Offshore Outsourcing DePaul University October 18, 2004 Richard Howe

Offshore Outsourcing

DePaul University

October 18, 2004

Richard Howe

Topics

• 60 seconds about SAIC

• Why outsource to offshore

• Considerations

• How to make it work

• What did you say

SAICWhyConsiderHowRecap

SAIC Overview

Technology/Capabilities That Contribute to Our Competitive Advantage


Government Business Areas

Health Care4.9%

Energy1.4%

Other14.7%

Environment6.6%

National Security67.1%

Core Competencies

• Information technology systems

• Professional services

• Engineering services

• Telecommunications systems

Core Competencies

• Information technology systems

• Professional services

• Engineering services


Telecommunications2.4%

IT Outsourcing2.9%


Core Competencies


• Information technology systems and outsourcing

Core Competencies


• Information technology systems and outsourcing

Commercial Business Areas

IT Outsourcing21.3%

Environment1.6%

Health Care2.4%

Other10.9%

Telecommunications58.9%

Energy4.9%


Sustainable Competitive AdvantageLeading to 35 Years of Growth


Why outsource?

Internal Work force constraints User dissatisfaction Inefficient operations Escalating budgets Attrition Redirect internal staff Mission critical services Complex services

External Tight labor market Global competition Rapid change in technology Technology complexity Cost pressures Integration needs Business process change Partners are competitors

Today, Today, irrelevancyirrelevancy may carry larger risks than may carry larger risks than inefficiencyinefficiency

Business DriversSAICWhyConsiderHowRecap

Why Outsource?

• Create flexibility• Focus on core business• Improve quality• Realize cost reductions

Through 70’s 70’s - 80’s 90’s

Join

t Ven

ture

s

Alli

ance

s

Outsourced

Operating P

artners

Core value


Why outsource to offshore?

Some Macro Drivers:• Large highly educated labor force• Wage Arbitrage• Relative political stability: post-cold war period permits

capital & labor mobility

Some Business Drivers:• Depressed global demand (Overcapacity) – Need to Cut

Costs• Maturation of offshore service delivery platforms – Initial

driver was unmet labor demands• Emergence of Information Technology Enabled Services –

Back Office and Call Center• Standardization of IT software platforms

Source: Information Policy Institute January 14, 2004


Considerations

Offshore adds a third dimension to outsourcing

Control– Cost structure– Economies of scale– Financial engineering– Service requirements– Process expertise/ capabilities

Location– Vendor capabilities and availability– Labor pool projections/economics/skills – Deal types/relationship structure

(e.g., subsidiary; JV; consortium)– Location/geographic considerations– Risk management

Information Technology

Business Process

• Offshore

• On-shore

• Outsource

• Insource

Call Center

Service Categories

Source: Society for Information Management, SIMposium 2004


Considerations

• Culture

• Coordination

• Cost

• Complexity

• Constancy/Stability

• Core/Strategic process

• Confidentiality


Onshore v. Offshore Delivery comparisons

High

Low

Medium

Medium LowHigh

Offshore

Legacy

maintenance &

Project selection done through

diagnostics study

Co

mp

lexi

ty

High

Low

Medium

Medium

Constancy/Stability (e.g. Requirements)

Offshore

Legacy

maintenance &

Project selection done through

diagnostics study

Legacy maintenance & enhancements

Application Support

Core/Strategic Application

Development

Non-core Application

Development

Project selection done through diagnostics study

Proportion Offshore

Low

High

High


Facts about India

• Government: Democratic & Secular.• Religion: Hindu, Muslim, Christian, Sikh, Jain,

Buddhist, Parsies etc.,• Calendar: Christian Calendar for Business; Indian for

Ceremonies/Festivals• Food and costumes: Distinct regional food &

costumes. Besides regional song and dances. Predominantly Vegetarian.

• Language: – National Language: HINDI (30%)– 25 different regional languages and numerous dialects– Governments do business in English.


Behaviors

• Shy, soft spoken, reserved & low voice• Polite, humble & respect for elders• Superior makes decisions; subordinate carries them out• Mutual dependence and interdependence - family bonds• Waving of palm and hands• Nodding of head/shaking head for ‘yes’ or ‘no’• Hesitate to disagree and contradict others• Hesitant to shake hands especially with opposite gender• Eye contact with female colleagues is low• Public display of emotions/affections is discouraged


• Schedule = S(k)edule• Route (Root) = Route (Raut)• Half = Half• Fast = Fast• Z (Zed) = Z (Zee)• Zero = ‘O’• Organisation = Organization• Colour = Color• One Lakh = Hundred

Thousand • One Crore = Ten Million

Differences

Yes = I heard you (not I agree)

Asian Indian vs. American English

• Hello = Hi• Phone is engaged = Busy• Disconnect a Phone = Hang-

up• Petrol Pump = Gas Station• Lift = Elevator• Bill = Check• Note = Bill• Too = Very/Lot• Repair = Fix• Fix = Assemble


How to make it work

Short-term Transition Project

• Define the “win” for employees and the firm• Communicate, recognizing culture differences

“Tain't what a man don't know that hurts him, tis what a man knows that just ain't so.” Kim Hubbard

• Process must be more rigorous than you’ve ever used and address time zone differences

• Infrastructure– Duplicate of test/QA environment– Robust communication network

• Knowledge transfer – use phased approach and test to assure success• Risk management• Establish service level agreement at start (e.g. bug fixes, problem

resolve time, “lights on” tasks, etc.)• Allow for 6 week gap in travel (acquire visa’s, etc.)• Clarify when support/development occurs during business day• Clarify who pays for equipment/infrastructure at start• Begin reporting progress against plan from week 1


Objective: Enable daily (or hourly) handoff and return of tasks

Offshore mix progression

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 5th Qtr

OnshoreOffshore


Division of responsibilitiesSAICWhyConsiderHowRecap

Process DetailSAICWhyConsiderHowRecap

Risk Assessment Methodology

Low

(minimal risk)

(critical risk)

Medium High

High

Medium

Low

Manageability

Ris

k M

agn

itu

de

(Pro

bab

ility

x Im

pac

t)

R3

R8

R5R4

R2

R7

R6R1

Outside Influence Within Influence Within Control


Governance

• Oversight– Steering Board – Annual– Management Committee – Quarterly– Operations Group – Monthly

• Pricing– Real competition with internal and external

suppliers

• Agreed Service Level Descriptions• Measurement

– Key performance indicators (monthly/quarterly)– Benchmarking


What did you say?

Results Outsourcing Can Create

Assure performance with actions rather than promises.• Business can adapt, with a focus on growth, competitive

response, new opportunities, etc.• IT becomes focused on its own business (clarity in customers

and competitors) and therefore, growth, competitive response, new opportunities, etc.

• Manage to performance goals and mitigate risks (likely impacts to performance)

• Focus around survival of a business (not a function)• Flexibility to respond to business needs in any direction • Assure access to best quality (service meets requirements) for

price• Variablize costs – pay according to use versus maximizing

consumption of resources


Documents

Offshore Outsourcing DePaul University October 18, 2004 Richard Howe