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IT OUTSOURCING Jessica Barone Katie Whitman Wei Li.

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1 IT OUTSOURCING Jessica Barone Katie Whitman Wei Li

2 IT Outsourcing Is Growing IT outsourcing- A wind of change some cry, some smile Gartner: 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%.

3 Faces of Outsourcing Onshore and Offshore Outsourcing In onshore outsourcing, a company hires another U.S. company, such as IBM or EDS, to take care of an IT task. This has been going on for years. In onshore outsourcing, a company hires another U.S. company, such as IBM or EDS, to take care of an IT task. This has been going on for years. In offshore outsourcing, the cost savings are about 30% per year. But there are geographic or culture barriers, political and security risks. In offshore outsourcing, the cost savings are about 30% per year. But there are geographic or culture barriers, political and security risks.

4 IT Growth Areas of IT growth and internal hiring: Networking Networking Information security Information security Help desk and end user support Help desk and end user support VoIP, storage networking, network architecting, and network security are all skills in strong demand and less likely to be outsourced, at least not offshore. VoIP, storage networking, network architecting, and network security are all skills in strong demand and less likely to be outsourced, at least not offshore.

5 Software Developers Jobs most likely to be outsourced Jobs most likely to be outsourced Reason: low-cost offshore programmers Reason: low-cost offshore programmers Big players in the “golden age of the software industry, such as GE, Dell, Accenture, IBM, even Microsoft itself, are among the companies outsourcing. Big players in the “golden age of the software industry, such as GE, Dell, Accenture, IBM, even Microsoft itself, are among the companies outsourcing. The number of software developers working in the third world will continue to increase. According to NASSCOM, 800,000 developers were working in India alone 2003 and 2004. The number of software developers working in the third world will continue to increase. According to NASSCOM, 800,000 developers were working in India alone 2003 and 2004.

6 Arguments Against Outsourcing Arguments against outsourcing: Arguments against outsourcing: 1) Sending best staff members fleeing and dampening morale throughout the organization 2) Cultural differences and political instability Hidden costs despite the dramatic cost savings: Hidden costs despite the dramatic cost savings: 1) Downtime costs can be significant over the life of the contract. It is typically 1 to 3 percent of the value of the contract. 2) Changed expectations and miscommunication.

7 IBM Global Services 72 % of large companies currently outsource at least one IT function of data center, network, desktop, help desk, or applications (Knowledge Systems & Research, 2004) 72 % of large companies currently outsource at least one IT function of data center, network, desktop, help desk, or applications (Knowledge Systems & Research, 2004) Technology Assessment, consulting services & training Technology Assessment, consulting services & training Goal to improve overall IT system performance, which can drive lasting business value, avoid missed opportunities, inefficient operations and lost revenues (IBM, 2006) Goal to improve overall IT system performance, which can drive lasting business value, avoid missed opportunities, inefficient operations and lost revenues (IBM, 2006) Automation & Faster Response time Automation & Faster Response time Increase productivity and achieve optimal technology investmentIncrease productivity and achieve optimal technology investment Improve performance of your IT infrastructure Improve performance of your IT infrastructure Reduce TCO and attain long-term investment protectionReduce TCO and attain long-term investment protection

8 IBM Projects The GAP (Includes GAP, Banana Republic, & Old Navy) The GAP (Includes GAP, Banana Republic, & Old Navy) IBM will support data center, server & networking outsourcingIBM will support data center, server & networking outsourcing Help desk operations outsourced independentlyHelp desk operations outsourced independently Costs $1.1Billion for the GAPCosts $1.1Billion for the GAP (Thibodeau, 2006) (Thibodeau, 2006)

9 IBM Projects Campbell’s which includes Pepperidge Farms, Prego, Godiva, Swanson, V8 and others, hopes to grow revenues, business, & technology for better business strategies Campbell’s which includes Pepperidge Farms, Prego, Godiva, Swanson, V8 and others, hopes to grow revenues, business, & technology for better business strategies IT Proposal (Campbell Soup Company, 2005) IT Proposal (Campbell Soup Company, 2005) 1.Distribute IT resources in line with business needs 2.Global planning with company IT standards 3.Web-centric work environment to enhance collaboration between employees

10 Outrigger Hotels & Resorts (in Honolulu) Currently outsource some call center applications Currently outsource some call center applications Aim at outsourcing all call center operations to home-based customer service Aim at outsourcing all call center operations to home-based customer service Can reduce bookings & processing a reservation by 35% Can reduce bookings & processing a reservation by 35% Currently 112,000 home-based reps worldwide (Thibodeau, 2006) Currently 112,000 home-based reps worldwide (Thibodeau, 2006)

11 McDonalds Recently introduced test drive-thru outsourcing in the Pacific Northwest Recently introduced test drive-thru outsourcing in the Pacific Northwest CBS News Radio Correspondent Lou Miliano reported, “The strategy is based on the theory that mistakes come from the order-taker, not the cook line” (2005) CBS News Radio Correspondent Lou Miliano reported, “The strategy is based on the theory that mistakes come from the order-taker, not the cook line” (2005) "You have a professional order taker with strong communications skills whose job is to do nothing but take down orders," said Matthew Paull, the chief financial officer. "You have a professional order taker with strong communications skills whose job is to do nothing but take down orders," said Matthew Paull, the chief financial officer.

12 McDonalds McDonald’s reports it’s still too early to determine if this strategy will be implemented system wide McDonald’s reports it’s still too early to determine if this strategy will be implemented system wide Currently McDonalds in Hermiston, Oregon sends orders to Grand Forks, North Dakota Currently McDonalds in Hermiston, Oregon sends orders to Grand Forks, North Dakota Minimum Wage (Would you like fries, 2005) Minimum Wage (Would you like fries, 2005) Oregon - $7.50Oregon - $7.50 North Dakota - $5.15North Dakota - $5.15

13 Wal-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 remotely Goal of managing email, inventory, and dot-com remotely Failed in original IT Outsourcing project Failed in original IT Outsourcing project New plan to share data from radio-frequency identification tags through automated EDI transmissions with a handful of suppliers (Sullivan, 2006) New plan to share data from radio-frequency identification tags through automated EDI transmissions with a handful of suppliers (Sullivan, 2006) RFID tags would trigger advance shipping notices through the EPC Information Service network each time a supplier ships products out its doors, but its still a year from being implemented into the market RFID tags would trigger advance shipping notices through the EPC Information Service network each time a supplier ships products out its doors, but its still a year from being implemented into the market

14 General Motors GM CEO Ralph Szygenda announced GM’s required 40 IT operations standards for vendors including: GM CEO Ralph Szygenda announced GM’s required 40 IT operations standards for vendors 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 vendors together GM spent the last two years coordinating its vendors together Plans on outsourcing $15 Billion of IT over next 5 years with multiple vendors Plans on outsourcing $15 Billion of IT over next 5 years with multiple vendors Analyst Robert McNeil said “GM’s use of multiple vendors will give it flexibility, drive competition and manage risk” (Thibodeau, 2006) Analyst Robert McNeil said “GM’s use of multiple vendors will give it flexibility, drive competition and manage risk” (Thibodeau, 2006)

15 Future of IT Outsourcing

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

17 India Hiring more IT workers Hiring more IT workers U.S. company would normally charge 80 to 120 dollars per hour U.S. company would normally charge 80 to 120 dollars per hour cost around 40 dollars to accomplish in India (Reynolds & Stair, 2006).cost around 40 dollars to accomplish in India (Reynolds & Stair, 2006). Slowly becoming a problem: Slowly becoming a problem: Increased salariesIncreased salaries Decreased qualityDecreased quality Competition being addedCompetition being added

18 New Countries Enter Russia, Vietnam, Eastern Europe Russia, Vietnam, Eastern Europe China China Five to ten years before China becomes India’s equal in terms of offering IT services (Yuan, 2005)Five to ten years before China becomes India’s equal in terms of offering IT services (Yuan, 2005)

19 Impact on the U.S. “By the end of 2005, 1 out of every 20 corporate IT jobs in the United States will be moved offshore.” (Reynolds & Stair, 2006) “By the end of 2005, 1 out of every 20 corporate IT jobs in the United States will be moved offshore.” (Reynolds & Stair, 2006) “...only 40 percent of the IT workers whose jobs are lost will be shifted to other responsibilities; the rest will be out of work.” (Reynolds & Stair, 2006) “...only 40 percent of the IT workers whose jobs are lost will be shifted to other responsibilities; the rest will be out of work.” (Reynolds & Stair, 2006)

20 Shift of Jobs Needed More senior level executives are in demand despite outsourcing More senior level executives are in demand despite outsourcing 2,000 senior executives will be needed this year 2,000 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

21 Differing Opinion Outsourcing will fade out Outsourcing will fade out Companies will realize the costs outweigh the benefits (Ramel, 2006) Companies will realize the costs outweigh the benefits (Ramel, 2006) Difficult to effectively manage business overseasDifficult to effectively manage business overseas Trend will be toward creating a global corporation Trend will be toward creating a global corporation Take advantage of the best resources around the world (Ramel, 2006)Take advantage of the best resources around the world (Ramel, 2006)

22 Sources Thibodeau, P. (2006) Infosys Growth Reflects Outsourcing Gains; Available: http://www.computerworld.com/careertopics/careers/story/0,10801,1 07657,00.html. Thibodeau, P. (2006) Infosys Growth Reflects Outsourcing Gains; Available: http://www.computerworld.com/careertopics/careers/story/0,10801,1 07657,00.html. http://www.computerworld.com/careertopics/careers/story/0,10801,1 07657,00.html http://www.computerworld.com/careertopics/careers/story/0,10801,1 07657,00.html Reynolds, G. & Stair, R. (2006) Principles of Information Systems; Thomson Course Technology Publ., Mason, Ohio, 61. Reynolds, G. & Stair, R. (2006) Principles of Information Systems; Thomson Course Technology Publ., Mason, Ohio, 61. (2005) Trend Toward Offshore Outsourcing Not Yet Peaked; Available: http://www.computereconomics.com/article.cfm?id=1050. (2005) Trend Toward Offshore Outsourcing Not Yet Peaked; Available: http://www.computereconomics.com/article.cfm?id=1050. http://www.computereconomics.com/article.cfm?id=1050 Yuan, L. (2005) Chinese Companies Vie for a Role in U.S. IT Outsourcing; Wall Street Journal, Eastern Edition, B.1. Yuan, L. (2005) Chinese Companies Vie for a Role in U.S. IT Outsourcing; Wall Street Journal, Eastern Edition, B.1. Ramel, D. (2006) What’s in Store: More Predictions from Around the Web; Available: http://www.computerworld.com/managementtopics/management/st ory/0,10801,107343,00.html. Ramel, D. (2006) What’s in Store: More Predictions from Around the Web; Available: http://www.computerworld.com/managementtopics/management/st ory/0,10801,107343,00.html.

23 Sources Outsourcing drive thru?. (2005). CBS News,. Retrieved Jan 29, 2006, from http://www.cbsnews.com/stories/2005/03/11/national/main679730.s html Outsourcing drive thru?. (2005). CBS News,. Retrieved Jan 29, 2006, from http://www.cbsnews.com/stories/2005/03/11/national/main679730.s html IBM, (2004). It outsourcing market: strong, growing... and with high customer expectations. Retrieved Feb. 01, 2006, from IBM Global Services Web site: http://www- 1.ibm.com/services/us/index.wss/summary/imc/a1006797 IBM, (2004). It outsourcing market: strong, growing... and with high customer expectations. Retrieved Feb. 01, 2006, from IBM Global Services Web site: http://www- 1.ibm.com/services/us/index.wss/summary/imc/a1006797 IBM, (2005). Campbell soup company mixes process integration and a ready-to-use portal from ibm to increase flexibility and responsiveness. Retrieved Feb. 01, 2006, from IBM OnDemand Case Studies Web site: http://www-1.ibm.com/services/us/imc/pdf/cs-campbells-041805.pdf. IBM, (2005). Campbell soup company mixes process integration and a ready-to-use portal from ibm to increase flexibility and responsiveness. Retrieved Feb. 01, 2006, from IBM OnDemand Case Studies Web site: http://www-1.ibm.com/services/us/imc/pdf/cs-campbells-041805.pdf. Thibodeau, P. (2006). Gap signs $1.1b outsourcing deal with ibm. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/industrytopics/retail/story/0,10801,1 07812,00.html. Thibodeau, P. (2006). Gap signs $1.1b outsourcing deal with ibm. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/industrytopics/retail/story/0,10801,1 07812,00.html.

24 Sources Thibodeau, P. (2006). Hotel chain takes new tack on call center it. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/managementtopics/outsourcing/stor y/0,10801,107776,00.html. Thibodeau, P. (2006). Hotel chain takes new tack on call center it. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/managementtopics/outsourcing/stor y/0,10801,107776,00.html. King, J. (2005). wal-mart to add 250 it jobs, expand online presence. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/careertopics/careers/story/0,10801,1 06774,00.html. King, J. (2005). wal-mart to add 250 it jobs, expand online presence. Retrieved Feb. 01, 2006, from ComputerWorld Web site: http://www.computerworld.com/careertopics/careers/story/0,10801,1 06774,00.html. Sullivan, L. (2006). Hey, wal-mart, a new case of pampers is on the way. Retrieved Feb. 01, 2006, from InformationWeek Web site: http://ie.bizintelligencepipeline.com/177102939. Sullivan, L. (2006). Hey, wal-mart, a new case of pampers is on the way. Retrieved Feb. 01, 2006, from InformationWeek Web site: http://ie.bizintelligencepipeline.com/177102939. “Would you like fries with that?". (2005). KXMC CBS News,. Retrieved Feb 01, 2006, from http://www.kxmc.com/news/local.asp?ID=3940 “Would you like fries with that?". (2005). KXMC CBS News,. Retrieved Feb 01, 2006, from http://www.kxmc.com/news/local.asp?ID=3940 Thibodeau, P. (2006). Szygenda: gm deal could have far-reaching impact on it. Retrieved Feb. 06, 2006, from ComputerWorld Web site: http://www.computerworld.com/industrytopics/automotive/story/0,1 0801,108303,00.html. Thibodeau, P. (2006). Szygenda: gm deal could have far-reaching impact on it. Retrieved Feb. 06, 2006, from ComputerWorld Web site: http://www.computerworld.com/industrytopics/automotive/story/0,1 0801,108303,00.html. http://www.computerworld.com/industrytopics/automotive/story/0,1 0801,108303,00.html http://www.computerworld.com/industrytopics/automotive/story/0,1 0801,108303,00.html


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