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Effective IT Outsourcing Presented By: Kal Ezzat Intl Business Consultant

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1 Effective IT Outsourcing Presented By: Kal Ezzat Intl Business Consultant

2 Outsourcing Terminology Outsourcing is contracting with outside partner. Offshoring is moving business processes to a lower cost location. Nearshoring is moving business processes to lower cost locations that are in close geographical proximity. Smartshoring means picking the best shore based on various criteria and dimensions. Homeshoring means work can be done out of staff homes. Business Process Outsourcing (BPO) outsourcing an entire business functions (such as IT, call centers, and customer service).

3 Reasons for Outsourcing Improve company focus Access to world-class capabilities Accelerate re-engineering benefits Share risks Free resources for other capabilities Make capital funds available Cash infusion Reduce and control operating costs Access to resources not available internally Function difficult to manage or out of control

4 Transformational Outsourcing The new outsourcing is about growth, better utilization for the skilled workers and with it of course comes cost cutting. Most CEOs dont ask how much they can save, but rather focus on how to grow their business by 25%+ with no additional overhead. Bank of America transformed itself to 24-hour business. Boeing transformed itself into global company with the 787 Dreamliner.

5 Global IT Market Size Gartner estimates offshore IT and business process outsourcing amount to $32 Billion in 2005 and could double by 2007. India still dominates it with $22 Billion, and heres a breakdown of the market size of the rest: RegionCentral and Eastern Europe China and Southeast Asia Latin America and Caribbean Middle east and Africa Market Size$3.3 Billion$3.1 Billion$2.9 Billion$425 Million Top-Ranked CountriesHungary, Russia, Slovakia China, Malaysia, Philippines Chile, Brazil, Mexico, Costa Rica Egypt, Jordan, Ghana Up-and-comersRomania, Ukraine, Belarus Indonesia, Vietnam, Sri Lanka Jamaica, Panama, Nicaragua South Africa, Turkey, Morocco Source: Gartner group

6 Hungarian IT Outsourcing Market The market is divided into two sectors: IT outsourcing and Business Process Outsourcing, of approximately $80 million each. Overall Assessment Competitiveness: Good Overall Assessment: A good nearshoring destination in Europe. Very skillful and good base to other destinations in Western Europe. Excellent education and highly qualified IT workforce; proximity and access to EU; good infrastructure. Future: A major destination for nearshoring in Eastern Europe and a central hub for offshoring in Europe.

7 The Russian Model After China and India, Russia is now the third- largest software outsourcing destination in the world. In 2005, software exports reached an estimated $1 billion, up from just $120 million in 2000 and a 33% increase from 2004. Russia plans at least four state-funded technoparks to be completed by 2010. The government has also promised to promote the IT industry through additional tax breaks. A draft law, due to be approved this year, will provide simplified taxation procedures and cut social security tax from 26% to 14% of salaries.

8 Outsourcing Market Direction In the European financial services sector alone, Datamonitor forecasts growth of $240 million in offshore outsourcing during the next12 to 20 months. Gartner expects the rest of Europe to catch up quickly, and predicts that 75% of the medium-size to large companies across Europe will consider offshore services by 2005. The United Kingdom represents more than 35% of outsourcing business in Europe. Around the world, offshore outsourcing will continue to grow at a rate of more than 20% annually, according to Meta Group, becoming a $10 billion market within two years. Gartner predicts that 40% of the Global 2000 enterprises will embrace offshore or near-shore IT outsourcing in 2005, and more than 80% of U.S. companies will seriously consider outsourcing critical IT services by the end of 2005. There are indications that approximately IDC reported that the offshore component in delivery of U.S. IT services might rise as much as 23% by 2007, up dramatically from 5% in 2003.

9 Five Offshore Practices That Pay Off Go Offshore for the Right Reasons Cost saving is a by-product, think of efficency and innovation Choose Your Model Carefully Setup captive operation or contract it out Get Your People On Board Your people can make or break it Be Prepared to Invest Time and Effort Cost cutting comes with cost Treat Your Partners As Equals Dont treat your partner as a body shop

10 Outsourcing Challenges Expose your intellectual properties Security and confidentiality laws Compliance regulations Managing people and functions remotely No control over the partner resources The social impact on the local operation Complexity of measuring the results Software design ownership and accountability

11 Why Outsourcing Fail ? Poorly manage the relationship between the buyer and the supplier. Inadequately measure the results of the work being done. Shortage of experienced people managed outsourcing contracts or relationship with outsourcing providers. Lack of ownership of outsourcing deals at the executive level. Compliance and regulations

12 Outsourcing Checklist Prepare your application health check Health check indicator Score card Understand the cultural alignment Plan a phased-in transition Measuring success and maximize ROI Define a Service Level Agreement (SLA) with clear business objectives, and dont micro-manage your vendor. to outsource your IT/BPO business

13 Outsourcing Checklist Cost saving is a by-product, focus on added value. Identify the potential improvements and work with your partner to implement it. Identify your core competency and carefully approach anything beyond it. Obtain ISO and CMM Level 5 certification and enforce implementing these standards. Clearly identify the partner expectation and work the SLA and the relationship accordingly. Are you a body shop or a strategic business partner. Invest in infrastructure, business processes and management training. to be a global/European outsourcing player

14 Key Practices for Success Planning Work as a team Always measure Cost & Benefits

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