8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke REVIEW OF IT OFFSHORE OUTSOURCING ISSUES Helen M. Carothers Gerhard Steinke Seattle Pacific University 8 October 2004

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke OVERVIEW Background Outsourcing Models Drivers Benefits Risks Future Conclusion

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke BACKGROUND “Offshore outsourcing” and/or “offshoring” refers to moving work and the related costs from a developed country to a lower- cost, developing country.

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke OUTSOURCING MODELS Ownership Subsidiary Partnership Contract Provider owned facilities Provider employs staff Provider responsible for deliverables

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke OUTSOURCING LEVELS Simple - Provide Resources Repetitive tasks Moderate - Cost Reductions Rule-based decision-making Problem resolution Complex - Process Improvements Fully analytical tasks Research Non-rule based decision-making

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke Figure 1: Outsourcing Trends Source: Australia Outsourcing and Utility Services: Research Fact Sheet. IDC’s IT Outsourcing and Utilities Services (2004)

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke MATURING MARKET More sophisticated providers Focus on higher value work Distinguish and differentiate offerings Driver shifting from cost to quality Some fragmentation Variety of business models Disparity in provider maturity New service offerings

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke GROWTH POTENTIAL Fewer Opportunities Application development Maintenance work More Opportunities Enterprise application integration Implementation of application packages Business integration Greatest Opportunities Call centers Business processes Infrastructure

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke Figure 2: Applications Being Sent Offshore Source: Behind the Numbers: Offshore Outsourcing Projected to Grow. Information Week. (2004)

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke Figure 3: Type of Work Being Sent Offshore Source: Behind the Numbers: Offshore Outsourcing Projected to Grow. Information Week. (2004)

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke BENEFITS Cost reduction Enhanced processes Reengineered processes Cost reduction Enhanced processes Reengineered processes Process improvements

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke RISKS Rapid growth Renegotiated contracts Leaving shareholder value on the table More complex operations Not always satisfactory No competitive advantage Poor quality

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke Figure 4: Success of Offshore Outsourcing Source: Behind the Numbers: Offshore Outsourcing Projected to Grow. Information Week. (2004)

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke CHALLENGES Communication Cultural differences Time-consuming travel Intellectual property considerations Privacy and security regulations Political risks Infrastructure capabilities

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke FUTURE IT industry is changing Globalization of software Globalization of it services Stronger job demand Support specialists Software applications engineers Software systems engineers

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke JOB DEMAND

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke WHAT DOES THIS MEAN? Large businesses Globally blended outsourcing options Enterprise software development Paper-based transaction processing Project manager Business requirements analyst

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke CONCLUSIONS Man was not meant to fly. The horseless carriage was a fad. There was no place in business for the personal computer. Offshore outsourcing is a fad. Most of the offshore projects will fail.

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke PREDICTIONS Globalization will happen and it is about more than the offshore outsourcing of IT related jobs. If you work in the IT industry, your work environment will be changed by offshoring.

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke OFFSHORE OUTSOURCING Reduces costs Facilitates innovative solutions Facilitates growth Increases productivity Increases demand for IT-related jobs Leaner, more competitive U.S. economy

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke EPILOGUE Since 2000, U.S. has lost 372,000 IT jobs Reasons: Dot-com bust Recession Growth in productivity Global Insight study Sponsored by the Information Technology Association of America (ITAA) The Benefits of Offshore Outsourcing Michael J. Miller PC Magazine, 28 April 2004

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke WHAT CAN WE DO? Increase worker training, retraining, and education Fix failing K-12 education system (future competitiveness depends on it) Increase basic research in physical sciences Encourage foreign nationals earning masters and Ph.D. degrees to stay and work Adopt a broadband policy to facilitate communications Support open markets and oppose protectionist legislation Reduce the costs of doing business Adapted from the American Electronics Association report: Offshore Outsourcing In An Increasingly Competitive And Rapidly Changing World: A High-Tech Perspective March 2004

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke NOT FOR EVERYONE "We'd be nuts to outsource." Linda Dillman Executive VP and CIO of Wal-Mart Stores Inc. InformationWeek Sept. 27, 2004

8 October 2004 Review of IT Offshore Outsourcing Issues Helen M. Carothers Gerhard Steinke REVIEW OF IT OFFSHORE OUTSOURCING ISSUES Helen M. Carothers Gerhard Steinke Seattle Pacific University 8 October 2004