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Welcome
Off Shoring & Review
Jonathan D. Wareham [email protected]
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“ BPO is the delegation of one or more IT-intensive businessprocesses to an external provider who, in turn, owns,administrates and manages the selected process(es), based
upon defined and measurable performance metrics.”
Gartner Dataquest
Business Process Outsourcing
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Industry Trends for ApplicationOutsourcing• IT application
outsourcing – Inevitable
– One step in a broader evolution
– Related to infrastructure
outsourcing and businessprocess outsourcing (BPO),but different
• Who makes the appoutsourcing decisions?
• What gets outsourcedand why?
Look at application outsourcing as another
tool in the taming of IT
Application Outsourcing
is in the cards
SERVICE LVLS
KNOWLEDGE IT DEPT.
GOVERNANCE
CEO
COMPLIANCE
PORTFOLIO
HYPE
CIO
O F F S
H
O R E
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Overall Cost Savings (%)
nsurance
anking/ Finance
utomotive
elecom
harmaceuticals
irlines
10.0-15.0
8.0-
12.0
5.0-6.5
5.0-6.5
5.0-6.5
5.0-6.5
EBIDTA increase
(times)
40-60% costsaving
3.5 x
1.5 x
1.3 x
1.1 x
1.1 x
1.2 x
Key opportunityareas
•Back office processin•Call Center operation
•Back office processin•Call Center operation
•Research andDevelopment
•Call Center operation•Billing
•Engineering & desig
•Call Center operation•Frequent flyerprograms
* Estimates based on specific representative companies
** Non interest expenses
Source: McKinsey analysis; Interviews
Significant Growth in BPO
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(US $bn) 2001 2005 2008
Total Business ProcessOutsourcing Market 127 234 310
Percentage Offshored to
Countries such as India, Ireland, etc.
5% 15% 20%
Offshored BPO Market 6.4 35.1 62.0
India ITES Exports 1.5 9.5 21
Source: NASSCOM Mckinsey Study 2002 and, Gartner
BPO Forecast ...
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artner estimates*artner estimates*
CAGRCAGR
14.7%14.7%
IDC estimates**IDC estimates**
CAGRCAGR
13.1%13.1%
* Excludes logistics and manufacturingoutsourcing to show addressable market
$ Bn $ Bn
109
2000
20042005
20002004
200591
157181 177
202
Source: Gartner; IDC
Rapid growth in global BPO marketto continue
** Includes transaction processing
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Simplify, Streamline, Consolidate
1
2
3
4
Moving to an outsourcedenvironment bringsefficiency gains – thruscale, technology &expertise
Moving to lower costenvironments brings
reduced cost of inputs –Labour Arbitrage
Global, centre baseddistributed deliverybrings further economies of scale &process efficiency
Further Technologybest practice leverage
Thecostof
inefficien
cy
ScaleLow costlocation
High costlocation
1
34
20.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
E ur ope E as t E uro pe In di a Ch ina
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12%
29%
35%
91%
85%
0% 20% 40% 60% 80% 100%
De-risk the business
Achieve high productivity
Improved Operational Quality
Reduced Costs
Focus on Core Activity
% Respondents
Source Gartner
Top 5 Outsourcing Objectives
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•
Drivers for Adoption of BPO
Controlling cost and integrity are top issues
Organisations embark on BPO for cost savings, and then achieve business optimisation &process standardisation
b t i l li ti
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best-in-class applicationmanagement services”
3.89
3.493.43
3.40
3.26
3.26
3.25
3.21
3.18
3.14
3.10
3.09
3.082.97
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1
IBM Global Services
EDSHewlett Packard
Oracle
PeopleSoft
Accenture
SAP
CSC
Perot Systems
JD Edwards
Keane
Deloitte Consulting
BearingPoint (was KPMG)CGI
Similarly to leadership perceptions, Top-tier
Outsourcers face App. Vendors as principal com petitors
Source: 2003 META Group Application Management Multiclient Study
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• Delivering step change
in performance
• Enabling
transformation &re-transformation
capability
• Deep, broad and
enduring partnership
• Targeting cost reduction
in smooth running areas
• Accessing best practice
and economies of scale
• Shedding non-core
services
Decide Scope
Traditional as-is
Outsourcing
Problem-solving
Outsourcing
Transformational Outsourcing
•Targeting operational fixes
in problem areas
• Delivering cost reduction
and operational
performance improvement
“Sweating assets”
Operational performanceimprovement
Changing themodel
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BPO What??
• Commodities: IT Enterprise applications and infrastructure,
IT support
• Mature Markets: HR – payroll, benefits, admin. HR
training, finance services and analysis, call center,customer service
• Growth markets: Accounting, Corp. finance, check
processing, claims processing, Legal & Medical Records
management & transcription, telemarketing• Early Adoption: tax planning, budgeting & reporting, risk
management, operations planning, scheduling
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Making the App OutsourcingDecisions
Involve the right management – bothbusiness and IT – to select the best
application outsourcing candidate s
Involved Final decision maker
42%26%
58%
18%
21%
17%
32%34%
58%
29%
8%
4%
9%
40%
0%
1%
0%
5%2%
4%
3%
0%
31%
5%
27%
4%
0% 10% 20% 30% 40% 50% 60% 70%
CEO
CFOCTO
CIO
Sales VP/Director/Manager
Service VP/Director/Manager
Marketing VP/Director/Manager
LOB VP/Director/Manager Other non-IT management
Other IT professionals
Application strategy team (internal)
3rd party assessment service (external)
Other (specify)
Source: 2003 META Group Application Management Multiclient Study
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India 38%
China 6%
Mexico 5%
Ireland 5%
Canada 5%
Malaysia 4%
Philippines 4%
Russia 4%
Singapore 4%
Survey respondents shows the following outsourcing destination:
India has transformed into the globaloutsourcing center of choice.
It employs world class technology and
efficient delivery mechanisms to ensurethat clients get cost effective solutionsfor all their BPO needs.
And more ………Source: Computer world and InterUnity Group Inc., Concord
BPO Leaders
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India's dominance
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Top Drivers for Outsourcing to India
Two million graduates each year (Existing Pool: over 25 million) 120,000 Engineers every year vs. 63000 in US English speaking and IT savvy workforce Cost reduction up to 50%
Government support for IT and BPO industry Improving telecom infrastructure Lower infrastructure costs Favorable time lag: 12 hours with US & 5 hours with Europe Overnight turnarounds possible
Resources with experience of financial and legal systemssimilar to the west Strong domestic IT services industry to support IT led BPO
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Political backlash
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Indian Outsourcing AmericanBacklash
• Highly visible issue due to steadyAmerican unemployment levels
• Campaign issue for Presidential
Candidates
• Rise in anti-Outsourcing websites
– http://nojobsforindia.com
– http://yourjobisgoingtoindia.com
– http://www.nomoreh1b.com• Consultants predict large numbers of
varied Professional jobs to be
outsourced as well as Information
Technology jobs
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Managing Indian Resources
• Cross-Cultural Difficulties – Indians use the word “Yes” to
acknowledge understanding
– Indian employees rarely
disagree
• Knowledge Transfer
– Most difficult aspect of
offshoring – Western employees often
reluctant to participate fully
I di O i
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Indian OutsourcingWorldspan Experience
• Pilot project involved two IndianQuality Assurance Engineers
• Communication is largest problem
• Two hours of overlapping schedules
between Indian employee andAtlanta headquarters
• Tendency to not ask questions even
when there is incomplete
understanding
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Rationales and Risks
• Reduce costs: Are we just outsourcing a brokenprocess?
• Focus on Core Competencies: Do we outsourcesomething that is critical if controls breakdown?
• Introduce market discipline: do bad practicesbecome right if we just move them outside thecompany?
• Improve Flexibility: Are we really eliminating fixed
costs?• Improve Technology: Will the applications and
processes need fixing anyway?
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BPO Failure: Bargain Shopping
• Find highest quality provider- go after lowest cost
from them
• More difficult: highest quality from cheapest
provider
• Due Diligence: references, employee churn,
financial health, security procedures, Int Prop
protection,
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BPO Failure: Security
• Political and economic stability:
– Canada and Ireland, high
– Russia, China, India, Brazil, Philippines, low
• Stability of government, asset nationalization,
threat of war, strikes, terrorism, medical outbreaks
• Disaster recovery procedures, reliability of
infrastructure, security procedures
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BPO Failure: Poor planning
• Outsource processes, not strategy
• Management of expectations
• SLAs:
– Start and end date for service
– Schedule for reviewing performance
– Documentation & metrics to be used for measuring
performance – Penalties and procedure for underperformance
– Procedures for conflict resolution
BPO F il I t l
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BPO Failure: InternalCommunication
• Focus on your own employees!!
• Unhappy employees can wreck BPO transition
process
• Outsourcing treated like a dark secret: fear and
distrust
• Tell them what, why and how
• Consider extra compensation for employees thattrain offshore counterparts.
BPO F il P t iti
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BPO Failure: Poor transitionManagement
• Most difficult stage, taking 3 months to 1 year.
• Detailed, knowledge transfer and
documentation of all tasks, technologies,
workflows and functions
• Motivating current employees to share
knowledge
• May include legal obligations, licenses,infrastructure and assets
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Off-Shoring & Outsourcing
1. 9/11/89 –Berlin Wall2. 9/8/95 Netscape IPO & telecom
deregulation3. Computer-Computer
connectivity XML, WS4. Open Source5. Out-sourcing
6. Off-shoring7. Supply Chaining8. In-sourcing9. Search engine & Internet10. Ubiquitous computing, digital convergence
10 forces flattening the world…
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DataBase
• Databases are the heart of almost everyIT application
• They are everywhere
• The ubiquity of databases will onlyincrease
• Familiarize students with relationaldatabases, data normalization, andsimple query operations. The exercise
will be distributed in session 1 and is duesession 4.
• Open Source…
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Value Chain Coordination
RawMateria
Tier-IISuppl
iers
Tier-ISuppliers
Manufacturers Distrib
utionCenter
s
Retail
ers Customer
VC
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Supply Chain Systems
-100%
-50%
0%
50%
100%
1 9 6 1
1 9 6 3
1 9 6 5
1 9 6 7
1 9 6 9
1 9 7 1
1 9 7 3
1 9 7 5
1 9 7 7
1 9 7 9
1 9 8 1
1 9 8 3
1 9 8 5
1 9 8 7
1 9 8 9
1 9 9 1
Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders
% C
h a n g e , y e a r t o y e a r
% change GDP
% change vehicle production index
% change net new orders machine tool industry
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Other Web Services
Partner Web Service
Partner Web Service
Data Access and Storage Tier
Application Business Logic Tier
YourCompany.com
Internet + XML
XML & Web Services
Other Applications
End Users
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Systems Integration
• Getting the old and the new towork together
• Doing it in a
manner that ispractical andeconomicallyfeasible
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Telecom & Wireless
•Telecom Policy & Regulation•Industry Structure•Technology protocols and trends
•Convergence…
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Reengineering and Control
• Historical origin of employee organization and control
• Philosophy of reengineering
• Employee motivation and control
B E F O
R E
DecisionInformationCosts
AgencyCosts
Centralized
Decentralized
Local information
Bird’s eye coordination
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B2C eCommerce
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B2B eCommerce