Offshore Ready: Strategies to Plan and Profit from Offshore IT-Enabled Services
by Stuart Morstead and Greg Blount
2003 ISANI Press
296 pages, USD 39.95
Review by Madanmohan Rao
"What began as a ripple of activity with Texas Instruments, GE, Microsoft and others is becoming the accepted way to achieve cost savings as high as 60 per cent. This ripple of interest is poised to become a tidal wave of activity," according to the authors of this handy introduction to offshore outsourcing practices and trends, one of the first of its kind.
Stuart Morstead and Greg Blount are co-founders of the ISANI Group (www.isanigroup.com), an offshore services enabler. Both have a background in IT consulting, management and outsourcing. The target audience is CEOs, CIOs, CFOs, IT professionals and operational managers.
The book has an online companion at www.offshoreready.com. The 25 chapters are divided into five sections, and include 20 tables and 30 figures - with noticeable typos, unfortunately. A review of related literature would also have been a welcome addition to the book.
The journey offshore is a "winning strategy" for information systems and IT-enabled services, particularly call centers and repetitive business processes. Despite the unique obstacles that arise in this emerging sector, the benefits of offshoring are exceptional and worthwhile if proper attention and effort are devoted to planning and execution - which is what this guidebook aims to explain.
Though outsourcing abroad has existed as a practice for decades (even centuries), it has received a sharp boost from the explosive growth of the Internet, continually improving bandwidth and reliability of communications infrastructure, availability of rapid worldwide transportation, favourable regulatory/tax environments, the maturing of pockets of service excellence in different parts of the world, and industry support groups in destination countries. The authors coin a new term - "offsourcing" - to refer to the offshore outsourcing of IT-enabled services.
The book has a heavy focus on India as a destination of offsourcing. "This is a reflection of the authors' belief that at present and in general, India provides the most attractive offshore environment across many areas of the IT-enabled services value chain. Nevertheless, the Philippines has very strong providers and is possibly a better match for some clients," according to Morstead and Blount.
Other destinations include Russia, Mexico, Malaysia, Canada, Israel, China, eastern Europe and Ireland. Sectors active in outsourcing include large industrial conglomerates, airlines, healthcare, telecom, pharmaceuticals, and strategic consulting.
Statistics and research are cited from sources like Gartner and NASSCOM (National Association of Software and Services Companies - www.nasscom.org). For instance, GE currently spends about 9 per cent of its IT budget in India. Between 2001 and 2004, IBM's personnel in Indian offshore development centers will have increased from 2,200 to 6,500, Accenture's will grow from 100 to 5,000, and EDS's from 600 to 5,000.
The IT-enabled services chain progresses along phases like staff augmentation, maintenance/monitoring of applications, application development/integration, consulting, technology outsourcing, and business process outsourcing (BPO). Outsourced call centre operations can include inbound (eg. technical assistance) as well as outbound (eg. lead generation, sales campaigns).
"Offshore IT-enabled services are now within the reach of all large, most middle-market and even some smaller companies," the authors explain, thanks to the critical mass of infrastructure, services providers and intellectual capital in offshore locations.
Direct benefits of offsourcing include cost reduction, access to talent, improved quality, compressed time to completion, productivity improvements and better service levels. Indirect benefits include additional investment into revenue-generating activities like R&D or sales, and better focus on key strategic and core business issues.
Challenges and risk in the destination country can arise in terms of regulatory environment for intellectual property, political stability, cultural mis-perceptions, ensuring quality, and consistency. In the host organization, risks can arise in managerial resistance, morale damage of local employees, perceived conflict of interest, poor control or visibility of the project, lack of reliability of international infrastructure, and possible loss of quality.
Outsourcing to other countries can also raise tricky ethical questions of correctness and loyalty to local labour forces. But history has shown that exploiting economic comparative advantage makes everyone a winner in the long run, the authors argue.
The authors introduce an Offsourcing Maturity Model (OMM) as a roadmap and risk management framework, which draws on the Software Engineering Institute's Capability Maturity Model for software development. It consists of the following levels: staff augmentation (Level 1), turnkey projects (Level 2), process integration (Level 3), metrics-based management (Level 4) and optimized/organic operation (Level 5). A useful matrix provides a comparison of infrastructure, travel, disaster recovery, personnel, investment and training issues across these 5 levels.
Critical success factors for offsourcing include awareness building, clear objectives, executive sponsorship, operational commitment, local champions, compensation alignment, training, performance metrics, good governance models, escalation mechanisms, vendor integrity, good IT infrastructure and clear communication channels.
Costs that must be factored in include 'management bandwidth,' training, telecom, restructuring, switching, disaster recovery, change management, and administration. The authors recommend systematic phases like preparing model scenarios, validation, market research, financial analysis, competitive analysis, pilot proposals, vendor selection, process gate reviews and performance measurement.
Offsourcing arrangements also raise a number of legal issues, depending on the nature of the relationship: branch office, build-operate-transfer, joint venture, subsidiary, acquisition. Attention must be paid to currency, jurisdiction, exit clauses, exclusivity and contract negotiation. Third party services can come in useful here.
The book provides useful tables, checklists and roadmaps for each of these activities; further information on vendor and market scenarios can be found at the international sites of CISA in Taiwan (www.cisanet.org.tw), Irish Software Association (www.software.ie), RusSoft (www.russoft.com), WITSA (www.witsa.org), and the IT associations of the Philippines (www.itaphil.org) and Canada (www.itac.ca).
"The most exciting possibilities and profound strategic implications that offsourcing holds for your business are not in the rote benefits of offsourcing, but in the flexibility that outsourcing creates to revisit the way that you service your customers, manage your business and ultimately make money," the authors advise.
Madanmohan Rao is the author of "The Asia-Pacific Internet Handbook" and can be reached at email@example.com
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