IT Offshoring Industry Analysis, April 2007
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The document provides an overview of the global IT offshoring industry. It discusses the major players, locations, drivers, risks, and trends in offshoring. The top players capturing 75% of the market in 2006 were the "Big Six" outsourcing firms. India, China, Malaysia, Thailand, and Brazil were the top offshore locations. Cost reduction and access to skilled labor were the primary drivers of offshoring, while operational challenges and lack of internal acceptance posed risks. The industry is expected to continue shifting work to new locations and standardizing offerings in the coming years.
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IT Offshoring Industry Analysis, April 2007
- 1. IT Offshoring Industry Analysis A cursory view into the global offshoring market Global players, global delivery By Peter Louis April 2007 © 2007 Peter Louis. All Rights Reserved
- 2. Contents IT offshoring overview © 2007 Peter Louis. All Rights Reserved 2
- 3. What is IT offshoring IT offshoring is the outsourcing of an IT task, function or service such that the task, function or service is performed offshore in another country. Note. Various other terms in use include offshore IT outsourcing (offshore ITO), ITO offshoring, global sourcing and global delivery. Source: SearchCIO.com © 2007 Peter Louis. All Rights Reserved IT offshoring overview 3
- 4. Global IT offshoring market forecast comparison Global IT offshoring market forecast 3% CAGR 200 180 180 160 150 140 Addressable 37% CAGR Market $US 120 Billions Market 100 Expenditure 80 72 60 40 15 20 0 2005 2010 Year Source: McKinsey, 2006 © 2007 Peter Louis. All Rights Reserved IT offshoring overview 4
- 5. IT offshoring overview What are the drivers behind IT offshoring? © 2007 Peter Louis. All Rights Reserved 5
- 6. Drivers behind IT offshoring Growth rate of offshoring drivers over time, 2004 – 2006 90 "Very Important" or "Important" 80 Cost Reduction % of Firms Citing Drivers as 70 Access to Qualified Personnel 60 Competitive Pressures Business Process Redesign 50 Increased Speed to Market 40 30 20 Access to New Markets 10 0 2004 2005 2006 Survey Year Source: Offshoring Research Network (Duke University), 2007 © 2007 Peter Louis. All Rights Reserved IT offshoring overview 6
- 7. Drivers behind IT offshoring Growth rate of offshoring drivers over time, 2004 – 2006 90 "Very Important" or "Important" 80 Cost Reduction % of Firms Citing Drivers as 70 Access to Qualified Personnel 60 Competitive Pressures Business Process Redesign 50 Increased Speed to Market 40 30 20 Access to New Markets 10 0 2004 2005 2006 Survey Year Source: Offshoring Research Network (Duke University), 2007 © 2007 Peter Louis. All Rights Reserved IT offshoring overview 7
- 8. Risks associated with IT offshoring Perceived risks of offshoring, 2004 – 2006 60 Operational Challenges "Very Important" or "Important Lack of Acceptance by 50 Internal Clients % of Firms Citing Risk as Loss of Managerial Control 40 Lack of Acceptance by Customers 30 Cultural Differences Political Backlash 20 Political Instability 10 0 2004 2005 2006 Survey Year Source: Offshoring Research Network (Duke University), 2007 © 2007 Peter Louis. All Rights Reserved IT offshoring overview 8
- 9. Risks associated with IT offshoring Perceived risks of offshoring, 2004 – 2006 60 Operational Challenges "Very Important" or "Important Lack of Acceptance by 50 Internal Clients % of Firms Citing Risk as Loss of Managerial Control 40 Lack of Acceptance by Customers 30 Cultural Differences Political Backlash 20 Political Instability 10 0 2004 2005 2006 Survey Year Source: Offshoring Research Network (Duke University), 2007 © 2007 Peter Louis. All Rights Reserved IT offshoring overview 9
- 10. Contents Industry analysis © 2007 Peter Louis. All Rights Reserved 10
- 11. Industry analysis Who are the players? © 2007 Peter Louis. All Rights Reserved 11
- 12. Global IT outsourcing 2006 vendor shares, Big Six – the incumbents $4.1 $5.4 $17 In 2006, Big Six earned a total of $54.6 billion from IT outsourcing $7 deals And cornered 75% of the market $3.2 $17.9 Note: Accenture’s ITO revenues are estimated at 60% of total outsourcing revenues Source: SEC fiscal year 2006 10-K filings © 2007 Peter Louis. All Rights Reserved Industry analysis 12
- 13. Global IT outsourcing 2006 vendor shares, Big Six – the incumbents $4.1 $5.4 $17 In 2006, Big Six earned a total of $54.6 billion from IT outsourcing $7 deals And cornered 75% of the market $3.2 $17.9 Note: Accenture’s ITO revenues are estimated at 60% of total outsourcing revenues Source: SEC fiscal year 2006 10-K filings © 2007 Peter Louis. All Rights Reserved Industry analysis 13
- 14. 2006 best managed global IT outsourcing vendors, top 10 – which includes 8 new contenders Big ITO wins in 2006, high standards, highest CSS scores GM awarded more than $700m in IT services contracts over a 5-year period Source: sourcingmag.com, 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 14
- 15. 2006 best managed global IT outsourcing vendors, top 10 – which includes 8 new contenders Pioneered offshore development centre model for software delivery Agile, fast moving, strong track Big ITO wins in 2006, high record of delivering business results standards, highest CSS scores Crossing over to $2b in annual revenue Well-established, structured Received 2006 ITO Excellence methodologies grew income 38% Award for work with Vanguard Car Rental Indian pioneer, Fortune Top 10 companies among TCS’ valued customers Ranked #1 among the world's speciality offshore infrastructure service providers GM awarded more than $700m in IT for two consecutive years services contracts over a 5-year period Revenue up 33% with outsourcing comprising > 38% of total revenue base Source: sourcingmag.com, 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 15
- 16. Industry analysis Where is offshoring taking place? © 2007 Peter Louis. All Rights Reserved 16
- 17. Offshoring locations, top 5 – the incumbents China Thailand India Malaysia Brazil Source: AT Kearney, 2007 © 2007 Peter Louis. All Rights Reserved Industry analysis 17
- 18. Offshoring locations, top 5 plus 9 new contenders Russia Poland China Czech Republic Thailand Tunisia Mexico Philippines Egypt India Malaysia Brazil South Africa Indonesia Source: AT Kearney, 2007 © 2007 Peter Louis. All Rights Reserved Industry analysis 18
- 19. Industry analysis What do decision makers want to offshore? © 2007 Peter Louis. All Rights Reserved 19
- 20. Functions likely to be outsourced over next 12 months Buyer spending plans PC Maintenance & Support Network Management Data Centre Management Server Management Web Hosting Onshore Database Management Offshore Help Desk Application Maintenance & Support Application Development Low Relative Focus High Source: Diamond, 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 20
- 21. Industry analysis And who are the decision makers? © 2007 Peter Louis. All Rights Reserved 21
- 22. The corporate officers most likely to drive the IT outsourcing decision IT outsourcing decision makers VP Sales Ops Mgr CEO COO VP Ops CFO IT Manager VP IT CIO Low Relative Focus High Source: Diamond, 2005 & 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 22
- 23. Companies who have offshored Note: This sample is for illustrative purposes only Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 23
- 24. Companies who have offshored, have partnered with Note: This sample is for illustrative purposes only Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006 © 2007 Peter Louis. All Rights Reserved Industry analysis 24
- 25. General offshore ITO trends over the coming years • Emerging outsourcing centres • Service providers will continue to standardise, - Philippines, Mexico, Russia, C Europe, Vietnam & industrialise & leverage pre-configured offerings Malaysia will attract work at the expense of India - By 2008, 50% of new deals will include IT utility • Remote Infrastructure Management Outsourcing component with infrastructure generating most growth to exceed other infrastructure outsourcing interest from buyers & investment from providers models - By 2008, more than 70% of new application utility - Global market valued at $8 billion by 2010 offerings targeted at business units/ line managers - From 2005, market will grow by CAGR of 61% - Business process utility, a major evolution of BPO • Global delivery – use of IT labour continuing at a where highly standardised business processes run rapid pace with vigorous competition on a unified one-to-many technology platform - Global sourcing moving beyond search for cheap • Deal size, structure and complexity labour to more complex deals - Offshore pure players invited to bid on deals > $30 - Pressure to reduce costs and improve profits million; deal sizes getting smaller - Offshore providers seeking to better serve - Deals have more complex terms & conditions, prospective clients by acquiring front-end penalties & incentives and multi-sourcing strategies capabilities and consultancies as market matures, deals are being shared • Nearshoring • Maturing market leads to convergence/collision - Risk adjusted cost/benefit assessment continues to - Players, like telecommunication and financial drive some buyers into the nearshore market services providers, have blurred the distinction between IT and business services Source: neoIT, 2006; Everest, 2007; Gartner, 2005; Tholons, 2007 © 2007 Peter Louis. All Rights Reserved Industry analysis 25
- 26. Disclaimer The information presented has been prepared using sources believed by the author to be reliable and accurate. However, the author makes no warranty or assumes any legal liability or responsibility for the accuracy or completeness of any information presented. Moreover, the author accepts no responsibility for the decisions made by readers. © 2007 Peter Louis. All Rights Reserved IT offshoring overview 26
- 27. IT Offshoring Industry Analysis A cursory view into the global offshoring market Global players, global delivery By Peter Louis April 2007 © 2007 Peter Louis. All Rights Reserved
- 28. Attachments Attachments © 2007 Peter Louis. All Rights Reserved 28
- 29. 2006 best managed global IT outsourcing vendors, top 10 includes 8 new contenders Rank Vendor Est. 05 Note Rev 1 ACS $4.4b 2006’s top ITO contract, high standards, highest CSS scores 2 Satyam $1.1b Pioneered offshore development centre model for software delivery 3 Cognizant $886m Agile, fast moving, strong track record of delivering business results 4 Perot Systems $2b Awarded for superior ITO services 5 Infosys $2.2b Crossing over to $2b in Annual Revenue 6 Patni $450m Well-established, structured methodologies grew income 38% 7 TATA Consulting $2.9b Indian pioneer. Fortune Top 10 companies among TCS’ valued customers 8 HCL $757m Ranked #1 among the world's specialty offshore infrastructure service providers for two consecutive years 9 Hewlett Packard $86.7b GM awarded more than $700m in IT services contracts over a 5-year period 10 Capgemini $6.9b Revenue up 33% with outsourcing comprising > 38% of total revenue base Source: Sourcingmag.com, 2006 © 2007 Peter Louis. All Rights Reserved Attachments 29
- 30. Principal offshoring locations, top 5 – the incumbents Country Differentiation / competitive disadvantage Locations India English language skills & conducive business Bangalore, Chennai, Mumbai, Pune, environment; low-cost, high volume of highly skilled IT Kolkota, Gurgaon labour; urban infrastructure; attrition to US/Europe China High volume of highly skilled IT labour; lack western Shanghai, Dalian, Xi’an, Shenzhen, language skills; culturally distant from West; deficient IP Chengdu rights protection; favoured destination for Japanese firms Malaysia English/Chinese language skills, Western business Kuala Lumpur, Cyberjaya and practices; low-cost, highly skilled IT labour; robust Putrajaya infrastructure (e.g., “Multimedia Super Corridor”); government incentives Thailand English/Japanese language skills; low-cost, large volume Bangkok of highly skilled IT labour, robust high-tech infrastructure; favourable government incentives Brazil Low-cost, large pool of highly skilled IT labour; cultural Sao Paulo, Rio de Janeiro, Belo affinity with US/West; favourable time-zone for US; near- Horizonte shore alternative for N. America Source: AT Kearney, 2007 © 2007 Peter Louis. All Rights Reserved Attachments 30
- 31. Emerging offshoring locations – 9 new contenders Country Differentiation / competitive disadvantage Locations Indonesia Large volume of low-cost IT labour; English language Jakarta skills; low cost; western language skills Philippines Very good English language skills, cultural affinity with US; Manila large volume of low cost IT labour Mexico US policies encourage investment; cultural ties to US; Mexico City provides low-cost nearshore alternative for US market Egypt High volume of engineering/IT graduates per year; English Cairo, Giza, Alexandria language skills, vicinity to Europe Czech Rep Foreign language skills; IP rights protection; preferred Prague nearshore alternative for W. European firms Poland Large pool of IT labour; low wages encourages migration; Krakow, Wroclaw, Warsaw European firms preferred nearshore alternative Tunisia Low cost IT labour; French language skills; nearshore Tunis alternative for French-speaking Europe South Africa Very good English skills; cultural affinity with West; Cape Town Western business practices; low cost skilled IT labour Russia Huge pool of highly skilled low-cost software engineers; Moscow, St Petersburg cultural & geographical proximity with West; strong government support; weak business environment Source: AT Kearney, 2007 © 2007 Peter Louis. All Rights Reserved Attachments 31
- 32. Outsourced services IT function Description Countries Application Custom and packaged software applications including India, Russia, Malaysia, Development enterprise-wide solutions such as SAP, PeopleSoft, Brazil, Czech Republic, Oracle and Siebel Israel, Thailand, Poland Application Maintenance & hosting of packaged software India, Malaysia, Czech Maintenance & Support applications including SAP, PeopleSoft, Oracle and Republic, Thailand, Siebel Singapore, Brazil, Russia, Poland Help Desk Desktop/client applications such as MS Office, Lotus India, Philippines, Czech Notes, Internet Explorer, Windows XP, Microsoft Access, Republic, Egypt PC & network security Database Management Includes database software maintenance & India, China, Russia, configuration, monitoring & problem resolution and Thailand, Philippines, security management for Oracle, UDB, MySQL, SQL Malaysia, Brazil Server Web Hosting Hosting of client websites & Intranet, site maintenance & India, Malaysia, support, traffic monitoring Philippines Source: Diamond, 2006 © 2007 Peter Louis. All Rights Reserved Attachments 32
- 33. Outsourced services, cnt’d IT function Description Countries Server Management Automated server monitoring & resolution, server India, Malaysia, performance management, server administration; server Singapore backup & restore management, email administration, enterprise application administration Data Centre Management of core IT operations, hardware (AS/400s, India Management IBM m/f, UNIX boxes), software (MVS TSO/ISPF, CICS, DB2), and personnel (operators, system analysts) Network Management Network management of LAN/WAN, network support, India, Singapore, 7x24x365 network monitoring and notification, traffic Malaysia analysis, problem resolution, device management & service PC Maintenance & Virus removal, software installation, data recovery, India Support hardware replacement, software/hardware upgrades Source: Diamond, 2006 © 2007 Peter Louis. All Rights Reserved Attachments 33
- 34. Companies who have offshored Company Provider Offshore ITO service lines Ricoh Satyam Software development (firmware applications that run copiers) Burger King MindTree Software development (Specification Supplier Management System) Volvo MindTree Software development and maintenance (dealer management system) Dixons HCL IT infrastructure support and software development, system development, application delivery, infrastructure support and maintenance Whitbread CSC Application support Threshers Xansa Applications management, IT operations and hosting for Threshers' SAP financials, WebSphere, Business Objects and JDA merchandising applications. Somerfield Tata IT helpdesk, IT infrastructure, servers and networks Barclays Accenture Software development and support Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006 © 2007 Peter Louis. All Rights Reserved Attachments 34
- 35. Pound equivalents for selected items Item Slide Pound equivalent Global IT Offshoring Market Forecast: 2010 addressable market size 4 £107 billion Global IT Offshoring Market Forecast: 2010 market expenditure 4 £43 billion Global IT outsourcing 2006 vendor shares, Big Six – the incumbents: Earnings 10 £32 billion Note: £1 = US$1.6682, average exchange rate from 3 Jan 2000 to 18 Apr 2007 Source: Federal Reserve Board © 2007 Peter Louis. All Rights Reserved Attachments 35
- 36. Pound equivalents for selected items Item Slide Pound equivalent Global IT Offshoring Market Forecast: 2010 addressable market size 4 £107 billion Global IT Offshoring Market Forecast: 2010 market expenditure 4 £43 billion Global IT outsourcing 2006 vendor shares, Big Six – the incumbents: Earnings 13 £32 billion Note: £1 = US$1.6682, average exchange rate from 3 Jan 2000 to 18 Apr 2007 Source: Federal Reserve Board © 2007 Peter Louis. All Rights Reserved Attachments 36
Hinweis der Redaktion
- Ref: SearchCIO.com def http://searchcio.techtarget.com/sDefinition/0,290660,sid19_gci924479,00.html
- In 2005, actual expenditure represented 10% of the actual addressable market. In 2010, expenditure is predicted to be 40% McKinsey predicts expenditure to grow by X% between 2005 and 2010 Ref: McKinsey, Extending India's Leadership. of the Global IT and BPO Industries, Feb 2006, www.mckinsey.com/ideas/articles/Nasscom_3_Executive_summary.pdf
- Access to qualified personnel and speed to market are growing faster as offshoring drivers than cost reduction A comparison of the growth rates of some of the key drivers of offshoring, presents a clearer picture While cost is still a dominant driver for offshoring, its importance increased by approximately 5% In contrast, over the last three years drivers such as “Access to Qualified Personnel” and “Increased Speed to Market” have increased in importance by approximately 70% The increased significance of “Access to Qualified Personnel” as a driver for offshoring process and product innovations is a leading indicator of changes in the global supply of engineering and science talent Contrary to the common sales pitches for offshoring, “Access to New Markets” is NOT a significant driver for offshoring – instead offshoring is being leveraged as a strategic tool to impact the overall business Follow-up case studies suggest that co-locating engineering groups at offshore factories or the establishment of tech centers offshore can lead to development of new products or services specifically designed for the market offshore and thereby opening a new market Our conclusion from these results is that companies are increasingly going offshore to find qualified personnel, who can help them improve the way they operate their businesses and speed up their delivery to the market Ref: Offshoring Research Network - Duke University, Prof. Arie Y. Lewin , La Nueva Generación en la Deslocalización , Mar 2007, survey covers companies from US, UK, Germany, Netherlands, Belgium, Denmark & Spain, www.iese.edu/es/files/5_29051.ppt
- Access to qualified personnel and speed to market are growing faster as offshoring drivers than cost reduction A comparison of the growth rates of some of the key drivers of offshoring, presents a clearer picture While cost is still a dominant driver for offshoring, its importance increased by approximately 5% In contrast, over the last three years drivers such as “Access to Qualified Personnel” and “Increased Speed to Market” have increased in importance by approximately 70% The increased significance of “Access to Qualified Personnel” as a driver for offshoring process and product innovations is a leading indicator of changes in the global supply of engineering and science talent Contrary to the common sales pitches for offshoring, “Access to New Markets” is NOT a significant driver for offshoring – instead offshoring is being leveraged as a strategic tool to impact the overall business Follow-up case studies suggest that co-locating engineering groups at offshore factories or the establishment of tech centers offshore can lead to development of new products or services specifically designed for the market offshore and thereby opening a new market Our conclusion from these results is that companies are increasingly going offshore to find qualified personnel, who can help them improve the way they operate their businesses and speed up their delivery to the market Ref: Offshoring Research Network - Duke University, Prof. Arie Y. Lewin , La Nueva Generación en la Deslocalización , Mar 2007, survey covers companies from US, UK, Germany, Netherlands, Belgium, Denmark & Spain, www.iese.edu/es/files/5_29051.ppt
- Managerial and organizational risks are growing while risks associated with external factors are declining Perceived risks related to managerial challenges have grown significantly while risks related to external factors are decreasing, or growing at a much slower rate: “ Operational Challenges (offshore employee operational efficiency, turnover, wage-inflation” grew by 74% over 2005 “ Loss of Managerial Control” grew by 30% “ Political Backlash” dropped by 25% “ Political Instability” dropped by 13% As companies are gaining more experience with offshoring they are becoming more aware of the unique managerial challenges and changes that result Managing a global workforce across different time zones does introduce new challenges of control and efficiency Moreover, companies that offshore service providers have to change how they do business and adapt to working through a third party Notably, concerns regarding “Cultural Differences” were markedly lower by 42% from the prior year This result may be an indicator that companies are seeing past cultural barriers to gain the benefits of offshoring, and therefore, do not see cultural differences as a significant barrier Also, service providers are making significant investments in training their employees to work across cultures and many service providers have now developed cross cultural work experience Ref: Offshoring Research Network - Duke University, Prof. Arie Y. Lewin , La Nueva Generación en la Deslocalización , Mar 2007, survey covers companies from US, UK, Germany, Netherlands, Belgium, Denmark & Spain, www.iese.edu/es/files/5_29051.ppt
- Managerial and organizational risks are growing while risks associated with external factors are declining Perceived risks related to managerial challenges have grown significantly while risks related to external factors are decreasing, or growing at a much slower rate: “ Operational Challenges (offshore employee operational efficiency, turnover, wage-inflation” grew by 74% over 2005 “ Loss of Managerial Control” grew by 30% “ Political Backlash” dropped by 25% “ Political Instability” dropped by 13% As companies are gaining more experience with offshoring they are becoming more aware of the unique managerial challenges and changes that result Managing a global workforce across different time zones does introduce new challenges of control and efficiency Moreover, companies that offshore service providers have to change how they do business and adapt to working through a third party Notably, concerns regarding “Cultural Differences” were markedly lower by 42% from the prior year This result may be an indicator that companies are seeing past cultural barriers to gain the benefits of offshoring, and therefore, do not see cultural differences as a significant barrier Also, service providers are making significant investments in training their employees to work across cultures and many service providers have now developed cross cultural work experience Ref: Offshoring Research Network - Duke University, Prof. Arie Y. Lewin , La Nueva Generación en la Deslocalización , Mar 2007, survey covers companies from US, UK, Germany, Netherlands, Belgium, Denmark & Spain, www.iese.edu/es/files/5_29051.ppt
- The survey for "50 Best Managed Global Outsourcing Vendors" was distributed to purchasers/users and corporate employees in N America, Europe, Asia & Pacific Region in early 2006 The survey measures Human capital performance CEO commitment Corporate direction Leadership impact Throughout the survey, questions are designed to measure satisfaction of clients, customers, users and buyers Notice that the list only includes 2 of 6 global beasts of: Accenture (22), Record results didn’t necessarily add up to high client satisfaction rankings ACS (Affiliated Computer Services) CSC (Computer Sciences Corporation ) (49), Lower client satisfaction scores among large competitors Hewitt Packard IBM (ranked 35), dropped from #1 spot last year post acquisitions and expansion of Indian arm by 10,000 staff Ref: Douglas Brown and Scott Wilson, Sourcing Magazine, Blackbook of Outsourcing: Top 50 Best Managed Global Outsourcing Vendors, http://www.sourcingmag.com/content/c060712a.asp
- The survey for "50 Best Managed Global Outsourcing Vendors" was distributed to purchasers/users and corporate employees in N America, Europe, Asia & Pacific Region in early 2006 The survey measures Human capital performance CEO commitment Corporate direction Leadership impact Throughout the survey, questions are designed to measure satisfaction of clients, customers, users and buyers Notice that the list only includes 2 of 6 global beasts of: Accenture (22), Record results didn’t necessarily add up to high client satisfaction rankings ACS (Affiliated Computer Services) CSC (Computer Sciences Corporation ) (49), Lower client satisfaction scores among large competitors Hewitt Packard IBM (ranked 35), dropped from #1 spot last year post acquisitions and expansion of Indian arm by 10,000 staff Ref: Douglas Brown and Scott Wilson, Sourcing Magazine, Blackbook of Outsourcing: Top 50 Best Managed Global Outsourcing Vendors, http://www.sourcingmag.com/content/c060712a.asp
- The survey for "50 Best Managed Global Outsourcing Vendors" was distributed to purchasers/users and corporate employees in N America, Europe, Asia & Pacific Region in early 2006 The survey measures Human capital performance CEO commitment Corporate direction Leadership impact Throughout the survey, questions are designed to measure satisfaction of clients, customers, users and buyers Notice that the list only includes 2 of 6 global beasts of: Accenture (22), Record results didn’t necessarily add up to high client satisfaction rankings ACS, Big wins in 2006, (e.g., $200 Million IT outsourcing contract with MeadWestvaco – global packaging co. ) , high standards, highest CSS scores CSC (49), Lower client satisfaction scores among large competitors Hewitt Packard IBM (ranked 35), dropped from #1 spot last year post acquisitions and expansion of Indian arm by 10,000 staff Ref: Douglas Brown and Scott Wilson, Blackbook of Outsourcing: Top 50 Best Managed Global Outsourcing Vendors, http://www.sourcingmag.com/content/c060712a.asp
- The survey for "50 Best Managed Global Outsourcing Vendors" was distributed to purchasers/users and corporate employees in N America, Europe, Asia & Pacific Region in early 2006 The survey measures Human capital performance CEO commitment Corporate direction Leadership impact Throughout the survey, questions are designed to measure satisfaction of clients, customers, users and buyers Notice that the list only includes 2 of 6 global beasts of: Accenture (22), Record results didn’t necessarily add up to high client satisfaction rankings ACS, Big wins in 2006, (e.g., $200 Million IT outsourcing contract with MeadWestvaco – global packaging co. ) , high standards, highest CSS scores CSC (49), Lower client satisfaction scores among large competitors Hewitt Packard IBM (ranked 35), dropped from #1 spot last year post acquisitions and expansion of Indian arm by 10,000 staff Ref: Douglas Brown and Scott Wilson, Blackbook of Outsourcing: Top 50 Best Managed Global Outsourcing Vendors, http://www.sourcingmag.com/content/c060712a.asp
- Top 5 offshoring destinations with cost advantage to last for 20 years Malaysia has the “Multimedia Super Corridor” (high-speed broadband infrastructure) Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm
- Top 5 offshoring destinations with cost advantage to last for 20 years Malaysia has the “Multimedia Super Corridor” (high-speed broadband infrastructure) Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm
- This a study of hundreds of senior executives from buyer (US and UK) and provider (worldwide) organisations on various IT outsourcing topics Ref: Diamond Management & Technology Consultants, 2006 Global Outsourcing Study, 2006, http://diamondconsultants.com/PublicSite/ideas/perspectives/downloads/Outsourcing2006_Diamond.pdf
- This a study of hundreds of senior executives from buyer (US and UK) and provider (worldwide) organisations on various IT outsourcing topics The 2006 study revealed the same findings as 2005 Ref: Diamond Management & Technology Consultants, 2005 Global Outsourcing Study, 2005, http://exchange.diamondconsultants.com/pdf/archive/DiamondCluster2005OutsourcingStudy.pdf
- Specification Supplier Management System details the spec ingredients for the Whooper and other products MindTrew positions itself as the “best mid-sized” player and provides personalised services to clients which a large IT firm may not be able to do Ref: InformationWeek, Customers Analyze Outsourcing Vendors and Strategies, June 2006, http://www.informationweek.com/story/showArticle.jhtml?articleID=189500052 Ref: InformationAge, Out of India – Ranking the leaders of the offshore revolution, Burger King, pg 26, Ref, IT Outsourcing, Slicon.com
- Specification Supplier Management System details the spec ingredients for the Whooper and other products MindTrew positions itself as the “best mid-sized” player and provides personalised services to clients which a large IT firm may not be able to do Ref: InformationWeek, Customers Analyze Outsourcing Vendors and Strategies, June 2006, http://www.informationweek.com/story/showArticle.jhtml?articleID=189500052 Ref: InformationAge, Out of India – Ranking the leaders of the offshore revolution, Burger King, pg 26, Ref, IT Outsourcing, Slicon.com
- neoIT - Russian software engineers are well-educated and competitively priced with high motivation; other countries (India, China) differentiate on price and English-speaking workforce (Philippines). Russia ITO market will grow by 40 or 50% in 2007 attracting high-end work at the expense of India and China; Russia, 3rd largest ITO supply market and provides specialised high-end software product. For example, the merger of EPAM Systems of Hungary with 3 other similarly sized companies, 2 in the US and I in Russia created a small specialist and highly focused high-end software engineering firm with a global presence with software engineers operating out of the US, UK, Germany, Russia, Ukraine, Hungary, Belarus, and Armenia. The global sourcing of core services, knowledge services, new services and complete processes will gain momentum; In the ITO industry, it will be product incubation and development, infrastructure development and the implementation of core business applications will increasingly be performed offshore Everest – RIMO market is an emerging Infrastructure Outsourcing (IO) model. In 2005, IO was worth $109 billion (RIMO $0.8 billion) and is expected to grow by 4% to 2010. IO is classified as IO (comprising Tower outsourcing and Hosting) and Infrastructure Management Outsourcing (IMO). IMO is classified into Infrastructure Managed Services (IMS) and Remote Infrastructure Management Outsourcing (RIMO). RIMO differs from traditional IO in contract sizes are small, last from 1 to 5 years, use a pricing model based on , e.g., time & Materials or FTE, rather than price by supported server, contracts cover a task or fractions of the function, does not involve people transfer or asset ownership to third party. Gartner – Organisations are learning the benefits and limitations of global sourcing (e.g., low cost but perhaps a reflected quality. Better quality might be obtained from non-traditional sources such as central, eastern Europe (i.e., Russia). Organisations are pressurising service providers to drive out cost savings in their service delivery models. Similarly, investors are looking for increased profitability. These pressures are forcing clients and service providers to seek new ways to deliver services with greater efficiency, effectiveness and, in some cases, to transform the way work gets done. Service providers seeking to leverage standardised and industrialised pre-configured offerings (to lower costs and improve efficiency, employ learnings ( what works, what doesn’t) EDS,’s Agile Enterprise, HP’s Adaptive Enterprise and IBM’s On-Demand are the most prominent examples. Software-as-a serve is gaining traction in the market place with users. Application Service Providers are enjoying a resurgence fro earlier setbacks. Business units becoming increasing involved in making application buying decisions and these services will be increasingly targeted at them rather than IT organisations. BPO – outsourcing of a business process such has HR, procurement, customer care, accounting and finance. Business Process Utility (BPU) is the combination of outsourced business processes managed on a technology platform that can service many clients simultaneously. Advantages: significant cost savings (FTEs, technology), organizational simplicity (less delivery centres), allows for service redundancy/operations mirroring (for business contingency). BPU leverages economies of scale to drive down unit costs of service Traditional providers, such as IBM, publicly announced that their deal sizes were getting smaller [means more to go around] Gain share pricing/risk reward pricing strategies allows both the buyer and supplier to share some of the outsourcing risk (of failure, poor service, etc) through penalties and rewards for meeting contracted performance and service levels. E.g., Wipro bought Mpact a payment software maker in 2005, cMango Inc in 2006, a US integrator and BSM specialist (BSM: A strategy and an approach for linking key IT components to the goals of the business. It enables you to understand and predict how technology impacts the business and how business impacts the IT infrastructure. IBM provides the Tivoli BSM solution); and Portuguese IT firm Enabler also in 2006. Organizations will not award large outsourcing contracts to one provider in 2007 but rather split the work. Large providers with similar global presence as their contract partners will consider and select smaller or regional providers for focused parts of their megascope deals to engage with focused specialists, expand the scope of services that are globally delivered or introduce a new provider into the mix. (E.g., EDS’s 10-year SI services contract with GM expired in June 2006 and although EDS won the lion share, IBM, Compuware, Covisint and Wipro also won pieces of the $3.8 billion, five-year businss. New entrants include British Telecom, Deutsche Telecom, Fidelity National Information Services Tholons - Firms will adopt the “Cities of Excellence” model, sourcing services from the best location for respective ITO and BPO domains. Cities such as Prague, Halifax, Budapest, Warsaw, Pune, and Bucharest are already centers for outsourcing but they are becoming more expensive and less differentiated; cities such as Bratislava, Ho Chi Minh City, Kolkata, Xi’an, Buenos Aires, Krakow, Colombo, Dubai and Sofia are on their way to becoming centers of outsourcing in 2007 Multi-sourcing will dominate as mega-deals will be sourced to a mix of Tier I and “best of breed” Tier II service providers. Many of the large contracts that are up for renewal in 2007 will be restructured considering multi-sourcing. Organisations will have a preferred set of service providers comprised of large tier I and “best of breed” tier II providers and niche tier III suppliers. The number of small to medium-sized contracts (those worth $50-$200 million) will see a significant increase when compared to previous years; trend is towards contracts that are smaller in size with specific function, which will in turn lead to multiple providers Tier II and Tier III service providers will spread their global footprint acquisitions; the Philippines will evolve as the preferred destination for offshoring customer-facing jobs based on the benefits of cost reduction, manpower availability, and quality that it brings to global organisations. Some important factors that might work in favor of Philippines include factors such as a committed and highly trainable workforce, strong cultural affinity with the west, and the expansion of existing BPO firms. China has challenges with English language fluency, cultural implications and Intellectual Property Rights (IPR). They have a lot of work to do to catch up, so it will be several years before Chinese services companies make their mark on the global ITO and BPO landscape. Application utility is a another name for software as a service (SaaS) and not software as a product (SaaP), e.g., Google’s (proposed) Office offerings) Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005, http://www.neoit.com/pdfs/whitepapers/OIv3i11_1205_Trend-2006.pdf Ref: Everest, RIMO Market Growth, Feb 2007, http://www.blonnet.com/ew/2007/03/12/stories/2007031200150300.htm Ref: Gartner, Gartner on Outsourcing, 2005, Dec 2005 Ref: Tholons, THOLONS announces services globalisation trends for 2007, http://www.networkmagazineindia.com/200702/newsanalysis01.shtml
- Ref: SearchCIO.com def http://searchcio.techtarget.com/sDefinition/0,290660,sid19_gci924479,00.html
- The survey for "50 Best Managed Global Outsourcing Vendors" was distributed to purchasers/users and corporate employees in N America, Europe, Asia & Pacific Region in early 2006 The survey measures Human capital performance CEO commitment Corporate direction Leadership impact Throughout the survey, questions are designed to measure satisfaction of clients, customers, users and buyers Notice that the list only includes 2 of the 6 global beasts but 6 Indian based outsourcers Accenture (22), Record results didn’t necessarily add up to high client satisfaction rankings ACS CSC (49), Lower client satisfaction scores among large competitors Hewitt Packard IBM (ranked 35), dropped from #1 spot last year post acquisitions and expansion of Indian arm by 10,000 staff Ref: Douglas Brown and Scott Wilson, Blackbook of Outsourcing: Top 50 Best Managed Global Outsourcing Vendors, http://www.sourcingmag.com/content/c060712a.asp
- Top 5 offshoring destinations with cost advantage to last for 20 years India generates roughly 400k engineering grads per year. However, only approx 35% will be employable/deployable and 25% of those need 6 months at “finishing school (e.g., English, Western business practices) In India, 80% of the attrition occurs in first 4 years. incentives: frequent rotation between projects, right of refusal on certain assignments, healthcare to relatives) Malaysia has the “Multimedia Super Corridor” (high-speed broadband infrastructure) Indian firms, Satyam and Tata, have outward invested to Hungary and Brazil Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm
- Other top offshoring destinations with cost advantage to last for 20 years Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm
- Specification Supplier Management System details the spec ingredients for the Whooper and other products Ref: InformationWeek, Customers Analyze Outsourcing Vendors and Strategies, June 2006, http://www.informationweek.com/story/showArticle.jhtml?articleID=189500052 Ref: InformationAge, Out of India – Ranking the leaders of the offshore revolution, Burger King, pg 26, Ref, IT Outsourcing, Slicon.com
- Other top offshoring destinations with cost advantage to last for 20 years Add South Africa Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm
- Other top offshoring destinations with cost advantage to last for 20 years Add South Africa Ref: neoIT, Global ITO and BPO Trends in 2006, Dec 2005 Ref: AT Kearney. Global Services Location Index, Mar 2007, http://www.silicon.com/research/specialreports/insideindia/0,3800013641,39166425,00.htm