Obama the explainer

Courtesy: http://washingtontimes.com/

Twice in the last week I've noticed that President Obama has told the American people some tough things, and has then gone on to do a good job of explaining why things are the way they are.

This is something that Obama does a good bit better than President Bush. I don't remember Bush ever addressing the issue of outsourced jobs or bankruptcy for the auto makers.

Obama was very careful in how he talked about bankruptcy yesterday during his speech on the auto companies.

"Now, while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger," Obama said.

He then took pains to clarify what he meant and what he did not mean.

"Now, I want everybody to be clear about this.  I know that when people hear the word 'bankruptcy' it can be unsettling, so let me explain exactly what I mean.  What I'm talking about is using our existing legal structure as a tool that, with the backing of the US government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet and onto a path to success; a tool that we can use, even as workers staying on the job building cars that are being sold," he said.

"What I'm not talking about is a process where a company is simply broken up, sold off, and no longer exists.  We're not talking about that," he said, reassuring auto company workers who would understandably be anxious or fearful at the mention of bankruptcy.

The other time Obama did something like this recently was at last week's "virtual town hall." A woman asked him through a YouTube video, "When can we expect that jobs that have been outsourced to other countries to come back and be made available to the unemployed workers here in the United States?"

Mr. Obama talked about the job market overall and his economic plan, but then addressed the question directly.

"Now, a lot of the outsourcing that was referred to in the question really has to do with the fact that our economy -- if it's dependent on low-wage, low-skill labor, it's very hard to hang on to those jobs because there's always a country out there that pays lower wages than the US," he said.  "And so we've got to go after the high-skill, high-wage jobs of the future."

Obama talked about new energy industries as the high-wage sector of the future, and then made a somewhat eyebrow-raising comment, especially when you consider some of his rhetoric on the campaign trail about the Bush administration outsourcing jobs.

"So I guess the answer to the question is, not all of these jobs are going to come back.  And it probably wouldn't be good for our economy for a bunch of these jobs to come back because, frankly, there's no way that people could be getting paid a living wage on some of these jobs -- at least in order to be competitive in an international setting."

Short on cash? Stop outsourcing education

Courtesy: http://www.al.com/

City schools are overusing costly outside tests

Every year Huntsville's schools spend millions of dollars paying companies outside the city for tests and scripted curricula. At what point in time did Huntsville's citizens decide that the teachers in their schools were not capable of creating curricula and tests on their own?

The answer is they didn't. Both have been increasingly imposed because of the No Child Left Behind Act, passed under the belief that local communities were not qualified to determine whether or not their schools were working. According to NCLB's supporters, failing schools - identified as such by failing test scores - could improve by adopting scripted materials that are "teacher proof" and administering frequent tests to make sure the teachers are doing their jobs.

There are at least two problems with this logic. The first is that there is not a single shred of empirical research supporting the use of testing or scripted curricula as means to improve human growth and development.

The second is the belief that teachers are "the" problem with schools. In reality, when it comes to "failing" schools, zip codes have more influence than the teachers. If that is not the case, we should immediately swap all of the teachers in Butler High School with all of the teachers in Bob Jones. If NCLB's logic holds, Butler's scores will drastically improve and there will be a corresponding decrease at the other school.

We don't need tests to tell us that this will not occur.

Chances are, if you are reading this op/ed, you went to a public school and graduated before educational outsourcing began. Somehow, despite failing schools and failing teachers, you managed to become successful to some degree. If that were not the case, you would not have the luxury of reading this newspaper.

As a former teacher, and now a teacher of teachers, I understand the importance of determining whether or not the individuals in our schools "are doing their jobs." And after visiting a number of schools it is easy for me to say that some are not. They are, however, dwarfed in number by the teachers doing amazing things with America's future leaders.

We don't have to pay a company outside of Huntsville to tell the difference. We (yes, you the reader) simply need to go into buildings and look and listen to the people inside of them.

Huntsville is easily spending more than $3 million a year in time and resources on imported tests and curricula. That's at least $3 million leaving the city every year.

If citizens could vote on the issue, I'd lobby for dropping all tests and scripted materials that don't come from within the city or county. I'd then ask students, parents, teachers, administrators, and members of the community to determine whether or not our children are becoming engaged, intelligent, doers. Am I to understand that this city, trusted to put humans into outer space, cannot be trusted with children on terra firma?

While I believe our principals and teachers are capable of charting student progress without federal or state interference, I recognize the benefits of inviting individuals from outside of an institution to ensure quality control.

I am, of course, partial to using UAHuntsville as a mechanism for helping the city measure student achievement robustly defined. For $3 million, UAHuntsville could do a better job of helping Huntsville's school system measure student development and growth than any imported test or curricula. And we could do it for a period of four years.

The city would save at least $9 million, teachers and administrators would be freed from a great deal of paperwork, and students would spend more time meaningfully employed in the most robust sense of the term. The only real obstacle is our collective will.

Return of outsourced jobs not good for US: Obama

Courtesy: http://www.hindu.com/

In the midst of its worst recession in decades, President Barack Obama says it would be better to create new jobs that can't be outsourced instead of bringing back such low paying jobs from other countries.

"Not all of these jobs are going to come back," he told a questioner during an "Online Townhall" from the White House, who asked when would jobs outsourced to other countries come back and be made available to the unemployed workers in the US.

"And it probably wouldn't be good for our economy for a bunch of these jobs to come back because, frankly, there's no way that people could be getting paid a living wage on some of these jobs - at least in order to be competitive in an international setting."

The online meeting - a new take on President Franklin Roosevelt's fireside chats - was streamed on the Internet from White House government.

Mr. Obama said a lot of the outsourcing has to do with the fact that "our economy - if it's dependent on low-wage, low-skill labour, it's very hard to hang on to those jobs because there's always a country out there that pays lower wages than the US.

"And so we've got to go after the high-skill, high-wage jobs of the future," he said. "That's why it's so important to train our folks more effectively and that's why it's so important for us to find new industries - building solar panels or wind turbines or the new biofuel -that involve these higher-value, higher-skill, higher-paying jobs.

"So what we've got to do is create new jobs that can't be outsourced," Mr. Obama said.

The president also asked Americans "to be patient and persistent about job creation because I don't think that we've lost all the jobs we're going to lose in this recession."

"I don't want people to think that in one or two months suddenly we're going to see net job increases," he said striking a note of caution. "It's going to take some time for the steps that we've taken to filter in."

Other questions - some of which came from the live audience - focused primarily on health care, job loss, mortgage payments and energy.

CGI bags 10-year IT deal worth C$182 million

Source: http://www.reuters.com/

Canada's biggest computer consulting company CGI Group Inc said it bagged a 10-year information technology outsourcing deal worth C$182 million from life insurance company Foresters.

CGI said the agreement also extends the existing infrastructure services outsourcing agreement by seven year, and will see 78 Foresters IT employees move to CGI.

Under the agreement, CGI will deliver IT application maintenance and development services from its centers in Toronto, Halifax and Bangalore, while IT infrastructure services will be delivered from its centers in Ontario.

IT outsourcing prices to fall - Gartner

Courtesy: http://www.reuters.com/

Prices of IT outsourcing services will shrink 5 to 20 percent through 2010 due to the uncertain economic climate, IT budget constraints and competition between vendors, research firm Gartner said on Monday.

"This fall in prices will occur due to increasing competition in the market between traditional and new providers as more providers compete aggressively to keep revenue growth on target, while ensuring margins," Gartner said.

Gartner said it expects prices for application hosting services to fall by 10 to 20 percent and for network services to fall 10 to 15 percent. It sees prices for data centre service dropping 5 to 15 percent and help desk services 5 to 10 percent.

"These are not `price list reductions' but represent an overall price reduction on infrastructure outsourcing deals that may apply to new deals and, albeit only partially, to renegotiated deals," analyst Claudio Da Rold said in a statement.

ITV looks at outsourcing to cut costs

Courtesy: http://www.telegraph.co.uk/

The commercial broadcaster is close to outsourcing its technology division and is aggressively pursuing a range of similar deals throughout the group.

"We are currently conducting a cross-company outsourcing review. Our technology division is at an advanced stage in this project and we will be announcing the results in the near future," said an ITV spokesman.

The spokesman refused to comment on whether this would lead to more job cuts than the 600 announced at ITV's full-year results earlier this month. One industry analyst said that a large-scale back-office outsourcing deal would save ITV at least 10pc of its variable cost base.

Sources close to ITV said potential outsourcing deals outside of back-office functions were also being identified. International distribution is thought to be one area under review, although industry sources said this was not top of the agenda and ITV would only take this route if the cost savings were significant.

ITV executives have come under increased pressure to deliver further cost savings across the group.

Earlier this month, the broadcaster announced losses of £2.7bn after taking a large-scale write-down.

Recession Takes A Bite Out Of Pay-For-Performance Outsourcing

The downturn is making it harder for companies to tie outsourcing to broader goals than basic cost cutting.

Courtesy: http://www.informationweek.com/

Risk-reward IT outsourcing contracts, where service provider fees are tied to business outcomes, have been viewed as the next tier of maturity for the outsourcing industry. But the slowing economy has dampened interest in the model, and getting to that tier is going to take longer.

That's not what we expected. Before the recession, interest had been growing among IT outsourcers and longtime customers in forging relationships where both parties share in benefits reaped through working together, but also share in any pitfalls. Outsourcers looked for "partnerships." To do this, they needed to shift to "higher-level" deals that didn't focus solely on cost cutting--including offshore labor arbitrage--but on strategic measures such as revenue growth and customer satisfaction.

The reality is that such relationships are complex to set up, difficult to execute, and riskier, which means they require deep trust and a long-term view. All those obstacles become bigger in a downturn.

Companies haven't given up the pursuit of innovation, and they're still working closely with their outsourcers, but they're paring down their project lists. And if there's a revenue-generating project to be done, CIOs are likely to want their own staff on it, rather than share the rewards with a services provider. "If you have 100 discussions with clients about risk-reward contracts, maybe only 10 will end up doing them," says Ray Strecker, head of Tata Consultancy Services' North America consulting practice.

Eighteen months ago, two goals frequently came up during client discussions, Strecker says. One is still common: how to take direct costs out of the client's business, primarily with IT but sometimes through other operations, such as human resources.

The second theme that almost always came up was how to shift the IT spending mix from running the business--support, security patching, data center operations--to fostering innovation. In those conversations, cost cutting was a way to "free up" funds for other purposes, Strecker says. In the last few months, however, the talk has shifted back almost solely to cost cutting as a way to "batten down the hatches," he says.

Some clients continue to ask TCS where it can be a strategic partner in achieving objectives beyond cost cutting, such as improving customer service. Yet, even in the pockets of innovation where there is a shared incentive to improve performance, "we're not seeing revenue-sharing models," says Sultan Khan, head of TCS IT strategy and governance for North America, citing the complexity of such arrangements.

Vincent Cirel, senior VP and CIO of Norwegian Cruise Line, says too many CIOs think of pay-for-performance narrowly--as the financial penalties outlined in service-level agreements, rather than incentives to perform better. SLAs aren't of much use to a CIO. If performance tanks to the point that it triggers an SLA, it will give the lawyers some work, but the CIO and business managers relying on it are out of luck. So when Norwegian Cruise Line inked a 5-1/2-year deal in October with IBM to run its reservations as an online service, Cirel included performance incentives (which he declines to detail).

Follow The Money
Between 15% and 30% of Computer Sciences Corp. contracts have risk-reward provisions. Like other outsourcers, CSC has seen engagements shift from supporting growth to "How can you help us become more efficient and save cash?" says Russ Owen, president of CSC's Americas commercial group.

The risk-reward provisions often involve CSC getting a share of savings achieved on behalf of clients, such as helping insurers identify fraud or multiple billings for the same services. When CSC helps its outsourcing customers launch products, such as a new health insurance policy, it's often paid based on the volume of claims activity. CSC expects volume-based, variable payments, which usually involve business process as well as technology services, to be a growth business.

Capgemini's risk-reward arrangements tend to have a business process outsourcing component as well. In one example, Capgemini has been working with an energy company that had been losing customers. It took over billing and customer service operations, and used analytics to spot the types of calls--like asking about rates--that are a red flag for customers who are at risk of leaving, then created offers to retain them. Capgemini earned a bonus based on the company's customer numbers.

For a consumer-goods company, Capgemini is running a billing and financials system where incentives are tied to spotting double-billing and other problems. Capgemini has hired people with coding and audit experience to try to outperform the customer's accounting system, and Capgemini gets a cut of any recoveries that result. But it's a bonus, says David Poole, head of Americas business process outsourcing for Capgemini, not the main means of payment.

Increasing revenue has been the goal of outsourcing efforts for a notable minority of companies--or at least it was before the worst of the downturn. In a survey by InformationWeek Analytics last spring of 272 companies, almost 30% cited increased revenue as a driver for BPO. In addition, 38% cited improved customer satisfaction and 42% faster time to market as BPO drivers. Not surprisingly, cost cutting was cited by 83% of companies.

Even when the economy picks up, revenue- and profit-sharing deals will continue to be more the exception than the rule, predicts Dave Liederbach, general manager of global strategies outsourcing with IBM. The reason is that it's too hard for most companies to tie a service to driving revenue growth, and most outsourcers don't have the industry experience needed to set up such deals. "You have to have the capacity to track revenue and influence outcomes," Liederbach says. "If all you deliver is low-cost labor and insight into how your products work, ... you'll run into trouble in aspiring to higher-value outcomes."

When IBM does tie contracts to outcomes such as revenue growth, Liederbach says, it's "not about extremes." Typically, only a fraction of the contract is variable. Also, in some industries, such as health care and government, revenue might be a less important measure than satisfaction or responsiveness. "Outcomes are based on client vernacular," he says.

In working with Norwegian Cruise Line, an incentive for IBM is that it can leverage the reservation-as-a-service model with other customers in the travel industry, applying what it learns working with the cruise line. CIO Cirel says the model will help the industry overall without hurting Norwegian Cruise Line, since it's not the transaction that's the competitive differentiator, but the "shopping process prior to making a reservation" where IT can provide a company with competitive advantage.

Liederbach points to Norwegian Cruise Line's move to reservations as a service as an example of companies cutting costs while using that as a reason to try new technology models. "While cost cutting is a part of what we're all doing, the best are cost cutting to be positioned for long-term growth," he says.

EDS also is looking to cloud computing as a way to open up new pay-for-performance options. Today, most of its variable pricing contracts are output-based models, such as the volume of health care claims managed or e-mail boxes maintained. As more business processes can be moved online, they lend themselves to a variable model, says EDS VP Dan Zadorozny. However, don't expect big moves until the economy improves and business picks up. "We have some clients who are very interested in this when the time is right," Zadorozny says.

Even with a better economy, any deal linked to revenue or profit should be treated with a rigor that's close to what a company would apply to a joint venture, from the financial accounting to how each puts in investment funds, says Kate Hanaghan, senior analyst at research firm Bathwick Group.

Hanaghan estimates that fewer than 15% of outsourcing contracts today involve risk/reward provisions beyond conventional SLAs in which IT services providers are paid based on straightforward criteria such systems availability or cost-cutting measures.

The more elaborate deals take more outsourcing management expertise than most companies have or are willing to develop. "Unless it's a mature buyer that knows the partner well, those kinds of deals are considered too risky, especially these days," Hanaghan says. "They require an enormous level of trust."

Plus, as companies look down the road to what they hope is an upturn, they're loath to share in potential growth. "Most clients want to control their own destiny, rather than share it," says TCS's Khan.

With a carefully crafted outsourcing deal, however, your company just might be able to accomplish both.

Outsourcing plan could help rural communities

Courtesy: http://www.radioiowa.com/

A plan to outsource business and jobs -- within the state -- may help Iowa's rural areas. The Nebraska-based Center for Rural Affairs is spearheading an effort to link businesses in small towns with those in cities.

Stephanie Fritz, the center's rural community development specialist, is coordinating meetings to help small businesses make connections. Fritz says, "We're trying to help them network with some urban businesses just to see if the urban company could outsource some jobs to smaller communities instead of having a part made out-of-state or even out of the country."

She says the move could help save the urban business money while helping the small town enhance its business climate or even launch new businesses. Fritz explains how the plan could work. For example, an eyeglass company could outsource to rural communities -- having one business make the screws, another could do the frames and yet another would do the lenses while they were assembled somewhere else and sent on to the city-based large eyeglass company, but all of the piece work was done in the rural areas.

Fritz says now is a good time to set up the network so those involved will be ready when the economy rebounds. The project is funded by a 50-thousand dollar grant from the Economic Development Agency.

Europe beats US in the number of outsourcing deals but anticipates slowdown during recessionary times

Courtesy: http://www.ecademy.com/

Recent report from TPI shows that Europe finally outruns US for outsourcing deals but sees a slowdown during recessionary times. There were a record number of outsourcing contracts signed by European companies during 2008 despite a 50 per cent fall in the value of deals in the second half of the year, and only one significant mega deal signed during the 3rd quarter.

Worldwide, IT outsourcing deals were worth up to €72bn which is more 5.6 per cent than those signed in 2007. The number of contracts in Europe rose by 17 per cent year on year and for the first time Europe outruns the US with 55 per cent of signed deals, compared to just 32 per cent in the US. The number of European deals hit 271, compared to 243 across the Atlantic.

According to Duncan Aitchison, president of TPI research company, such high results were achieved mainly because of the strong first half and in particular through the level of mega-deal activity in the region, which awarded two-thirds of the world's $1bn-plus contracts last year.

But as the global crisis hit hard business in Europe fell by 50 per cent in the second half of the year and the value of contracts awarded in Europe dropped significantly. According to the report new outsourcing contracts in Europe fell from 75 to 56 in the 2nd to 3rd quarter of this year with total contract value decreasing from US$18.5 billion to US$5.5 billion and that weakness continued into the fourth quarter, and looks likely to remain into the first part of 2009.

Aitchison claimed that the outsourcing market will have to rely on smaller deals to maintain its growth in 2009. In the past couple of years the mega deal has been consigned by many to the outsourcing scrap heap in favour of multi sourcing that is choosing separate suppliers for different processes. This has allowed smaller, more specialized service providers to step into the limelight. However, with the focus moving back onto cost as the main deciding factor in outsourcing, having one outsourcing supplier will minimize management, due diligence and supplier selection costs. It should also provide the end user with savings achieved by buying in bulk. So maybe we are seeing a pause as mega deals, generally, take some time to set up.

As more and more organizations come to grips with the credit crunch, we will see outsourcing move to the top of the boardroom agenda. Outsourcing has always been associated with cost savings and now with all companies setting aggressive cost saving targets for next year we may see more and more outsourcing contracts come to fruition.

ICICI Bank mulls outsourcing ATM management

Courtesy: http://www.thehindubusinessline.com/

Country's biggest private lender ICICI Bank is believed to be exploring ways of hiving off its ATM management and points of sale terminals (POS) into a separate entity.

ICICI Bank has a network of 1,416 branches and over 4,600 Automated Teller Machines (ATM) across the country, which it manages by itself, while several other banks have outsourced their ATM management and POS (credit and debit card payment accepting) terminals.

An ICICI Bank spokesperson said, “We evaluate various options for different areas of our operations based on global and Indian trends and experience. Certain areas of operations could be made more efficient by transferring to specialized players, who can bring operating efficiency and functional improvements.”

“The ATM infrastructure management and acquiring business (POS terminals) are of this nature. For instance, in the US, the card transaction acquiring business (POS terminals) has largely moved out of banks and is done by specialized players,” the spokesperson said.

He added the bank had not taken any decision to hive off these operations, as it would have to follow internal and regulatory approval process.

“In any event, the impact of such a transaction on ICICI Bank's financial statements may not be material,” he added. - PTI

Lawmakers cry foul over Chase’s rumored outsourcing plans

Courtesy: http://columbus.bizjournals.com/

A group of more than three dozen members of Congress, led by US Rep. Mary Jo Kilroy, asked the CEO of JPMorgan Chase & Co. to explain reports that the company plans to spend hundreds of millions on outsourcing work to India.

The letter sent Tuesday to Chase CEO Jamie Dimon and signed by Kilroy, D-Columbus, and 41 other members of Congress comes after published reports in India indicated that the bank would spend $400 million on work outsourced to that country to improve information technology. Chase is the second-largest bank in Central Ohio and the region’s third-largest employer, with nearly 14,700 workers, according to Columbus Business First research.

Kilroy in the letter points to the $25 billion Chase received through the government’s Troubled Asset Relief Program, writing that “taxpayers of the United States of America contributed $25 billion to your company to help stabilize our economy – not send jobs overseas.”

Chase representatives in Columbus and at the company’s New York headquarters declined to comment on the letter or the alleged outsourcing plans.

JPMorgan has 71 branches and $7.07 billion in area deposits in Central Ohio as of June 30, 2008, according to the Federal Deposit Insurance Corp. That represented about 22 percent of the Central Ohio deposit market.

Sprint, Ericsson sign $2B network outsourcing deal

Courtesy: http://www.fiercewireless.com/

Sprint Nextel and Ericsson have signed a network outsourcing deal worth $2 billion, according to a report in the Swedish business weekly Affarsvarlden.

The report, which first appeared Friday and cited unnamed sources, said that Ericsson had won a contract to take over management of Sprint's networks. The deal is said to last for several years and is reportedly one of the largest orders Ericsson has ever received.

Sprint declined to comment on the report. Ericsson did not respond to inquiries.

The deal, if confirmed, is significant on a number of fronts. It would be a huge cost-saving measure for Sprint, which would outsource, or "re-badge" thousands of employees over to Ericsson, cutting down on severance costs. It is also a large contract win for Ericsson in the North America market, and comes on the heels of Ericsson winning a contract from Verizon Wireless to supply the infrastructure for significant parts of Verizon's LTE network.

However, the move is a curious one, since Ericsson does not specialize in CDMA technology. Sprint has been rumored to be considering outsourcing its network since last November.

Outsourcing recovery later in 2009 - Wipro

Courtesy: http://in.reuters.com/

Wipro Ltd sees a revival in demand for outsourcing services in the second half of this year as global firms look to cut costs, the joint-CEO of its IT business said on Monday.

Some clients of Wipro were postponing outsourcing contracts due to the tough economic environment, but India's third-largest software-services exporter had not seen major cancellations, Girish Paranjpe told Reuters in an interview.

"At least based on what we have seen, I would say that there is lot more stability at this point of time," he said. "

"Hopefully there will be some improvement post summer... second half of this year."

Some customers of the New York-listed firm were seeking price cuts, and Wipro was dealing with this by measures such as moving more work to low-cost centres in India, he said.

"They look at the overall package. As long as they get the cost reduction they are ok because that's what their internal goal is... some price reduction is part of that package," Paranjpe said.

A large pool of English-speaking engineers and cheaper wages drove an outsourcing boom in India, but turmoil in global markets and a recession in the United States, which accounts for more than half the sector's revenue, have halted the scorching pace of growth.

Revelations of a massive accounting fraud at Satyam Computer Services further dented prospects for the export-driven sector that generates more than 5 percent of the country's gross domestic product and employs more than 2 million people.

Morgan Stanley said in a research note last week it expected coming quarters to bring further erosion of demand for Indian IT firms, and that the impact of budget cuts, mergers and bankrupt clients had not yet been fully reflected in share prices.

"Budgets have come down as compared to what they were in 2008," Paranjpe said of clients' spending on information technology services. "(There are) delays in starting new projects."

Despite the downturn, Wipro was seeing "fairly decent" demand for outsourcing services in India and the Middle East. Last week, the firm announced it had won a contract worth $228 million from an Indian government agency.

Paranjpe said Wipro, which had more than 95,000 staff at the end of 2008, was not planning any layoffs. The company was focused on cutting expenses in areas such as travel and marketing to cope with the slowing revenue growth.

Shares in Wipro, which counts Citigroup, Credit Suisse and Cisco among its more than 850 clients, rose 1.65 percent on Monday to 228.25 rupees in a broader Mumbai market that ended up 2.1 percent.

Wipro Infotech bags Rs 1180 Crore outsourcing deal

Courtesy: http://sify.com/

Wipro Infotech has bagged a Rs 1,182-crore IT outsourcing contract from the state-run Employees State Insurance Corp (ESIC), the company said Friday.

In bagging the deal, Wipro outbid other two IT bellwethers Tata Consultancy Services (TCS) and Infosys Technologies in a global tender floated in November 2008 for ESIC's 'Project Panchdeep'.

Stock options turning a burden for Wipro employees

The over six-year contract involves implementing an ambitious project to improve healthcare services to its beneficiaries by providing online facilities to employers and insured people for registration, payment of premium and disbursement of cash benefits.

ESIC, a statutory corporation under the ministry of labour and employment, is the implementing agency for the social security scheme in the country.

Other modules will provide human resources, finance and general administration programmes for increasing the corporation's efficiency.

The project was mandated by the ESI Act 1948, with a focus on creating a medicare backbone for the marginalized sections of society.

"It is an honour to be awarded one of the prestigious e-governance projects in the country. As a strategic relationship for us, we are committed to making it a showcase in the e-governance domain," the Wipro Infotech vice-president, Anand Sankaran, said.

"The ministry has been supportive and keen on ensuring a quick roll-out of the project as it directly benefits the citizens," he added.

The five parts of the project are termed as Pehchan, Milap, Pashan, Dhanwantri and Pragati.

The project includes identification of 10 million subscribers and their family members covered under ESIC and connecting all its locations - the head office, 51 regional, sub-regional and divisional offices, 620 branches, 144 hospitals, 1,388 dispensaries and state directorates.

CIO: Outsourcing Helps His Team Become Strategic

Courtesy: http://www.informationweek.com/

When JohnsonDiversey CIO Matt Peterson signed his first outsourcing agreement three years ago, his No. 1 goal was cost reduction -- "and it was a long way down the list to get to No. 2," he said. But because the relationship with outsourcer Wipro has steadily evolved, Peterson is finally able to turn his focus outside the company to working with customers to drive revenue and loyalty.

Wipro's ability to help $3.5B JohnsonDiversey significantly reduce IT costs on everything from applications maintenance to its data center was a "significant achievement" for the company, Peterson said, and gave him and his team the ability to change "from efficient order-takers to actual strategic business enablers" in the company's growth and development.

"For the first 18 to 24 months, I had to be very tied in to the daily issues," Peterson said, but because his company and Wipro have developed a sense of trust and respect, he and his team have been able to spend more time working with other JohnsonDiversey managers on strategic new projects.

A big lesson Peterson had to learn the hard way involved setting SLAs. As the engagement with Wipro was getting started, he said, the IT team was deeply involved, but not leaders from other parts of the business. As a result, Peterson said, JohnsonDiversey's IT group was meeting its SLAs, but the company overall was not getting full value in customer-satisfaction surveys.

The big aha? "What our IT team thought was important wasn't necessarily important to our customers," Peterson explained.

Other lessons: Clearly articulate and delineate roles and responsibilities for the client and for the outsourcer; create contracts that achieve the above clarity but also leave some room for flexibility for each party; and keep as much emotion as possible out of the interactions by keeping roles and expectations very clear and very simple.

And just as the enhanced relationship JohnsonDiversey has established with Wipro has allowed Peterson and his team to move on to higher-value projects, so too has it given Peterson the confidence to engage with Wipro on more-significant projects. Those include environmental issues, which are crucial to the company as a manufacturer of commercial-cleaning and chemical products; Six Sigma development projects; and a general tendency for Wipro to become engaged with not just technology issues and ideas but also business-related challenges.

Recession may drive re-thinking of some outsourcing deals

New report says current economic conditions could drive a second look to outsourcing.

Courtesy: http://www.purchasing.com/

Outsourcing of various services and functions within companies will continue during the ongoing global recession, but for US companies, the rate of outsourcing may slow slightly and more companies may take a closer look at their existing outsourcing deals for cost reduction opportunities.

A new report from law firm Morrison Foerster's sourcing practice points out that firms that negotiated outsourcing contracts in the past five years "could not have possibly anticipated economic upheaval on the scale that we are witnessing today." As a result, those outsourcing contracts may need to be re-structured to better match desired costs and services levels. There may be opportunities to relax certain service levels in those deals in the current market that could provide cost savings.

Or in some cases, there may be some services that could not be handled in-house during a busy economic time, but during a recession could easily be taken back in-house. The report also says that as threats of terrorism remain a concern in many global markets, companies will re-visit their outsourcing decisions with an eye towards risk management and business continuity, which could also lead to the adoption of more on-shore solutions.

On the flip side, extending the length of the outsourcing contract—if it is a service your company plans to continue outsourcing—could provide leverage for price reductions as outsourcing providers see shorter contract terms from many customers.

"Much of the increase in outsourcing in the early part of 2009 will involve off-shoring aimed at reducing costs," the report says. "Most of these agreements will be short-term transactions intended to produce immediate improvements to the bottom line...Given the cost drivers likely to be underlying most customers' decision to outsource, 2009 may also see an increase in the provision of commoditized services by suppliers, whereby the customer must conform its business processes to receive services from the supplier in accordance with the supplier's processes, not the customer's."

When selecting an outsource service provider in the current market, the report says providers with a wide diversity in both industry base and geography are most secure. Smaller, more niche providers could be more vulnerable.

Outsourcing in ‘09: Onshore, Offshore, and At Home

Courtesy: http://www.destinationcrm.com/

As the global recession forces many companies to scrutinize bottom lines, the business process outsourcing (BPO) space continues to forge ahead. New York–based research firm Datamonitor highlights five key trends it believes will shape the BPO space during the rest of 2009.

According to Peter Ryan, lead analyst for contact centers and BPO at Datamonitor, the five trends to keep an eye on are:

• client pricing;
• new niche, horizontal opportunities;
• potential for resurgence of onshore contact center deployments for outsourcers;
• quality and security of offshore locales; and
• increased global penetration of home agents.

To Ryan, client pricing will be one of the most important trends to keep an eye on, particularly in today's economic environment. He explains that margins are tighter than ever and organizations looking to work with outsourcers are increasingly concerned about the price of doing business. Ryan says potential clients will want to know if the prices will be less than operating in-house and if that dollar figure will stay stable.

Early indications find that BPO companies must have a compelling cost-savings story in order to stay competitive. "Look at the standardization of outsourcing services ... it's tough to differentiate from one another," Ryan explains. "It is a very competitive sector, and a lot of players are trying to drive prices down to win business."

Another avenue for BPO players to potentially look into is a horizontal opportunity Ryan says falls in line with customer care, marketing, and technical support: collections. While it will still remain niche, consisting of less than 5 percent of global outsourced workstations, Ryan sees it growing by 25 percent over the next four years. "The credit crisis has caused more of a need than ever for third parties to help companies recoup accounts receivable," he says. "It's going to be important that outsourcers provide a service with sophisticated options like organizing a repayment period."

With the election of President Barack Obama, there is also a chance for the resurgence of onshore contact center deployments for outsourcers. Ryan explains that the president's push to create new jobs could create tax incentives for companies electing to keep their customer service operations onshore. "The jury is still out on that," Ryan says. "Even if President Obama is able to do this, how do you find people to work in them? Unemployment is a bit higher, but it is still challenging to find workers for these contact centers."

Another trend Ryan admits is a mainstay for the BPO space revolves around the concern over the quality and security of offshore locations. "This could drive companies in uncertain times to say, ‘I'm keeping my business at home to make sure none of the end users drop off and use other companies that keep their contact centers in the United States,'" he says. "It's a way of retaining business."

Another avenue for keeping contact centers in America while not having to expand traditional brick-and-mortar sites is via work-at-home agents (WAHAs), the last trend Ryan says is important to keep tabs on in the BPO market in 2009. More companies are either partaking in or at least seriously considering WAHAs to bolster customer service repertoires. "I don't think people have a choice ... this is a business model that is proving itself especially in the United States," he declares. "It's starting to prove itself in other locations as well. If it is done [correctly], the chances of it working in a niche perspective are substantial."

Look for BPO to be come back into the spotlight as Obama assumes his new role in the White House, Ryan says. The market could be radically shifted depending on the types of policies he sets forward. The emphasis is on could, though. "There will be a lot more visibility as Obama comes into play with his administration and sense of [policy] direction," he envisions.

Iceland cuts IT spend with outsourcing

Courtesy: http://www.vnunet.com/

Supermarket chain Iceland has signed a £11.5m services deal to lower costs associated with running its technology set-up.

The seven-year deal with Getronics is an extension of the supplier's relationship with the retailer, which includes round-the-clock server hosting and systems management, service desk provision and PC and BlackBerry support.

The agreement also includes work on the firm’s technical architecture, database support and a managed print service.

According to Iceland, benefits from the outsourcing deal include flexibility in service support and cost predictability.

“The changes made to the contract have provided us with stability and security in terms of our IT platform in the current financial climate,” said Mark Pearson, IS director at Iceland.

Skills and outsourcing are still in demand for the banks

Courtesy: http://www.sbpost.ie/

Banking clients are still looking for temporary staff to help run their IT infrastructure, and IT Force is getting a share of that business. Outsourcing is also becoming more popular, according to Joe O’Reilly, IT Force’s sales director for managed resources.

He said that many banks see the ‘out tasking’ of particular functions as the appropriate operational model as they hunker down and focus on core business applications. The two areas in which this is happening most are the IT helpdesk and the management of desktop PCs.

“ ‘Dynamic desktop management’ is quite prevalent,” said O’Reilly. ‘‘It’s a Microsoft initiative which helps you to automate the support of your PC environments by allowing you to roll out upgrades, security patches and so on from a central location. That’s an area where organizations see that, if they do some work, they can get a return on investment very quickly and reduce their service level costs.”

He identified centralized power management as another growth area. Many banks have literally thousands of PCs in use and can save themselves significant amounts of money by managing power consumption more efficiently. So one of the services IT Force offers is to set up an internal power management system on the client’s network which, at a predetermined time every evening, will send a message to each PC to find out whether it’s on or off.

‘‘If it’s on but has not been used for 15 minutes, the program sends an instruction to the PC to power itself down to ‘hibernate’ mode.

‘‘Organizations are seeing that this is one area where they can make substantial savings without affecting productivity in any shape or form,” said O’Reilly.

Despite these islands of activity, the overall picture in financial services is one of cuts, cuts and more cuts in IT spending. Not only is this hurting the ecosystem of suppliers feeding off the sector, it could also hurt the banks themselves in the long run, O’Reilly said.

‘‘There’s always a risk that if you don’t continue to invest in your IT infrastructure you’ll get left behind; you will end up having to spend more down the road for IT equipment or you run a bigger risk of your systems crashing, which could ultimately lose you your business.

‘‘Financial organizations are under serious, serious pressure but let’s hope they don’t throw the baby out with the bath water.”

As a company with a large footprint in the financial services sector, IT Force has been hit hard by the banking crisis. With fewer IT projects being undertaken, the project resourcing side, in particular, has suffered.

‘‘Previously, there would have been a bigger demand for specialist skills to deliver projects. Over the past six months, the past two months in particular, that has almost totally dried up,” said O’Reilly.

‘‘There are one or two exceptions: some financial institutions are requiring extra staff to speed up certain projects. But unless there is a true business demand, there are no projects are going on.”

Outsourcing has produced mixed results

Courtesy: http://business.timesonline.co.uk/

Steve Martin, director of the Centre for Local and Regional Government Research at Cardiff University

We have had a decade of healthy increases in public spending, and that has now come to an end. Spending on essential services like health and education will increase at a much slower rate from now on. Culture and leisure spending will probably be significantly scaled back.

There will be a reduction in high-earning staff. HR, administration and pension teams may be merged into services that work for several authorities. There will be shared chief executives and directors of services.

Outsourcing has been tried for several years with varying degrees of success. It appears to work best where targets and functions can be tightly controlled. However, there have been some notable disasters, and it is not a magic solution.

The past 10 years have been about improving quality, but now there will be a rethink and we will see services delivered differently.

Infosys eyeing buyouts abroad

Courtesy: http://www.hindu.com/

Infosys Technologies is on the look out for acquisitions in ERP implementation, BPO and consulting space in France, Germany and Japan, according to CEO and Managing Director of the company Kris Gopalakrishnan.

“We are also keen on companies offering services to the healthcare sector as it is not affected by the current global economic downturn,” he said on the sidelines of the southern region meeting of the Confederation of Indian Industry (CII) here on Saturday.

He hoped that the US might not adopt a protectionist approach that would affect the outsourcing business. There was no impact on the outsourcing business as yet, as the new policy of withdrawal of tax concessions did not come into force. If this came into being, there could be a backlash in the US impacting several companies whose revenues came from outside the country.

Most job losses were witnessed in manufacturing, retail and construction industries and it was not due to outsourcing, said Mr .Gopalakrishnan. It would be a challenging period for fresh graduates as the world economy might take some time to recover. He said that the commitments given to 18,000 campus recruits would be staggered and fresh recruitment from campuses would be delayed.

Outsourcing isn't the problem

Courtesy: http://www.theweek.com/

In his February 24 address to Congress, our bright, forward-looking, globally-admired president said at least one thing that was dim, backward, and globally lamented. “We will restore a sense of fairness and balance to our tax code,” Barack Obama told lawmakers, “by finally ending the tax breaks for corporations that ship our jobs overseas.”

Politically, attacking outsourcing is a winner. Americans are frightened for their jobs, some of which they have seen going to lower paid workers in other countries; they want it to stop. Understood.

But in every other respect, Obama's assault on outsourcing is a sure loser.

First, as a practical matter, American jobs are hard to super-glue to American soil. Moreover, if every US company quit outsourcing tomorrow, there would be nothing to stop foreign competitors from continuing to farm out their jobs to workers in lower cost countries, thereby cutting costs, slashing prices, and weakening their US counterparts, all of which could well lead to.... layoffs. That is not a victory for the US economy.

Second, as free-trade advocates correctly point out, outsourcing American jobs creates jobs in other countries, which builds markets, which creates other American jobs. According to a 2007 report by McKinsey & Company, the Indian consumer market—already fueled by an “economic miracle” that has halved the poverty rate and seeded a middle class—should quadruple over the next two decades. Smart American policy would work to keep that market open—not stunt its growth.

Third, not every ripple effect of outsourcing is instantly clear at the surface of the pool. It is frustrating to see a leader of Obama's sophistication participating in the simplistic depiction of outsourcing strictly as a matter of transferring jobs from A to B, which hurts A and helps B. As he surely knows, there can be all kinds of implications for C, D, and E, which can turn around and affect A.

For instance: Indian wages in outsourced areas have risen to the point where India has begun outsourcing jobs to places like Vietnam and Mexico. Unless America's long-boiling debate over illegal Mexican immigration has suddenly been settled, we should be thrilled at any prospect of job creation in Mexico, because it helps at least some would-be immigrants build better lives at home.

Outsourcing has also helped to transform some of the societies that most need transforming. For one, it has helped to reverse “brain drain” from developing nations, by which their leading citizens spend their lives and talents in the West.

Take any country on the border between viability and chaos. (Feel free to imagine Pakistan back when it looked as if it might have a government.) Typically, this country has an unimaginably large base of unimaginably poor people. But it also has a small, educated elite that has enough money to buy things and enough time to focus on pursuits other than feeding their families today.

Elites can't transform an entire society on their own, but they can get the ball rolling. They can peaceably counter a government they oppose, or use their skills in the service of a government they support. They can pay taxes, invest capital, patronize vendors. Slowly but surely, they can help boost the living standards of everyone. On the other hand, if their country's economy is shot back to hell, they may very well leave. Who would stay? Those who have absolutely no choice, and those who would terrorize them—and, very possibly, us.

Granted, it may be late in the day to trumpet the glories of outsourcing jobs that support industries, such as financial services, that are on their knees. But in a much larger sense, the global downturn is a test, and outsourcing poses one of its first questions. Are we going to treat developing economies as essential partners in a global recovery, or as flypaper for misguided rhetoric designed to induce false comfort in American audiences?

President Obama, you still have time to change your answer.

Integration Among Cloud Providers Will Improve Their Value Proposition

Salesforce.com was recently in the news for emerging as one of the world's first billion dollar enterprise cloud computing companies. For the fiscal year 2008-09, the company has announced overall revenue of about $1.077 billion, an increase of 44 percent from the previous year. Asia Pacific is currently the fastest-growing region for Salesforce.com. Peter Coffee, director, Platform Research, Salesforce.com, in an exclusive conversation with Biztech2.0, discusses the company’s focus on the Indian market and also shares his views on growing interest in the cloud computing model.

What does service cloud mean to customers today?

In the last several months, Salesforce.com has made two really important changes in what it means to offer cloud computing. One of the first notions was that facilities underneath our own packaged application could be made available to other developers in the enterprise or entrepreneurial software development market, what we call as platform-as-a-service or force.com. The other important recognition of the last year is that improving operations of the business inside the walls of the business is not enough any more.

You have to give business superior access to communities of customers and ecosystems of partners. So service cloud encompasses that planet worth of knowledge and understanding of what the company’s offerings can do. Thus, platform-as-a-service makes it possible to build more from bottom up, but service cloud makes it possible to do more by taking in more of the world around the company.

Will clouds become more important in the current crisis period?

In the current economic condition, there is tremendous reluctance to take scarce capital and occupy it in capacity that is not generating value for business. Cloud computing allows companies to construct new systems without capital investments in new IT infrastructure and grow those systems to meet ever-changing business requirements at a rapid pace.

What is your take on the growing interest of leading IT vendors in the cloud market?

It is interesting that in the last few years, companies which were dismissing the idea of the services model are now eagerly wrapping themselves in the same flag by saying we are going to be cloud computing providers too. But this is the difference that I would encourage buyers to consider. There are technology companies that are introducing service offerings as a way to sell more technology and there are services companies including Salesforce.com whose entire culture is based on services and which are creating new technologies to accelerate and expand the delivery of new services. I think it makes a difference.

The IT department of every company is now interested to buy more services than technology. Every conversation that takes place today about the dramatic shift toward a services model of IT, at some point winds up mentioning Salesforce.com. However, we do not do it all. Amazon does infrastructure services, Google does collaboration and offers mining services and we do enterprise application services. So we believe that cloud is already a multi-vendor environment and every cloud provider becomes more valuable as a function of the other cloud, with which they can integrate and multiply their value preposition.

Will large companies get interested in cloud model?

The companies that are today making aggressive use of cloud technology are pretty much evenly divided, at least in our own customer base between small companies (around 100 employees), medium companies (around 1000 employees) and large enterprises. For example, we offer the standard application development platform to Dell Computers, which has tens of thousands of users on our platform. Our largest individual customer is Japan Post with 65,000 subscribers. Thus today even the largest companies are realizing that better allocation of scarce capital, rapid time to value, faster development and deployment of applications are strategic benefits. Thus, cloud model is not in anyway confined to small and medium businesses but is also becoming the focus of new enterprise IT investments in large companies as well.

Can you shed some light on your plans for the Indian market?

We view the Indian market as one of our best prospects. The interest in development on the Force.com platform in India has grown four times as quickly in terms of developer registration as it has in the US. I think this is an excellent indicator of the potential that is recognized by the Indian software development community for doing cloud-based development. We will be going live in the first quarter of this year with a production data centre at Singapore to provide a closer facility to improve performance and capacity available to the Indian market place.

What are some of the main concerns of Indian CIOs when it comes to adoption of the cloud model?

When I speak with companies in India, some of the concerns that are put forth before me include the infrastructure issues in the country, to which I reply that if you are looking for an IT strategy to deal with an electrical power network, which is not yet meeting your expectations, turn to the cloud. That is one of the great things about the cloud, most of the heavy lifting on your infrastructure is being handled by the service provider and as long as you have a wireless Internet connection and laptop, you have all the capabilities and you don’t need to rely on massive server farms to provide your enterprise systems. There are other challenges typical to the Indian market place like many different languages are spoken. It is relatively easy to provide multi-language localization capabilities with the Force.com platform as it has built-in facilities for this.

Which other applications is Salesforce planning to offer?

Many people associate Salesforce.com primarily with the CRM market, but in the last one year we have introduced some really important capabilities outside of the Salesforce automation space. Content application is now interwoven with our CRM application. So when you want to share a presentation or brochure with a customer, instead of e-mailing a bulky attachment, you can now send them a link and they can consume the material at their convenience from your systems. It also means that you also know when something was read and how much time was spent reading it, which can be very valuable information.

Another important product that we brought out is our 'Ideas' application. This is well known as it is being used by Dell Computers for the 'Dell idea storm website' and Starbucks for 'My Starbucks idea website'.

What kind of trends do you see in the usage of cloud computing?

In India, I think probably there are more computer users at home than in enterprises. The uptake of technology in India has gone through a very important transition where the average individual in India is now probably leading his company instead of following his company in the adoption and effective use of computers. I believe this is going to drive intense expectations for cloud computing. It will have to be adapted to the exigencies of the Indian market place. It will have to overcome the issues of bandwidth, language diversity and power systems. It is going to be so overwhelmingly focused on end user demands (both corporate and individuals) that the other issues will be overcome because the market place has definitely made it the choice of the day.

Source: http://tech2.in.com/

SaskTel eyes outsourcing customer email

Courtesy: http://www.cbc.ca/

SaskTel Internet customers could soon be getting their email service through an out-of-province company.

It emerged this week that SaskTel has issued an RFP to 25 firms to submit bids to run the email service. The move would cut the costs of running the service in half, the Crown corporation says.

SaskTel president Robert Watson said it doesn't require a lot of technical expertise to run the platform. It would be more efficient to give the job to a company that already has the software and can maintain it, he said.

The six employees who currently maintain SaskTel's email service will be offered other jobs in the corporation.

NDP Leader Lorne Calvert called the move a first step toward privatization and job losses.

"How does outsourcing jobs and services from our province either to another province or internationally, how does that serve to grow the Saskatchewan economy?" Calvert asked.

Offshoring & Recession: Impact on Outsourcers

Courtesy: http://www.computerworld.com/

First up, the global outsourcers. In its latest quarter, Accenture's outsourcing revenues were up 7 percent year on year and its outsourcing margins increased due to more work shifting offshore. Management said that they have not witnessed any change in cancellations or deferrals, and now see the period of indecision starting to break loose. They also see an increased demand for BPO and application outsourcing services. The growth rate, it should be noted, is half of the previous quarter. IBM's strategic outsourcing business saw a 3 percent decline in revenues but an improvement in margins. On a like-to-like basis HP's services revenues declined 15 percent, but like IBM, it did see an increase in margins. HP saw a significant decline in its application services business as discretionary project work fell away. CSC also saw its outsourcing revenues decline by 13 percent, attributed to client delays and pull back of discretionary projects. Outsourcing bookings during the quarter were also down 50 percent, but like the others, it did improve its profitability.

Overall, since last quarter, the exuberance about revenue growth has become quite muted now. On the positive side, companies are improving profitability and streamlining their operations, including increased reliance on offshoring.

In the European outsourcers category, Capgemini saw its quarterly organic outsourcing revenues increase by 3 percent year on year (overall growth was 1 percent), but its outsourcing bookings declined by 37 percent. During the last quarter it increased its offshore headcount by over 1,200 (compared to an increase of 50 for onshore). Profits improved marginally but the company said that it can't see business with any real confidence beyond June, guiding towards a modest first half 2009 revenue and a margin decline. Logica's Q4 revenues went down 11 percent, and its operating profit for the full year declined 22 percent. It has been making aggressive strides into offshoring and boosted nearshore and offshore headcount to 5,000 (2009 target is 8,000), adding 900 employees in six months at its new India center. Logica sees good demand with more, larger outsourcing opportunities in the pipeline, but has forecast flat first-half sales. Atos Origin's Q4 revenues declined 9 percent, and it expects a slight decrease ("roughly minus 2 percent or something like that") in 2009 revenue. It also plans to increase offshore headcount by 1,000, while reducing onshore headcount.

Muted growth, operational streamlining and increased offshoring are the common themes.

Next let's move on to the Indian Offshorers.

We'll begin with the Tier 1 players. TCS' quarterly revenues remained flat year on year, in sharp contrast to the 25 percent growth last quarter and its statement that it does not expect revenue to be impacted by the turmoil. Net profit declined 18 percent. It is witnessing pricing pressure on new contracts, but on a positive note, net employee addition was more than 8,500-its highest in the past few quarters.

Infosys' quarterly revenues grew by 8 percent compared to 19 percent the previous quarter, and it added about 2,800 employees. Management stated that the velocity of business has come down, decision-making is slow, budgets are not finalized and scrutiny is higher.

Wipro reported a 12 percent annual increase in IT service revenues and its margins diminished. It also reduced its IT services headcount by more than 1,000 employees.

HCL technologies saw an 11 percent revenue growth, boosted by acquisitions. Net income was down 9 percent and total employee count was almost flat. HCL stated that "the pricing environment is quite bad and customers are saying that we should contribute and help in reducing their spend on IT".

The best performer was Cognizant which reported a 25 percent increase in revenue and a 34 percent increase in profits. It even saw a 19 percent increase in its financial services segment, and added 2,200 employees during the quarter. On the flip side though, the company's outlook for 2009 is a 10 percent revenue growth and broadly flat margins.

It is a significant shift from the position last quarter. Tier 1 players have seen their growth rates tumble (Cognizant is an exception here) and visibility become poorer. Operationally though, they are adjusting well and focusing on working with customers to address their challenges. Currency fluctuations remain a cause of concern for them, and 'constant currency basis' is the new buzzword.

Moving on to the Indian Tier 2 players. Growth rates for the leaders last quarter has come down from 30 percent plus to 20 percent for Mindtree and 17 percent for TechMahindra. Mindtree suffered significantly on the profitability front with a 88 percent decline in profit after tax. Talking about variability in performance, Polaris saw 32 percent revenue growth while Patni saw a 1 percent revenue growth, and a 45 percent decline in profitability.

Finally, the Indian Tier 3 players. Hexaware saw flat reported revenues but a significant improvement in operational efficiency and resulting profitability. It continued on its headcount reduction spree with 300 reductions last quarter, taking the tally to about 1,000 reductions over two quarters. Sonata, whose revenues rose by 25 percent and who did not foresee any adverse impact, saw its growth come down to 7 percent, even though profitability increased 27 percent.

So high variability in Tier 2 and 3 segments but they are now feeling the full impact and their irrational exuberance is fading away. Realistic growth rates, pricing pressures, currency effects, project cancellations/deferrals and longer sales cycles are being evidenced among the players.

How does all the evidence compare with my original assertion five months ago? Well the evidence broadly supports the assertions-players are witnessing pricing pressures, reduced profitability, (much) less growth compared to golden times and an imperative to deliver tangible business value to customers.

However, I do recognize now that there are exceptions and in some cases, the ability to withstand the macro environment and make corrective adjustments has been, frankly speaking, quite impressive. Special mention must be made of the increased use of offshoring by global and European outsourcers, and the emphasis on productivity and delivering value by select Indian players. We will see an increased use of offshoring, no doubt, but in a rational, rather than blind, way. It's fair to say that the recession is wiping away the inefficiencies of the system. Those who recognize and adapt will be the real winners.

Survey: US gains favor as outsourcing location

Courtesy: http://blogs.zdnet.com/

Chief financial officers at technology companies are increasingly seeing the US as their most favored outsourcing destination in 2009, according to a survey by consulting firm BDO Seidman.

Among key findings from the 2009 BDO Seidman Technology Outlook Survey:

• Manufacturing (54 percent) and IT services and programming (46 percent) were the two functions most commonly outsourced offshore;
• 62 percent of CFOs at tech companies say they outsource services or manufacturing;
• 22 percent say that the US is the outsourcing destination most likely to be considered in 2009 followed by China at 16 percent and India at 13 percent;
• 19 percent of those surveyed have no interest in additional outsourcing.

Why the switch? BDO Seidman reckons that the global economic bust, Satyam’s fraud and terrorist attacks are curbing outsourcing in India. Nevertheless, 50 percent of CFOs mention India as their most common non-US location. In China, the big worry is supply chain and shipping costs and the survey reflects those concerns–19 percent cite China as the most common non-US location down from 46 percent a year ago.

Among those issues, the economic picture appears to be the biggest problem. To wit: 42 percent of CFOs said their companies have operations outside the US compared to 79 percent a year ago. Twenty-nine percent of those CFOs cite economic uncertainty as the main reason they aren’t expanding abroad.

ICT Group rejects offer from Aegis

Courtesy: http://www.reuters.com/

Business-process outsourcing firm ICT Group on Tuesday rejected a $128-million buyout offer from Aegis Ltd, a back-office unit of India's Essar Group, sending its shares down about 23 percent.

ICT's board determined that it would not be in the best interest of the company to pursue the transaction, it said in a statement.

ICT, which provides outsourced customer-care services mainly to US-based companies, did not give any further details.

Aegis' offer of $8 per share, which was made on Monday, represented a premium of 122 percent over ICT's Friday close of $3.60.

The rejection by ICT was not a surprise and even if Aegis did raise their bid, it would not be by a whole lot, said analyst Shlomo Rosenbaum of Stifel Nicolaus, which makes a market in the securities of ICT Group.

"It's going to very hard to get a meeting of the minds between what Aegis would be willing to pay and what the Brennan family would be interested in taking," he said, adding that the Brennan family owned close to half of ICT.

Chief Executive John Brennan has served as ICT's executive leader since 1987, when he managed the buyout of its predecessor, International Computerized Telemarketing.

For Brennan to be interested, Aegis will have to offer a valuation close to what was offered for PeopleSupport, which will value ICT at about $20 a share, Rosenbaum said in a note issued on Monday when the offer was made.

Aegis is unlikely to offer those valuations in the current market and given the Brennan family stake, the likelihood of a proxy war is ruled out, said Rosenbaum, who has a "hold" rating on ICT's stock.

Last October, Aegis acquired Los Angeles-based PeopleSupport for $250 million to expand its presence in the Philippines.

A spokeswoman for Aegis declined to comment.

Newtown, Pennsylvania-based ICT Group, which went public in 1996 has operations in Ireland, UK, Canada, Australia, Mexico, Costa Rica, Argentina, India and Philippines.

Shares of the company fell to a low of $4.51, before paring some losses to trade down $1.17 at $4.74 in afternoon trade on Nasdaq.

Union threatens legal action over outsourcing plan

Courtesy: http://www.echo-news.co.uk/

A UNION has threatened legal action over Essex County Council plans to outsource its services.

Unison is campaigning against County Hall plans to bring in a private sector firm.

Kumar Sandy, the union’s regional officer, said it was in touch with barristers about fighting the proposals.

He said: “We will litigate to stop this if the barristers we are talking to, who are experts in local government law, tell us our chance of success is more than reasonable.”

Mr. Sandy said “privatization had been nothing but bad news in local government” and the proposal was motivated by council leader Lord Hanningfield’s political ideology.

Mr. Sandy added: “Lord Hanningfield believes public is bad and private good.

“We are campaigning to save services and jobs, because any contractor that comes in will be looking to make a profit, not provide the best services.

“The Audit Commission has said 60 to 70 per cent of outsourcing processes end in failure, and there are already enough examples in Essex.”

Mr. Sandy highlighted the council’s termination last month of a computer contract with BT, which the authority said was not giving value for money.

The union, which represents 70 per cent of the council’s workforce, predicts 6,500 jobs will be cut to meet the council’s objective of saving £200million.

Campaign co-ordinator Keith Blackburn said: “Three quarters of the council’s budget is staffing costs, and the only way to make cuts of this magnitude this quickly is to cut both staff and wages.

“This year the council has saved £34million on top of similar savings in the previous financial year and the union is prepared to look at where we can make further efficiencies, but they will not negotiate.”

Lord Hanningfield said: “Unison is saying nothing new, and is just scaremongering by talking about figures that have no factual basis.”

“No decision has been made and it is clear Unison is using our ambition to save taxpayers’ money, by delivering services in a more cost effective way, as a recruitment exercise.”

Border Violence Threatens Mexico's Outsourcing Industry

Courtesy: http://www.networkworld.com/

Public beheadings. Deadly shootouts. Kidnappings for profit. Not exactly the keywords you want associated with your country when you're trying to build it up as an IT outsourcing destination. The harrowing headlines dominating the news from south of the US border, not surprisingly, have proven to be poor public relations tools for the emergent IT services industry in Mexico. And the timing couldn't be worse. Although it's not clear what effect the US recession will have on its North American neighbors, the Mexican economy and its services industries are tightly tied to the American economy.

The escalation in violence over the last year has been attributed to President Felipe Calderon's crackdown on Mexican drug cartels. On February 20, the US State Department put out a travel alert updating security information for US citizens traveling and living in Mexico. And although drug-related crime tends to center specifically around towns dotting the US-Mexican border-closer to Nogales, Arizona or El Paso, Texas than the country's outsourcing hubs in Monterrey, Mexico City and Guadalajara-perception makes the difference when it comes to winning IT services business from foreign corporations.

" There are many more dangerous locations to attempt an outsourcing operation than Mexico, such as India, South Africa, Israel, Malaysia, Thailand, Colombia and the Philippines," says Scott Wilson, co-founder of outsourcing research firm Brown & Wilson Group. "There is a double standard in image judgments with emerging outsourcing locations. The widespread violence affecting the border cities of Mexico is not occurring near the outsourcing centers, in contrast to what (violence) occurred directly in Mumbai, Bangalore and Delhi, India."

Mexico's IT Outsourcing Ratings

• Language: Good
• Government support: Very good
• Labor pool: Very good
• Infrastructure: Good
• Educational system: Good
• Cost: Very good
• Political and economic environment: Good
• Cultural compatibility: Very good
• Global and legal maturity: Good
• Data and intellectual property security and privacy: Very good

Source: Gartner (November 2008)

The Mexican kidnappings and murders get more attention stateside by dint of proximity. "At a time when Mexico could, as a country, make huge gains in outsourcing from those American businesses seeking a departure from India, the opportunity is diminished somewhat with the cloud of drug violence along the border," says Wilson. "It has been a welcome relief to Indian offshore technology hubs with coverage of violent outsourcing destinations shifted off them, for at least right now."

Tijuana and Nuevo Laredo are hardly high-tech hot spots. Crime, corruption and a shortage of skilled workers make them impractical locations for IT service providers. While the Brown & Wilson group ranked the border town of Juarez, Mexico the 12th most dangerous offshore outsourcing location, Monterrey, Mexico City and Guadalajara, Mexico all scored higher in customer confidence rankings for offshore risk mitigation than any major Indian offshore location in 2009. "The hype of Mexican violence in respect to threatening outsourced tech operations has been exaggerated," Wilson says.

While none of the outsourcing centers is crime-free by any means (and certain areas around Mexico City are dangerous), neither are they ground zero for cartel-related crime. Not considering Mexico as a destination for IT services work because of the wave of violence in its border towns is comparable to not doing business in New York City because there may be some areas of the city you wouldn't feel safe, says Mike Barrett, president of Pounce Consulting, a US-based near shore IT services provider with delivery locations in Guadalajara and Monterrey.

Indeed, a November 2008 Gartner report called Mexico a natural IT services market for US customers based on its geographic proximity, cultural compatibility and similar time zones. "Mexico has considerably evolved its IT services, and the government has fostered incentive programs, industry associations, and a joint approach to IT initiatives between federal and state governments," the Gartner report says. In addition, limited visa restrictions resulting from the North American Free Trade Agreement (NAFTA) make it possible to "quickly deploy IT resources to US project teams," says Barrett.

Wilson expects more intervention at the border by the US Homeland Security Department and the Drug Enforcement Agency. He says, suppliers with a local presence "such as Infosys, Accenture and Softtek are taking independent, extraordinary steps to maintain secure centers of operations in Monterrey and Guadalajara in particular."

Case for Outsourcing Seen Building as Global Economy Slides into Deeper Recession, Survey Finds

Courtesy: http://www.sdcexec.com/

The business case for outsourcing is building as the global economy slides deeper into recession, but the ability to execute multiyear outsourcing deals is hampered by tight capital and market uncertainties, according to international business advisory firm EquaTerra.

Industry consolidation, reshuffled priorities and continued budget/staffing cuts are fueling pent-up demand that will likely result in an increase of judiciously planned outsourcing engagements in the second half of 2009, EquaTerra finds in its latest Advisor and BPO/ITO Service Provider Pulse Survey.

As organizations worldwide urgently seek ways to cut costs and free up cash flow, experienced outsourcers are beginning to migrate or consolidate contracts to gain economies of scale and preferred pricing, terms and conditions, while new buyers are entering the market via "speed sourcing," or streamlined efforts focused on a few key initiatives to rapidly realize outsourcing benefits.

In light of recent terrorist attacks and financial scandal, wary buyers may shift more work to larger, more established Indian firms and away from second-tier players, and first-time buyers may want the added assurance of offshoring in India with top-tier Western-based firms with extensive Indian operations, EquaTerra believes.

Despite concerns, however, EquaTerra expects India to remain the top-ranked offshore destination for the near term, according to Stan Lepeak, the firm's managing director of global research. "We anticipate heightened scrutiny and greater safeguards being built into new and existing contracts, but India will retain its lead in the near future due to its many advantages, including language, talent and experience."

Key findings from EquaTerra's 4Q08 Pulse:

• Demand for outsourcing dips 5 percent quarter-over-quarter — Worldwide, 38 percent of EquaTerra's advisors reported demand was up for BPO/ITO and other business process/IT services in 4Q08, a decrease of 5 percent from last quarter. Advisors supporting work in the Americas, where the severity of the economic crisis was felt earlier and organizations are further into the downturn, were more likely to cite increased demand for outsourcing than those working in Europe.

• Projections for 1Q09 demand up — Fifty-three percent of the service providers polled expect an increase in demand next quarter, up 14 percent from the 3Q08.

• Public sector a bright spot — Demand in government and the public sector remains strong for IT outsourcing, back-office process improvements and support for deploying shared services. But service providers are also winning contracts for training, operational support and supply chain management.

• Buyer's market developing — The deteriorating economy has a positive side for organizations seeking to expand their scale/scope of work. Outsourcing service providers feeling the impact of the downturn are focused on increasing market share by expanding existing accounts, providing savvy buyers the opportunity to use the downturn to make great strides toward transforming their business, accomplishing more, faster and with fewer resources.

• Emerging markets — Service providers financially able to expand into new market niches will find increased opportunities with global pharmaceuticals, particularly in research and development, financial analytics, document services, facilities and real estate management and logistics services.

ERP Applications Outsourcing Gaining Speed

EquaTerra finds third-party activities supporting the deployment, modernization, rationalization and operation of enterprise resource planning applications and systems show signs of strength in both the commercial and public sector.

A confluence of factors is kindling a second wave of ERP deployments, ranging from a desire for greater operational efficiencies and increased business process automation to heightened concerns over the security of custom software developed by third parties. Financials are also a key driver. EquaTerra finds organizations are increasingly outsourcing ERP applications/systems to amortize upfront capital expenditures for needed upgrades and improvements or to adopt a fee-for-service model, effectively shedding the expenses associated with ongoing operations/maintenance.

"Outsourcing service providers have both a skills and cost advantage," said Lepeak. "They have a deep bench of experienced ERP experts that can get the most user value from ERP software and are on call to fix problems and initiate incremental upgrades. Too often ERP systems have proved to be financial sink holes, but, with the help of experienced service providers, they can be tailored to cut operations costs and support new business strategies."

UAE Government focuses on outsourcing and sharing to cut costs

Courtesy: http://www.business24-7.ae/

The UAE Government departments will focus on outsourcing and sharing services across departments rather than investing in new IT infrastructure.

The Executive Council, a government department, formulates and implements federal regulations and local laws, prepares annual budgets along with development plans and co-ordinates between various departments.

The council has stopped investing in projects in strategy and policy areas and is focusing more on the operational side.

Aisha Butti bin Bishr, Director, Corporate Excellence, Executive Council in Dubai, said: "The council is focusing more on projects on the operational area to optimize services. There is no staff cutting but we are looking at outsourcing operations, administration of network and applications. From the beginning the purpose was to make investments to get the basic functions implemented and completed. Beyond that the functions could be outsourced and this was decided before the economic crisis."

She said this is a decision common across all government departments.

"By outsourcing our operational functions we have not been affected negatively for instance our helpdesk and network administration is already outsourced."

Government departments are optimizing the maximum output on their previously made IT investments.

Premchand Kurup, CEO at Paramount, a security solutions specialist working closely with government departments, said: "The region has spent a considerable amount of money in IT, especially banks. These sectors are under financial stress but are looking for optimization. Now they are turning to technologies like virtualization to get maximum out of their preset infrastructure."

He added: "The CIOs have to justify cost and have to establish an ROI on all purchases. We were living in an age of surplus and now as a solutions provider we have to offer firms ease of use and maximum thoroughput."

The Executive Council is also seeing benefits of Green IT and virtualization.

"The council has always been focused on concepts such as virtualization and green IT. This investment will give us full optimization today therefore the benefits of our IT investment will be seen now. There is downsizing and cutting down within the same units and we are able to do this flexibility because of the investment put in last year," said Bin Bishr.

As government departments opt for outsourcing they are also looking at sharing their resources.

The recent restructuring by Dubai Holding, the emirate's largest corporate entity in financial and real estate operations, saw the merging of the back offices of three real estate companies.

"It is a challenge to merge but this is the right time and should be done in the manner. Finance and HR departments can be brought together and have one shared services company. A company can start by centralizing all functions and then outsource the rest of the activities to that department. In Abu Dhabi, for example, they have one IT company serving all the government departments," said a top official from the IT department of Dubai Holding.

In Dubai, there is a government entity called GIR that provides ERP solutions across all government departments.

"They serve 55,000 to 70,000 employees. In this kind of scenario the network and administration is the same. This can be taken a further with the right plan to run all kind of services," said Bin Bishr.