11

Dr. Joseph W. Rottman

Dr. Joseph W. Rottman

November 06, 2006

Presented to BA5800

The Global IT Market: Helping students understand offshore

outsourcing and its impacts

The Global IT Market: Helping students understand offshore

outsourcing and its impacts

22

AgendaAgenda

• Explain research base• Explore global trends• Explore impacts to US students

workers• Create dialogue

33

1989-2001: Outsourcing: n = 72 organizations:

British Aerospace DuPont Inland Revenue Enron IRS South Australia

1989-1996: Insourcing/Backsourcing: n = 18 organizations:Westchester County Occidental Petroleum Ralston Purina Vista Chemicals

1999-2001: Application Service Provision: n =10 organizations: Corio EDS Host Analytics mySAP Zland

2001-2004: Business Process Outsourcing: n = 4 organizations: BAE Systems Lloyd’s of London

2004-2006: Offshore Outsourcing: n = 41 organizations:Anonymous Case Studies: Primarily Fortune 500 companies & their offshore suppliers

2006: Global IT Workforce Development: Team of 20 researchers In - Progress:Corporate members of the Society for Information Management

Sourcing Research

44

Salient Research ArticlesSalient Research Articles• Rottman, J., and Lacity, M., "Proven Practices for Effectively

Offshoring IT Work," Sloan Management Review, Vol. 47, 3, Spring, 2006, pp. 56-63.

• Rottman, Joseph W., “Successfully Outsourcing Embedded Software Development” IEEE Computer, Vol 39, 1 pp. 55 – 61, 2006.

• Zwieg, P., Kaiser, K. M., Beath, C., Bullen, C., Gallagher, K., Goles, T., Howland, J., Simon, J. Abbott, P., Abraham, T., Carmel, E., Evaristo, R., Hawk, S., Lacity, M., Gallivan, M., Kelly, S., Mooney, J., Ranganathan, C., Rottman, J., Ryan, T., Wion, R., “ The Information Technology Workforce Trends and Implications 2005-2008,” MIS Quarterly Executive Vol. 5, 2, 2006, pp. 47-54.

• Rottman, J., and Lacity, M., "Twenty Practices for Offshore Sourcing," MIS Quarterly Executive, Vol. 3, 3, 2004, pp. 117-130.

55

Global IT Sourcing Market TrendsGlobal IT Sourcing Market Trends

DEMAND TRENDS: Global IT spend is increasing U.S. IT spend is increasing U.S. IT spend as a percentage of global IT spend is decreasing U.S. organizations will significantly seek to hire IT workers over next 7 years

SUPPLY TRENDS: U.S. IT unemployment rate is decreasing U.S. Computer Science & MIS enrollments down 25% since 2002 U.S. use of foreign IT workers is a small percentage of overall IT workforce, but growing Many foreign countries are creating viable IT service industries

U.S. Executives must manage a global network of IT employees and suppliers

U.S. universities must educate the current and future IT workforce to compete in the global IT market.

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Demand Trend: Total US vs. Global ICT Spending 2000- 2007

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$US

Mill

ions

2000 2001 2002 2003 2004 2005 2006 2007

US Spend Global Spend

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

77

36%

37%

38%

39%

40%

41%

42%

2000 2001 2002 2003 2004 2005 2006 2007

Total U.S. ICT Spending as % of Global ICT Spending

DEMAND TREND:

Forecast

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

88

8.00%

8.20%

8.40%

8.60%

8.80%

9.00%

9.20%

9.40%

9.60%

2000 2001 2002 2003 2004 2005 2006 2007

Forecast

U.S. ICT Spending as % of Gross Domestic Product

DEMAND TREND:

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

99

DEMAND TREND:Of 30 fastest growing jobs between

2002 and 2012, 7 are in IT

Source: U.S. Department of Labor, Bureau of Labor Statistics

Occupation 2002 2012 Percent Growth

Rank

Network systems & data communication analysts

186,000 292,000 57% 2

Computer software engineers/applications

394,000 573,000 46% 7

Computer software engineers/systems software

281,000 409,000 45% 9

Database Administrators 110,000 159,000 44% 12

Computer systems analysts 468,000 653,000 39% 20

Network and computer system administrators

251,000 345,000 37% 24

Computer & information systems managers

284,000 387,000 36% 27

1010

Supply Trend:National Unemployment

(non-adjusted Rate)

0%

1%2%

3%4%

5%

6%7%

8%

National IT

Source: Pfannenstein, L. and Tsai, R., “Offshore Outsourcing: Current & Future Effects on American IT Industry,” Information Systems Management, 2004,Vol. 21, p. 72-81

1111

Supply Trend:U.S. use of offshoring is small

• In 2004, total number of reported US IT workers varies by source from 10.3 million IT workers reported by ITAA to 3.38 million by BLS in 2004.

• In 2004, about 90,000 U.S. IT jobs lost offshore

• Percentage of U.S. lost IT jobs fall between and .9% and 2.7%

Sources: Pfannenstein, L. and Tsai, R., “Offshore Outsourcing: Current & Future Effects on American IT Industry,” Information Systems Management, 2004,Vol. 21, p. 72-81; NASSCOM, U.S. of Labor, Bureau of Labor Statistics; Chabrow, “IT Employment On Upswing,”

Information Week, April 4, 2005.

1212

Supply Trend:Number of U.S. Jobs Moving

OffshoreCategory 2000 2005 2010 2015

Computer 27,171 108,991 276,954 472,632

Business 10,787 61,252 161,722 348,028

Management 0 37,477 117,835 288,281

OtherServices

Total 102,674 587,592 1,591,101 3,320,213

Sources: U.S. Department of Labor & Forrester Research $136 billion in wages

1313

The Information Technology Workforce Trends and Implications 2005-2008

The Information Technology Workforce Trends and Implications 2005-2008

Zwieg, P., Kaiser, K. M., Beath, C., Bullen, C., Gallagher, K., Goles, T., Howland, J., Simon, J. Abbott, P., Abraham, T., Carmel, E., Evaristo, R., Hawk, S., Lacity, M., Gallivan, M., Kelly, S., Mooney, J., Ranganathan, C., Rottman, J., Ryan, T., Wion, R., The Information Technology Workforce Trends and Implications 2005-2008, MIS Quarterly Executive Vol. 5, 2, 2006, pp. 47-54.

1414

Research MethodResearch Method

• 20 Academic researchers working in U.S. and Europe

• 96 interviews of 81 IT leaders in 77 departments

• 82% of respondents are IT top management

1515

Training Methods Used Within the First Year

Training Methods Used Within the First Year

Entry Level Hires Mid Level HiresTraining classes customized

for our organizationTraining classes customized

for our organization

Self-tutorials Assign a mentor

Assign a mentor Self-tutorials

Generic Training classes offered by third parties

Generic Training classes offered by third parties

Job rotation Job rotation

OTJ

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Plans for Obtaining Needed Skills

Plans for Obtaining Needed Skills

• Hire experienced people• Formal training in house• Formal training through outside programs• On-the-Job-Training• Support tuition reimbursement• College hire-entry-level• Mentor programs • Convert contractors to employees• Learn from contractors/3PP

1717

Skills to keep in house 2005Skills to keep in house 2005

1818

Top Skills Sourced 2005Top Skills Sourced 2005

1919

Top Desired Entry Level Skills

Top Desired Entry Level Skills

2020

Skills and Capabilities Critical to Keep In House Now (05 - 06)

Skills and Capabilities Critical to Keep In House Now (05 - 06)

Project Planning/Budgeting/Scheduling

Functional Area Process Knowledge

Company Specific Knowledge

Systems Analysis

Industry Knowledge

Business Process Design/Re-engineering

Systems Design

Project Leadership

Project Risk Management

IT Architecture/Standards

Change Management/Organizational Readiness

2121

Skills and Capabilities Newly Important and Critical to Keep In

House by 2008

Skills and Capabilities Newly Important and Critical to Keep In

House by 2008• Functional Area Process Knowledge• Industry Knowledge• Business Process Design/Re-engineering • Company Specific Knowledge• IT Architecture/Standards• Communication• Project Leadership• User Relationship Management• Change Management/Organizational Readiness• Managing Stakeholder Expectations• Managing 3rd party providers

2222

Canada

Mexico India

Brazil

EURussia

Israel China Japan

Philippines

Singapore

Australia

Supply Trend: 95% of US Offshore IT sourcing activity is taking place in these

nations:

Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology,” MIS Quarterly Executive, Vol. 1, 2, pp. 65-77.

2323

Supply Trend: The Global Outsourcing Report

• Overall rankings based on cost and risk (geopolitical, human capital, IT competency, economic, legal, cultural, IT infrastructure:

Country GOI County GOI

India 2.02 Romania 2.46

China 2.16 Ireland 2.50

Costa Rica 2.24 Singapore 2.50

Czech Republic

2.26 Philippines 2.56

Hungary 2.28 Poland 2.56

Canada 2.40 Armenia 2.58

Latvia 2.40 Brazil 2.58

Russia 2.40 Ukraine 2.74

Chile 2.42 Israel 2.76

Source: “The Global Outsourcing Report,” CIO Insight, March 2005.

http://commonziffdavisinternet.com/download/0/2216http://commonziffdavisinternet.com/download/0/2216

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Offshore Learning Curve

Phase 1:Hype & Fear

Phase 2:Early AdoptersBest & Worst Practices EmergeFocus on Costs

Phase 3: Market MaturesRicher Practices EmergeFocus on Quality

Phase 4:InstitutionalizedFocus on Value-added

Siz

e of

Mar

ket

Cus

tom

er L

earn

ing

Time

2626

What does it look like?Engagement Model 1:

Onsite SupplierEngagement Manager

OffshoreSupplierDelivery

Team

LocalBusiness

Units

Architects/DBAs/etc.

ProjectManagers

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

PMO

2727

Onsite SupplierProject Managers

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

Onsite SupplierProject Managers

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

Architects/DBAs/etc.

ProjectManagers

PMO

LocalBusiness

Units

What does it look like?Engagement Model 2:

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Offshore training models

Industrial Equipment Manufacturing

Content Product, technology, project specific

Audience New hires for customer (developer/architect/team lead)New assignments from supplier organizationsProject Leads

Delivery Onsite Training sessions of new customer employees and supplier employees.Sessions are taped and placed on customer’s intranetApproved vendors are given access through secure data circuitsOne-to-to for Project Leads

Charges For large offshore supplier:Customer pays supplier onshore rates if training is onshoreCustomer pays supplier offshore rates if training via Intranet

For small specialized offshore supplier:Customer pays supplier offshore rates for onshore training

2929

Case Study: Industrial Equipment Manufacturer

Case Study: Industrial Equipment Manufacturer

• Fortune 100 / Six Sigma • 75,000 employees in 20 countries

– Software Center of Excellence– 150 IT employees / $32 Million

3030

Training Model

Customer Project Leads and Architects

Supplier Project Lead 1

Train

On Shore - On Site Off Shore

On Site Overlap

3 – 6 Months

Supplier Project Lead 2

Trains

Supplier Project Lead 3

On Site Overlap

Trains

Offshore Delivery Team

Trains

IndustrialEquipment

Manufacturing

Project Duration

3131

Talent Pipeline IssuesTalent Pipeline IssuesEntry Level Programmers

Analysts

Project Manager

3232

ConclusionConclusion

• Research Base• Career Implications and Trends• Case Study