1. IT Outsourcing Offshore Process Anthony Geers Student DIP 99 May 4, 2005

2. Thesis Presentation Overview 1.What is Outsourcing? 2.Why Outsourcing? 3.What function to outsource? 4.Outsourcing Models 5.Outsourcing and Offshore Landscape 6.Outsourcing Contract & Legal Issues 7.Outsourcing Risks & Outcome 8.Conclusion Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 1

3. What is Outsourcing? Section 1/8 2

4. What is Outsourcing? Paying another company to provide services which a company might otherwise have employed its own staff to perform. Princeton University in its Webster Dictionary Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 3

5. Why Outsourcing? Section 2/8 4

6. Why Outsourcing? 1.Financial –Fix -> Variable Cost –Releases capital –Selling assets -> Positive Cash in-flow 2.Focus on core business 3.Agility 4.Low cost 5.Quality (i.e. CMMI, Six Sigma) 6.Access to Technology (i.e. SAP) Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 5

7. What Function to Outsource? Section 3/8 6

8. What Function to Outsource? “Do what you do best and outsource the rest.” Tom Peters Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 7

9. Outsourcing Decision Process Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 CORE CONTEXT UNTOUCHABLE TOUCHABLE COMPETITIVE ADVANTAGE NO COMPETITIVE ADVANTAGE COMPANY’S FUNCTIONS OUTSOURCE INSOURCE Continuous Review CRITICAL SCHEDULE STABLE 8

10. Outsourcing Models Section 4/8 9

11. Outsourcing Models Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 GEOGRAPHICAL LOCATION FINANCIAL BENEFITS Full Offshore Projects On-Site/Off-Site Projects Nearshore Projects Onshore Projects On-Site Projects 10

12. Outsourcing and Offshore Landscape ? Section 5/8 11

13. Top 5 External Service Providers Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 TCS Over 24000 outsourcing personnel 31 client dedicated offshore centres (6 cities in India) WIPRO More than 21000 outsourcing personnel 30 offices across Northern America, Europe and Asia CGE&Y +12 000 outsourcing personnel Solution delivery centres in all continents in 27 locations IBM +25 000 outsourcing personnel Solution delivery centres in all continents in 30 countries Infosys Technology +19 000 outsourcing personnel Solution delivery centres in all continents in 20 locations 12

14. Nearshore Landscape Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 13

15. Offshore Landscape Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 14

16. Outsourcing Contract & Legal Issues Section 6/8 15

17. Outsourcing Contract & Legal Issues The formulation of a contract is an important issue because, in case of a premature termination of the contract, the problems are resolved in a court of law. And when the case goes to the court the formulation of the contract is decrypted word by word. Main sections of an outsourcing contract 1.Service Description 2.Responsibilities of each parties 3.Penalties and Bonuses 4.Change Procedure 5.Intellectual Property Rights (IPR) 6.Validity and Termination Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 16

18. Outsourcing Risks & Outcome Section 7/8 17

19. Outsourcing Risks & Outcome Prepare to renegotiate your Outsourcing deal, says Gartner 27/04/2005 –Nearly 80% of all outsourcing relationships will be renegotiated say Gartner. Lack of flexibility is the main issue leading to renegotiations, followed by a need to improve the relationship between the supplier and customer. Beware the security risks in outsourcing says Gartner 14/05/2004 –While there may be benefits for enterprises that implement an outsourcing strategy, companies must identify and manage the security risks before they sign any agreement, according to researchers at Gartner. Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 18

20. Outsourcing Risks & Outcome Outsourcing does not guarantee cost savings says Gartner 19/11/2003 –A new report suggests that of firms that outsource their IT capabilities, almost 20% make no cost savings and around 10% experience an increase in costs. But Project management is more expensive than many firms expect. Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 19

21. Conclusion Section 8/8 20

22. Conclusion 1.Do not outsource your problems 2.Do not try to be “trendy” by outsourcing without a global sourcing strategy. 3.Your medium size local provider might be cheaper and better, in the end, compared to Global Providers from India. 4.Include the right people from the start (I.e. Legal, Sourcing, Business owners, Executive). 5.Outsourcing negotiation is time consuming Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 21

23. Anthony Geers, IT Outsourcing Offshore Process May 4, 2005 22 Questions THANK YOU

24. Outsourcing Offshore Process Anthony Geers Student DIP 99 May 4, 2005 23

25. Additional Material CMMI: Capability Maturity Model® Integration created by Carnegie Mellon Software Engineering Institute Anthony Geers, IT Outsourcing Offshore Process May 4, 2005

26. SIX SIGMA W. Edwards Deming is known as the father of the Japanese post-war industrial revival and was regarded by many as the leading quality guru in the United States. He passed on in 1993. Trained as a statistician, his expertise was used during World War II to assist the United States in its effort to improve the quality of war materials. He was invited to Japan at the end of World War II by Japanese industrial leaders and engineers.. His methods dramatically altered the economy of Japan.. It was not until the 1970s, however, that Deming started to make an impact in the West(We will talk about this later). Anthony Geers, IT Outsourcing Offshore Process May 4, 2005

27. SIX SIGMA Joseph Juran started out professionally as an engineer in 1924. In 1951 his first Quality Control Handbook was published. Chapter 1 of the book was titled The Economics of Quality and contained his now famous analogy to the costs of quality: 'there is gold in the mine'. Again like Deming Juran was invited to Japan in the early 1950s by the Union of Japanese Scientists and Engineers (JUSE). He arrived in 1954 and conducted seminars for top and middle-level executives. His lectures had a strong managerial flavour and focused on planning, organisational issues, management's responsibility for quality, and the need to set goals and targets for improvement. He emphasised that quality control should be conducted as an integral part of management control. Juran developed the idea of quality trilogy: –quality planning, –quality improvement and –quality control. Anthony Geers, IT Outsourcing Offshore Process May 4, 2005