OFFSHORE OUTSOURCING

By Marcus Mitchell
Christopher Shy
Joe Willis
Laura Reiter
Thipsuda Chanlertfa

1
OFFSHORE OUTSOURCING

Introduction
Case Study – Cognizant

Case Study – DFS Galleria

Case Study – Lincoln Industrial
Case Study – Exult
Conclusion
2
 Introduction
OFFSHORE OUTSOURCING

• Began in 1970s with U.S. computer manufacturers

hiring technical staff from India for service centers
(initially to save costs).

• India developed skilled base of technologists

(understand wide range of ops systems and service
a variety of hardware).

Reference 1 3
 Pros of the Trade
OFFSHORE OUTSOURCING

• Cost savings – up to 80 percent

• More resources = attention to core competence,
design and business knowledge

• Offshore needs meet with competence

• Demand for temporary work and consulting met
• On-demand, at short notice, without commitments

Reference 2 4
 Cons of the Trade
OFFSHORE OUTSOURCING

• Communication due to language/cultural barriers

• Time differentiations
• Technical/skill mismatches
• Quality discrepancies/lack of repeatable process
• Security issues
• Bad management/hierarchical stubborn organizations

Reference 2 5
 Not Just India
OFFSHORE OUTSOURCING

Meeting growing demands for inexpensive yet

competent programming talent:

• China
• Philippines
• Russia

Reference 3 6
 Just India
OFFSHORE OUTSOURCING

• Most mature here

• Holds 85-90 percent of offshore outsourcing
market today

• Maturity due to government support for past

decades and their continued improvements of the
education system built by the British

Reference 4 7
 Size of Market
OFFSHORE OUTSOURCING

In 2003: 5% of the US IT services market is operating

offshore
300 of Fortune 500 have a relationship with an Indian
IT service firm
360,000 US jobs moved offshore
$7 billion dollar market
In 2005:15% of US workforce (2 million) will move offshore.
$10 billion market
In 2007: $15 billion market
By 2015: 3.3million US jobs and $136 billion in wages will
transfer offshore.
Reference 17 8
 Market Trends
OFFSHORE OUTSOURCING

In 2001: Forrester Research found 12% of IT budgets

offshore, estimated to be 28% of IT budgets by
2003 (based on interviews with 50 IT
executives and survey of 145 IT Directors).
In 2001: Forrester Research found that 44 percent of
US firms with more than $1 billion in sales
performed IT work offshore, estimated to be
67% by 2003.
In 2003: Deloitte Research found that 33% of Global
Financial Institutions already sent IT work
offshore.
75% will move work offshore within next 24 months.
Reference 18 9
 In 2003
OFFSHORE OUTSOURCING

In 2003: 95% of US Offshore IT sourcing activity is

taking place in these nations:

Canada Russia
EU

Israel China Japan

Mexico India
Philippines
Singapore
Brazil

Australia

Reference 19 10
 Global IT Spending in 2000
OFFSHORE OUTSOURCING

Service Line Market Size India Export India’s Market

(US$ Billion) Revenues Share
Custom Application
Development $18B $2.5B 13.6%
Application
Outsourcing $11B $1.7B 15.8%
Packaged Software
Support $41B $.3B .7%
Systems Integration $72B $.15B .2%
IT Consulting $19B $.05B .3%
Network Management $20B $.05B .3%
Total $181B $4.75B
Reference 20 11
 Scale of Leading Offshore Venues (2001)
OFFSHORE OUTSOURCING

Average IT Labor Estimated # Estimated # IT

Cost per Year Software companies employees

China $8,952 5,000 200,000

India $5,880 900 415,00
Ireland $34,000 750 23,000
Israel $38,000 400 35,000
Malaysia $7,200
Mexico $1,400
Philippines $6,565 1,000 290,000
Russia $7,500 1,000 8,000
Reference 21 12
 Thus, Labor Arbitrage is Driving Force,
OFFSHORE OUTSOURCING

But labor savings will be offset by

higher transaction costs:
• More expensive to contract
• Higher transportation costs
• Higher management costs (on site vendor staff
and in-house project management)
• Poor communication
• Cultural differences
• Lapses in technology infrastructure
13
 Offshoring
OFFSHORE OUTSOURCING

Offshoring, a key element of Global Sourcing, can yield

significant benefits... Thus,
Cost Savings Realized What Drives Offshoring?
0% 10% 20% 30% 40%

0-10% 19% 0% 20% 40% 60% 80% 100%

33%
Saving 94%

31-50% 38% Cost 92%

10%
Improving 51%

Quality Improvement Quality 41%

0% 10% 20% 30% 40% 50% Accessing 63%

Skilled
27% 41%
Significant Improvement 23% Resources
41%
Some Improvement 38% Reducing 32%
2002
25% Cycle
Unchanged 39%
32%
2003
7% 2002
Time
Somewhat Decreased
2003

14
 Offshore Outcomes
OFFSHORE OUTSOURCING

93% of respondents expect offshore

outsourcing to reduce costs

Very Effective Survey by A.T. Kearney,

Too Early to Tell Respondents asked 100
18% 9%
Financial services
41% Executives about the
32%
Effectiveness of their
Effective Offshore initiatives
Somewhat Effective
(Meeting Goals
(Meeting Some Goals
& Objectives)
and Objectives)

Reference 22 15
 Offshore Cost Savings
OFFSHORE OUTSOURCING

US Companies charge $80 to $120 per hour for programmers

Offshore providers charge about $40 per hour

More than 50%

Survey by IBM
Less than 10%
9% Consulting Services,
Thirty to 50%
9% Respondents asked
40% percentage of savings
from offshore
42%
outsourcing of IT
Ten to 30% services and software
development

Reference 23 16
 Offshore Quality Improvement
OFFSHORE OUTSOURCING

Some Decrease Survey by IBM Consulting

Unchanged
7% Services, Respondents asked
Significant 25% Level of quality change
Improvement 27% After offshore outsourcing of
IT services and software
41% development

Some Improvement

Reference 24 17
 Offshore: The Quality Issue
OFFSHORE OUTSOURCING

Out of the top 400 companies, more than 272 Indian

companies have already acquired ISO 9000 or SEI
level 2 or other equivalent certification

Number of SEI Capability Maturity Organizations

Countries
Level 4 Level 5
India 28 46
China 0 2
Russia 0 (2) 1
World 73 69

Reference 25 18
 Offshore: The Quality Issue
OFFSHORE OUTSOURCING

Top 5 Indian Vendors

Number of SEI Capability Maturity Organizations
Countries
Level 4 Level 5
India 28 46
China 0 2
Russia 0 (2) 1
World 73 69
Company: Annual Revenues
Tate Consultancy Services $689m
Wipro Technologies $661.7m
Infosys Technologies $413.9m
Satyam Computer Services $308.2m
Cognizant Technology Solutions $177.8
Reference 26 19
 IT Activities Moving Offshore
OFFSHORE OUTSOURCING

Data Centers

BPO Study of 42 Current Offshore Users

Transaction Processing By Gartner Group
Data Integration & Cleansing
Packaged Application
Implementation
Infrastructure Management

Contact Centers

Application Outsourcing

Legacy Transformation

IT Consulting

Software Testing

Application Maintenance
Application Design
And Development

0 10 20 30 40 50 60 70

Percentage of Respondents
Reference 27 20
 Most Important Vendor Selection Criteria
OFFSHORE OUTSOURCING

Study of 42 Current Offshore Users

By Gartner Group
Near-shore Capabilities

Multivendor Capabilities

Significant Presence in US

Full Outsourcing Capability

Certifications

Business Process Expertise

Project Management Capabilities

Speed of Delivery

Quality of Resources

Cost

Vendor Maturity

0 1 2 3 4 5 6 7
Not Extremely
Important Important
Reference 27 21
 Respondents indicated interest in exploring new business models
OFFSHORE OUTSOURCING

Captive Joint Venture Build-Operate- Facilities Outsourced

Transfer (BOT) Management
Firm’s own An offshore An offshore center An offshore center Popular choice for
offshore “shared center with joint built and operated fully owned by the low-end business
service center. by a third party for firm; facilities processes or
Examples include ownership of the management (real contact centers.
GE, American firm and a third a finite time period estate, security, Could have ttwo or
Express and after which the transportation, more vendors and
party ownership transfers
HSBC. cafeteria, etc.) multiple countries
to the client firm. provided by a third
party .
Highest  More complex to  Helpful when a  Helpful when a  Requires robust
vendor


investment set up firm wants to firm wants to

retain control but retain control but management
 High management  Moderate
investment lacks local lacks local Heavy
commitment knowledge


management
 Opportunity to
knowledge
 Potentially high
share reward Also appropriate Also appropriate focus in the multi-
risk if no local  

when vendors when vendors vendor model

knowledge  Local knowledge
lack domain lack domain Opportunity to
 Greatest of the JV partner experience


helpful experience employ Best of

opportunity to Opportunity to  Opportunity to breed providers
realize value


realize value as a realize full value

 Potential to as a “captive”
“captive” facility
insource facility
“Extended Organization” 22
 Which US companies are moving IT work offshore?
OFFSHORE OUTSOURCING

Non-IT Companies: IT Companies:

• British Airways • Accenture
• MasterCard • Microsoft
• GE • Intel
• British Telecom • EDS
• GM • IBM
• Ford
• American Express
• Xerox
• World Bank
• America Online
• Procter & Gamble
23
 Leading the Way:
OFFSHORE OUTSOURCING

Today’s Companies

Infosys

Wipro

Cognizant

24
 Current Trends
OFFSHORE OUTSOURCING

• Increasing acceptance of value and viability of

using remote programming resources.

• Companies continue to refine their approach to

global sourcing.

Reference 7 25
 Outsourcing Futures
OFFSHORE OUTSOURCING

• Offshore outsourcing will grow.

(At least 25 percent in 2003)

• U.S. - based outsourcing and consulting firms will

increase offshore resource pools.
(By increasing offshore partners or existing facilities)

• India will continue to dominate.

(Indian vendors will look offshore for even cheaper help)

• Indian vendors will continue to move up the value

chain.
(By offering architecture, design, development
and technology strategy services)
Reference 7 26
 Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING

• Business process outsourcing in India will grow

at least 65 percent during 2003.
(Given the cost benefits and early successes of
Indian IT-enabled service outsourcing)

• Companies continue to focus on contingency

plans for offshore vendor relationships.
(New processes and workarounds to ensure safety of
their clients’ systems in the event of communications
outage or bombing in India)

Reference 7 27
 Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING

• Fortune-class companies will require vendors to

have mature processes in place before they
engage.
(Process maturity equals quality)

• Companies will increase investments with offshore

service providers, even first timers.
(In the past - pilot projects were small; in the future –
comfort and confidence will increase initial deals)

Reference 7 28
 Outsourcing Futures (Continued)
OFFSHORE OUTSOURCING

• Companies will put in place centralized program

management offices or governance structures to
manage, monitor or consult on offshore
outsourcing relationships at the corporate level
(Today – companies often have multiple offshore
relationships with multiple vendors within
different business units or groups)

Reference 7 29
 Concepts of the Past 25 Years
OFFSHORE OUTSOURCING

The evolution of
the generations

30
 First Generation:
OFFSHORE OUTSOURCING

Staffing

• Syntel and Tata – main suppliers of technical

personnel.

• In the end – minimal cost or value impact.

Reference 1 31
 Second Generation:
OFFSHORE OUTSOURCING

Offshore

• Tata and Wipro – providers

• Totally cost-focused

• Suffered from usability and quality issues

Reference 1 32
 Third Generation:
OFFSHORE OUTSOURCING

On–site/Offshore

• Cognizant and Infosys – Today’s dominant

players.

• Technical-focused with high quality outcomes

and resourcing flexibility.

Reference 1 33
 Fourth Generation:
OFFSHORE OUTSOURCING

On–site/Offshore and Business

Transformation

• Cognizant – with its u.s. and European market

base in conjunction with large development
facilities in India; pioneer and definer of the
fourth generation.

Reference 1 34
 The Fourth Generation:
OFFSHORE OUTSOURCING

Transformation
and
Corporate Executives

Reference 5 35
 Transformation:
OFFSHORE OUTSOURCING

Efficient Execution
• Requires close partnership-based relationship
between client and service provider

Conceptual Shifts
• Moving from technical to strategic
• Treating vendors as colleagues rather than
contractors

• Outcome focused instead of activity focused

Reference 5 36
 The Fourth Generation
OFFSHORE OUTSOURCING

• Allows corps to focus more on the customer and

doing business vs. the processes that support it

• Dramatically faster flow of knowledge, greater

ease of complex strategic problems, high
motivation achieving more with less

Reference 5 37
 The Fourth Generation:
OFFSHORE OUTSOURCING

Innovative Concept
Companies partner with a single integrated
provider simultaneously allowing:

• Understanding of execution
• Supply solutions
• Guidance through essential change
management process

Reference 5 38
OFFSHORE OUTSOURCING

A Fourth Generation
Case Study

Cognizant

39
 Cognizant
OFFSHORE OUTSOURCING

Location: Headquartered in Teaneck, New Jersey

History: Started as subsidiary of Dun & Bradstreet

to establish a large offshore development
center for the parent company

Founder: Kumar Mahadeva – chairman and CEO

Reference 5 40
 Cognizant Figures
OFFSHORE OUTSOURCING

As of September 30, 2003:

• 6,168 employees
• 260.1 million in past year’s sales
• 39.6 million in past year’s earnings
• 1.129 billion in market value

Reference 6 41
 Cognizant
OFFSHORE OUTSOURCING

• Based on client relationships guided by value and

shared goals, not rigid, locked contracts.

• Operates as technology partner to client.

• Always been project oriented as opposed to
staffing oriented.

Reference 5 42
 Cognizant and the Fourth Generation
OFFSHORE OUTSOURCING

How does Cognizant provide

its services to its clients?

43
 Fourth Generation Services
OFFSHORE OUTSOURCING

• Vertical industry domain knowledge:

(Knowledge of business)
• State-of-the-art technology expertise:
(From legacy platforms and major enterprise applications to
Java, .net, and XML services)

• Business transformation core competency:

• Highly disciplined program management and change
management competence:
(eliminates hurdles of managing complex offshore developments)

• Organizational agility:
(speed and flexibility to coordinate local and offshore resources)
Reference 5 44
 A Fourth Generation Model
OFFSHORE OUTSOURCING

• Creates ‘community of practice’ that fully

integrates business strategy with it’s execution.

• On site/offshore information technology

outsourcing combined with change management
practices is key.

• Increased speed, quality, productivity are the

outcomes (all with lower costs).

Reference 1 45
 Cognizant’s Differentiators
OFFSHORE OUTSOURCING

• 100 percent end-user application focused

(most others are product and research/development
oriented).

• Focused on working with business end-users with

deep knowledge in key verticals.

• Focused on bottom line business results through IT

portfolios analysis and change management.

Reference 5 46
 Cognizant Industries
OFFSHORE OUTSOURCING

First major offshore company to establish vertical

industry practices through experts who know
competitive challenges that client companies face.

Reference 5 47
 Vertical Industry Practices
OFFSHORE OUTSOURCING

Healthcare Sierra Health / Lifeguard / Healthnet

Financial Services Philidelphia Stock Exchange / First Data Corp

Telecommunications

Manufacturing & Logistics United States Cold Storage / Coors

Media & Publishing Nielson Media Research / Dun & Bradstreet

Pharmaceuticals

Insurance Royal & Sun Alliance / Liberty Mutual / Metlife

Retail Ace Hardware / Radioshack / Brinker Int.

Reference 5 48
 Some Recent Industry Awards
OFFSHORE OUTSOURCING

October 2003
topped forbes’s list of ‘hotshots’
June 2003
8th overall in business weeks’ list of ‘hot growth companies’
April 2003
15th on forbes’s ‘25 fatest growing tech companies’
(ranked by five-year totals)
October 2002
ranked 16th in fatest growing 100 tech companies list
published by business 2.0

49
 Kumar Mahadeva Speaks
OFFSHORE OUTSOURCING

“Cognizant is a recognized premium player in the

offshore IT services industry and is growing faster
than its offshore peers because our model is built for
the new world of large scale offshore outsourcing.
through our industry leading fourth generation
servicing model we partner with clients on a process
we call ‘transforming while performing’ to drastically
cut IT and business costs, while better aligning
clients’ IT portfolios with business needs.”

Reference 5 50
 Partners
OFFSHORE OUTSOURCING

51
OFFSHORE OUTSOURCING

Case Study

DFS Galleria

52
 Case Study: DFS Galleria
OFFSHORE OUTSOURCING

• Engaged Cognizant Technology Solutions, an

Indian offshore service provider, to provide on-
site support.

• Leading retailer of luxury goods and general

merchandise for international travelers.

• 6,000 + employees & several hundred stores.

Reference 8 53
 Situation
OFFSHORE OUTSOURCING

• Sept 11th; Dramatic slowdown in business.

• Need for accelerated cost reductions.

• Demand for increased speed and quality of IT

services.

Reference 8 54
 Approach
OFFSHORE OUTSOURCING

• Cognizant proposed its “Transformational Offshore

Outsourcing” methodology to achieve large-scale,
radical changes needed.

– Phase 1 – Mid 2000; Cognizant assumed responsibility for on-

site maintenance and enhancements to retailers core
merchandising system.

• Slow and in phases to help manage risk.

• Measured in stages before making long-term commitment.
• Fully up to speed in 6 months; comfortable with operation in 12.

Reference 8 55
 Approach (Continued)
OFFSHORE OUTSOURCING

– Phase 2 – Early 2001; DFS extended India support to

include the second and third shifts.

– Phase 3 – Oct 2001; Cognizant became responsible for

all the application support and new development
activities globally.

– Phase 4 – Early 2002; all financial, human resources and

email systems were added.

Reference 8 56
 Results
OFFSHORE OUTSOURCING

• Overwhelming success: surpassed DFS’s

expectations on quantitative and qualitative
dimensions.

– Significant reduction in application support costs.

– Met all original objectives and delivered other

value-added services.

Reference 8 57
 Critical Success Factors
OFFSHORE OUTSOURCING

• Cooperative culture: Teamwork, strong work ethics

and “can do” attitude.
• Patience: Success takes time.
• Pre-planning: Resources need to be allocated early.
• Vendor responsibility: Qualified, trained, mature
staff must be utilized in a timely fashion.
• Clarity: Roles must be clear with responsibilities
and expectations defined.
• Outside the box: Both parties must think about
advantages beyond cost savings.
Reference 8 58
OFFSHORE OUTSOURCING

Case Study
Lincoln
Industrial, Inc.

59
 Part #548447 Handheld Grease Gun
OFFSHORE OUTSOURCING

• Most popular of this line

• Annual volume 48,500+

Reference 9 60
 Scenario
OFFSHORE OUTSOURCING

Reference 9 61
OFFSHORE OUTSOURCING

Case Study

Exult

62
 Exult’s Offshore Outsourcing Plan
OFFSHORE OUTSOURCING

• Exult, with the assistance of NeoIT Inc., signed a

deal in early 2003 to move some of its “day-to-day
application maintenance” offshore.

• Exult’s management deemed this a logical step in

their bid to stay competitive in the ever-changing
global economy.

Reference 12 63
 Background - NeoIT
OFFSHORE OUTSOURCING

• NeoIT is the leading offshore advisory and

management firm.

• “Focus exclusively on assisting companies in

maximizing their returns from offshore sourcing
of both IT and business processes on either a
project or enterprise-wide basis.”

Reference 12 64
 NeoIT
OFFSHORE OUTSOURCING

• “Capable of delivering results in the form of cost

savings, improved governance, reductions in
sourcing process time and decreased risks with
offshore supplier partnerships.”

• Essentially, NeoIT focuses on four factors: cost

savings, quality, risk & control.

Reference 12 65
 A Perfect Match
OFFSHORE OUTSOURCING

• Exult’s VP of Business Model Architecture, Steve

Unterberger, was considering offshore outsourcing
due to three primary factors:

1. Savings- the economic environment overseas can

provide significant cost reductions.

Reference 12 66
 A Perfect Match (Continued)
OFFSHORE OUTSOURCING

2. Skill- By taking application maintenance offshore,

Unterberger believed he could tap into new
sources of expertise.

3. Scale- Access to skilled offshore providers

substantially increases the available resource
base, providing the additional capacity to
accommodate Exult’s Growing business.

Reference 12 67
 Exult & NeoIT
OFFSHORE OUTSOURCING

• Mr. Unterberger made it clear from the beginning that

Exult would be taking a “hands-on” approach.

• “What made the relationship even more effective

was the unique skill set that each party brought to
the table.” – NeoIT

• “Unterberger understood Exult’s business

requirements and drove the decision making
activities, while NeoIT had extensive knowledge of
offshore markets and providers” - NeoIT
Reference 12 68
 Exult & NeoIT
OFFSHORE OUTSOURCING

• “NeoIT’s understanding of the Indian Vendor

environment meant that they knew which buttons to
push to create a positive supplier relationship. After
meeting the providers…I was completely convinced
that both the capabilities and the economics we
needed were there.”- Steve Unterberger

Reference 12 69
 Exult & NeoIT
OFFSHORE OUTSOURCING

• Next, an intense review and due diligence process

by both parties was conducted and the supplier list
was narrowed to the three most qualified candidates.

• Then, NeoIT sent a team of veteran auditors to

perform a detailed assessment of each supplier’s
domain, technical and functional knowledge.

Reference 12 70
 Evaluation Criteria
OFFSHORE OUTSOURCING

• NeoIT used a five step process to assess the

competency of each of the firms. Their evaluation
criteria included:

1. Past Projects
2. People (management of Human Resources.
3. Pricing
4. Performance
5. Platform

Reference 12 71
 Final Decision
OFFSHORE OUTSOURCING

• Based on the previous criteria and the extensive due

diligence performed by both parties, Exult and NeoIT
were able to identify the two most qualified providers
and award the final contracts accordingly.

Reference 12 72
 Keys to Success
OFFSHORE OUTSOURCING

• According to Harding Goodman, Global ASM

Director for Exult, “the exacting vendor process that
NeoIT had helped coordinate began paying dividend
right away. The vendors’ skills and familiarity with
our needs were excellent. They knew exactly where
we were going and how we wanted to get there.”

Reference 12 73
 Keys to Success (Continued)
OFFSHORE OUTSOURCING

• According to Mr. Goodman: “the keys to a smooth

transition process are communication and
expectations. You need to have a communications
plan in place right from the beginning, and you need
to stick with it…you need to make sure everyone
involved knows your expectations fro time, quality
and other success measurements.”

Reference 12 74
 Ongoing Contract Governance & Program Management
OFFSHORE OUTSOURCING

• Ongoing management responsibilities were given to

Exult’s Operations group.

• NeoIT’s work was just beginning; they were now

focused on ensuring that the savings negotiated
would be delivered consistently and on schedule.

Reference 12 75
 Managing for Continued Success
OFFSHORE OUTSOURCING

• NeoIT provides ongoing program management

services to oversee the activities of the offshore
suppliers.

• With the aid of NeoIT’s Project Office tool, the

suppliers, NeoIT staff, and Exult managers have the
ability to: track milestones, allocate resources,
manage service levels, gather feedback, and see
invoicing and payment information.

Reference 12 76
 Managing for Continued Success (Cont.)
OFFSHORE OUTSOURCING

• Project Office generates weekly status reports and

automatically alerts team members whenever
significant events occur – e.g. when performance
falls below service levels.

• In addition, NeoIT has a full-time program director

based in India to monitor work activities, ensure
compliance, and act as an arbitrator if any issue
arise.

Reference 12 77
 Offshore Outsourcing Tips
OFFSHORE OUTSOURCING

• According to Harding Goodman of Exult, companies

considering working with offshore providers should:
“Create a single, global team. You can’t have one
onshore team and another offshore team. Everyone
has to play in the same sandbox.”

Reference 12 78
 Offshore Outsourcing Tips (Continued)
OFFSHORE OUTSOURCING

• “Make sure each individual contributor knows what

is expected of the team and how their work fits into
the big picture.” – Harding Goodman, Exult

• Have a local presence. “The advice of counsel and

our NeoIT representatives in India is invaluable. Our
vendors have complete respect for them, but they
also know they are working for Exult.”

Reference 12 79
 Results
OFFSHORE OUTSOURCING

• Harding Goodman believes strongly that offshore

outsourcing with NeoIT has helped Exult achieve its
goals for savings, skill, and scale:

• Savings: “With the economic model of offshore

outsourcing, we have been able to achieve
somewhat higher savings that we anticipated.”

Reference 12 80
 Results (Continued)
OFFSHORE OUTSOURCING

• Skill: “One of my managers said this is the best team

of this sort she’s ever had because of the skills of
the individuals.”

• Scalability: “Our offshore vendors have good ‘bench

strength.’ If I need additional skills or people, I can
add them quickly.”

Reference 12 81
 Update
OFFSHORE OUTSOURCING

• Exult finalized its deal with NeoIT in early 2003

and subsequently employed approximately 150
workers at its facility in India. Recently, Exult has
stated that they plan to “increase its workers in
its BPO facility in India to 2,000 by 2005.”

Reference 16 82
OFFSHORE OUTSOURCING

Conclusion

83
 Things to Consider before Outsourcing
OFFSHORE OUTSOURCING

• Be patient – long term mindset.

• Vendor selection costs 1 to 10% premium.
– Documenting requirements
– Negotiating contracts, legal fees
– Travel expenses
• Transition period
• Cost of layoffs, morale of “survivors”
• Cultural cost, communication

Reference 10 84
 Things to Consider before Outsourcing
OFFSHORE OUTSOURCING

• Quality assurance testing

• Cost of managing contract offshore
• Security and privacy
• Skills and expertise – talent match project
• Country stability
• Certification – CMMI (Capabilities Maturity Model
Integration)

Reference 10 85
 The Latest Trends
OFFSHORE OUTSOURCING

• Multi-sourcing – Multiple service providers in different

countries; search for best skills for best price.
• Reshuffling Skills – Rebalancing mix of in-house skills
with managerial experience and business process
knowledge.
– IT Architects – which technologies to adopt
– Contracting, negotiation, financial & accounting
• Offshore Handoffs – outsourcers are outsourcing
• Large savings currently
– However, demand will drive up global labor costs.
– Negotiations for extended long-terms contracts.

Reference 11 86
 Offshore Outsourcing Benefits
OFFSHORE OUTSOURCING

• Cost Savings
• Increased Productivity
• Time to Market
• Access to Expertise and Skills
• 24/7 Operation
• Higher Software Quality
• Make capital funds available-Cash infusion
• Sharing of risks
87
 Offshore Outsourcing Costs
OFFSHORE OUTSOURCING

• Unclear objectives and design requirements

• Lack of Control
• Time zone differences
• Language barriers
• Domestic layoffs

88
 Backlash/Controversy
OFFSHORE OUTSOURCING

• There are numerous proponents for offshore

outsourcing and numerous opponents who believe
offshore outsourcing is simply a low-cost, low-
quality alternative to keeping jobs in the U.S.

Reference 14 89
 Opponents
OFFSHORE OUTSOURCING

• In recent years there have been a number of people

who have called for legislation that would limit the
ability of U.S. companies to move IT jobs offshore.
• Many people who oppose offshore outsourcing are,
in fact, workers who have been outplaced by the
practice.
• Other negative factors that opponents cite include
downward pressure on salaries in the IT industry
and the potential for a “reverse brain drain,” where
highly skilled IT workers choose to work in countries
other than the U.S.
Reference 15 90
 Government Action?
OFFSHORE OUTSOURCING

• Recently, the Bush administration has stated that

they have “no plans to impede companies efforts to
move IT jobs to India or anywhere else.

• Thus, the government has decided that it will not, at

any time in the near future, enact any sort of
legislation that would hinder offshore outsourcing.

Reference 15 91
 Proponents
OFFSHORE OUTSOURCING

• Many of those in favor believe that they can in fact

get better quality in shorter times at a lower cost by
going offshore.

• The majority, whether they agree with the previous

statement or not, believe that they can attain at least
a level of quality consistent with what they have in
the U.S., at a lower cost.

Reference 14 92
 Proponents (Continued)
OFFSHORE OUTSOURCING

• Essentially, it comes down to a competitive

advantage decision for these global companies.

• As Kevin Campbell, COO of Exult states: “…if I

thought I could clobber all my [competitors] here by
just staying put in the U.S. and outsourcing work
here, why wouldn’t I do that? I am not doing that,
because that [scenario] does not exist”

Reference 13 93
 Proponents (Continued)
OFFSHORE OUTSOURCING

• Again, global companies see it as a crucial element

to staying competitive in the global market place.

• Some executives, such as Gordon Coburn senior VP

and CFO of Cognizant, believe that not making the
decision to outsource offshore will eventually cost
more jobs because companies will “not be able to
survive , because they won’t be price-competitive.”

Reference 13 94
 Sink or Swim?
OFFSHORE OUTSOURCING

• Ultimately, after hearing both sides of the argument,

it becomes clear that the executives that are in favor
of offshore outsourcing believe that it is a necessity
in order to stay competitive.

• Essentially, global companies must “evolve or

perish.”

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 References
OFFSHORE OUTSOURCING

1. “Tech Vendor Cognizant Harnesses the Force of Y6” by Cliff Shaffram, The Bottom Line represented from
South China Morning Post Sunday Money – Oct 27,02
2. www.gislen.com/services/why_outsourcing.htm by Mirael Gislen and M.C.Abruham
3. “Offshore Outsourcing grows to global properties” by Lassy Greenemeies 2/11/02
4. “More and More Its Offshore” by Jim Erricson Oct 11,2002 Line 56
5. www.cognizant.com
6. “Healthcare Informatics 100”
7. “IT Trends 2003: Offshore Outsourcing” by Stephanic Moose-Idea Byte Oct 21, 2002
8. www.gartnerconnects.com on10.08.03
9. Interview: Tom Johnson, Plant Manager on 11.12.03
10. www.web.lexis-nexis.com, www.proquest.umi.com on 10.23.03
11. Copyright 2003 “PR Newswire Association, Inc.”
12. Copyright 2003 “NeoIT, Inc.”
13. Copyright 2003 “Living Media India, Ltd.”
14. Copyright 2003 “CMP Media, LLC” Information Week
15. Copyright 2003 “Computerworld, Inc.”
16. Copyright 2003 “Financial Times Information”
17. Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology,” MIS
Quarterly Executive, Vol. 1, 2, pp. 65-77.
Greenemeier, L., “Offshore Outsourcing Grows to Global Proportions,” InformationWeek, Feb 11, 2002
Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
Vijayan, J., “Companies Expected to Boost Offshore Outsourcing,” ComputerWorld, Feb 17, 2003.

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 References
OFFSHORE OUTSOURCING

18. Rosenthal, B., “Deloitte Study Discovers 75% of Global Financial Institutions Pan to Outsource Offshore,”
Everest Partners, L.P., Dallas Texas, June, 2003
Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
19. Carmel, E., and Agarwal, R., “The Maturation of Offshore Sourcing of Information Technology,” MIS
Quarterly Executive, Vol. 1, 2, pp. 65-77.
20. NASSCOM, McKinsey Report, 2002
21. Morstead, S., and Blout, Greg, Offshore Ready, Isani Press, 2003.
22. MacSweeney, G., “Offshore Can Improve Quality,” Insurance and Technology, July 2003, Vol. 28, 7, p.39.
23. Thibodeau, P., “Offshore’s Rise is Relentless, ComputerWorld, Vol. 37, 25, June 30, 2003, p. 1, 16.
McCarthy, Kack, “Redefining Offshore Outsourcing,” InfoWorld, December 2, 2002, Vol. 24, 28, p. 56.
24. McCarthy, Kack, “Redefining Offshore Outsourcing,” InfoWorld, December 2, 2002, Vol. 24, 28, p. 56.
25. Auriga.com, Carnegie Mellon University, Software Engineering Institute (SEI), May 2002
http://www.sei.cmu.edu/cmm/high-maturity/HighMatOrgs.pdf
26. Greenemeier, L., “Offshore Outsourcing Grows to Global Proportions,” InformationWeek, Feb 11, 2002
27. Weiss, P., “Behind the Numbers: Offshore Outsourcing’s Cost Effective Edge, InformationWeek, Nov 25,
2002, Vol. 916, p. 66.

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