedCompetition being added

New Countries EnterNew Countries Enter

Russia, Vietnam, Eastern EuropeRussia, Vietnam, Eastern Europe ChinaChina

• Five to ten years before China becomes Five to ten years before China becomes India’s equal in terms of offering IT India’s equal in terms of offering IT services (Yuan, 2005) services (Yuan, 2005)

Impact on the U.S.Impact on the U.S.

““By the end of 2005, 1 out of every 20 By the end of 2005, 1 out of every 20 corporate IT jobs in the United States will corporate IT jobs in the United States will be moved offshore.” (Reynolds & Stair, be moved offshore.” (Reynolds & Stair, 2006)2006)

“ “...only 40 percent of the IT workers ...only 40 percent of the IT workers whose jobs are lost will be shifted to other whose jobs are lost will be shifted to other responsibilities; the rest will be out of responsibilities; the rest will be out of work.” (Reynolds & Stair, 2006)work.” (Reynolds & Stair, 2006)

Shift of Jobs NeededShift of Jobs Needed

More senior level executives are in demand More senior level executives are in demand despite outsourcingdespite outsourcing

2,000 senior executives will be needed this year2,000 senior executives will be needed this year 9,500 will be needed by 2012 (Jones, 2006)9,500 will be needed by 2012 (Jones, 2006)

• Influences the need for higher educationInfluences the need for higher education

Differing OpinionDiffering Opinion

Outsourcing will fade outOutsourcing will fade out Companies will realize the costs outweigh the Companies will realize the costs outweigh the

benefits (Ramel, 2006)benefits (Ramel, 2006)• Difficult to effectively manage business Difficult to effectively manage business

overseasoverseas Trend will be toward creating a global corporationTrend will be toward creating a global corporation

• Take advantage of the best resources around Take advantage of the best resources around the world (Ramel, 2006)the world (Ramel, 2006)

SourcesSources Thibodeau, P. (2006) Thibodeau, P. (2006) Infosys Growth Reflects Outsourcing GainsInfosys Growth Reflects Outsourcing Gains; ;

Available: Available: http://www.computerworld.com/careertopics/careers/story/0,1080http://www.computerworld.com/careertopics/careers/story/0,10801,107657,00.html1,107657,00.html..

Reynolds, G. & Stair, R. (2006) Reynolds, G. & Stair, R. (2006) Principles of Information SystemsPrinciples of Information Systems; ; Thomson Course Technology Publ., Mason, Ohio, 61.Thomson Course Technology Publ., Mason, Ohio, 61.

(2005) (2005) Trend Toward Offshore Outsourcing Not Yet PeakedTrend Toward Offshore Outsourcing Not Yet Peaked; ; Available: Available: http://www.computereconomics.com/article.cfm?id=1050http://www.computereconomics.com/article.cfm?id=1050..

Yuan, L. (2005) Yuan, L. (2005) Chinese Companies Vie for a Role in U.S. IT Chinese Companies Vie for a Role in U.S. IT Outsourcing;Outsourcing; Wall Street Journal, Eastern Edition, B.1. Wall Street Journal, Eastern Edition, B.1.

Ramel, D. (2006) Ramel, D. (2006) What’s in Store: More Predictions from Around What’s in Store: More Predictions from Around the Webthe Web; Available: ; Available: http://www.computerworld.com/managementtopics/management/http://www.computerworld.com/managementtopics/management/story/0,10801,107343,00.html.story/0,10801,107343,00.html.

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IBM, (2005). Campbell soup company mixes process integration and a IBM, (2005). Campbell soup company mixes process integration and a ready-to-use portal from ibm to increase flexibility and responsiveness. ready-to-use portal from ibm to increase flexibility and responsiveness. Retrieved Feb. 01, 2006, from IBM OnDemand Case Studies Web site: Retrieved Feb. 01, 2006, from IBM OnDemand Case Studies Web site: http://www-1.ibm.com/services/us/imc/pdf/cs-campbells-041805.pdf. http://www-1.ibm.com/services/us/imc/pdf/cs-campbells-041805.pdf.

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