IT Outsourcing Is Growing
IT outsourcing- A wind of change
some cry, some smile
Total US IT services spending:
2002 ~$53.9 billion
2007 ~ Predicted $727.7 billion
Compound annual growth rate of 6.3%.
Faces of Outsourcing
Onshore and Offshore Outsourcing
In onshore outsourcing, a company hires another U.S. company, such as IBM or EDS, to take care of an IT task. This has been going on for years.
In offshore outsourcing, the cost savings are about 30% per year. But there are geographic or culture barriers, political and security risks.
Areas of IT growth and internal hiring:
Help desk and end user support
VoIP, storage networking, network architecting, and network security are all skills in strong demand and less likely to be outsourced, at least not offshore.
Jobs most likely to be outsourced
Reason: low-cost offshore programmers
Big players in the golden age of the software industry, such as GE, Dell, Accenture, IBM, even Microsoft itself, are among the companies outsourcing.
The number of software developers working in the third world will continue to increase. According to NASSCOM, 800,000 developers were working in India alone 2003 and 2004.
Arguments Against Outsourcing
Arguments against outsourcing:
Sending best staff members fleeing and dampening morale throughout the organization
Cultural differences and political instability
Hidden costs despite the dramatic cost savings:
Downtime costs can be significant over the life of the contract. It is typically 1 to 3 percent of the value of the contract.
Changed expectations and miscommunication.
IBM Global Services
72 % of large companies currently outsource at least one IT function of data center, network, desktop, help desk, or applications (Knowledge Systems & Research, 2004)
Technology Assessment, consulting services & training
Goal to improve overall IT system performance, which can drive lasting business value, avoid missed opportunities, inefficient operations and lost revenues (IBM, 2006)
Automation & Faster Response time
Increase productivity and¬†achieve optimal technology investment
¬†Improve performance of your IT infrastructure
Reduce TCO and attain long-term investment protection
The GAP (Includes GAP, Banana Republic, & Old Navy)
IBM will support data center, server & networking outsourcing
Help desk operations outsourced independently
Costs $1.1Billion for the GAP
Campbell’ s which includes Pepperidge Farms, Prego, Godiva, Swanson, V8 and others, hopes to grow revenues, business, & technology for better business strategies
IT Proposal (Campbell Soup Company, 2005)
Distribute IT resources in line with business needs
Global planning with company IT standards
Web-centric work environment to enhance collaboration between employees
Outrigger Hotels & Resorts (in Honolulu)
Currently outsource some call center applications
Aim at outsourcing all call center operations to home-based customer service
Can reduce bookings & processing a reservation by 35%
Currently 112,000 home-based reps worldwide (Thibodeau, 2006)
Recently introduced test drive-thru outsourcing in the Pacific Northwest
CBS News Radio Correspondent Lou Miliano reported, The strategy is based on the theory that mistakes come from the order-taker, not the cook line (2005)
“You have a professional order taker with strong communications skills whose job is to do nothing but take down orders,” said Matthew Paull, the chief financial officer.
McDonald’ s reports it’ s still too early to determine if this strategy will be implemented system wide
Currently McDonalds in Hermiston, Oregon sends orders to Grand Forks, North Dakota
Minimum Wage (Would you like fries, 2005)
Oregon – $7.50
North Dakota – $5.15
Planned on 250 new IT jobs in 2006 (King, 2005)
Goal of managing email, inventory, and dot-com remotely
Failed in original IT Outsourcing project
New plan to share data from radio-frequency identification tags through automated EDI transmissions with a handful of suppliers (Sullivan, 2006)
RFID tags would trigger advance shipping notices through the EPC Information Service network each time a supplier ships products out its doors, but its still a year from being implemented into the market
GM CEO Ralph Szygenda announced GM’ s required 40 IT operations standards for vendors including:
Monitoring of Computer operations
Notification of users when problems
GM spent the last two years coordinating its vendors together
Plans on outsourcing $15 Billion of IT over next 5 years with multiple vendors
Analyst Robert McNeil said GM’ s use of multiple vendors will give it flexibility, drive competition and manage risk (Thibodeau, 2006)
Future of IT Outsourcing
There were 293 outsourcing contracts awarded last year, up from 269 in 2004. (Thibodeau, 2006)
Hiring more IT workers
U.S. company would normally charge 80 to 120 dollars per hour
cost around 40 dollars to accomplish in India (Reynolds & Stair, 2006).
Slowly becoming a problem:
Competition being added
New Countries Enter
Russia, Vietnam, Eastern Europe
Five to ten years before China becomes India’ s equal in terms of offering IT services (Yuan, 2005)
Impact on the U.S.
By the end of 2005, 1 out of every 20 corporate IT jobs in the United States will be moved offshore. (Reynolds & Stair, 2006)
…only 40 percent of the IT workers whose jobs are lost will be shifted to other responsibilities; the rest will be out of work. (Reynolds & Stair, 2006)
Shift of Jobs Needed
More senior level executives are in demand despite outsourcing
2,000 senior executives will be needed this year
9,500 will be needed by 2012 (Jones, 2006)
Influences the need for higher education
Outsourcing will fade out
Companies will realize the costs outweigh the benefits (Ramel, 2006)
Difficult to effectively manage business overseas
Trend will be toward creating a global corporation
Take advantage of the best resources around the world (Ramel, 2006)
Thibodeau, P. (2006) Infosys Growth Reflects Outsourcing Gains; Available: www.computerworld.com/careertopics/careers/story/0,10801,107657,00.html.
Reynolds, G. & Stair, R. (2006) Principles of Information Systems; Thomson Course Technology Publ., Mason, Ohio, 61.
(2005) Trend Toward Offshore Outsourcing Not Yet Peaked; Available: www.computereconomics.com/article.cfm?id=1050.
Yuan, L. (2005) Chinese Companies Vie for a Role in U.S. IT Outsourcing; Wall Street Journal, Eastern Edition, B.1.
Ramel, D. (2006) What’ s in Store: More Predictions from Around the Web; Available: www.computerworld.com/managementtopics/management/story/0,10801,107343,00.html.
Outsourcing drive thru?. (2005). CBS News, . Retrieved Jan 29, 2006, from www.cbsnews.com/stories/2005/03/11/national/main679730.shtml
IBM, (2004). It outsourcing market: strong, growing… and with high customer expectations. Retrieved Feb. 01, 2006, from IBM Global Services Web site: www-1.ibm.com/services/us/index.wss/summary/imc/a1006797
IBM, (2005). Campbell soup company mixes process integration and a ready-to-use portal from ibm to increase flexibility and responsiveness. Retrieved Feb. 01, 2006, from IBM OnDemand Case Studies Web site: www-1.ibm.com/services/us/imc/pdf/cs-campbells-041805.pdf.
Thibodeau, P. (2006). Gap signs $1.1b outsourcing deal with ibm. Retrieved Feb. 01, 2006, from ComputerWorld Web site: www.computerworld.com/industrytopics/retail/story/0,10801,107812,00.html.
Thibodeau, P. (2006). Hotel chain takes new tack on call center it. Retrieved Feb. 01, 2006, from ComputerWorld Web site: www.computerworld.com/managementtopics/outsourcing/story/0,10801,107776,00.html.
King, J. (2005). wal-mart to add 250 it jobs, expand online presence. Retrieved Feb. 01, 2006, from ComputerWorld Web site: www.computerworld.com/careertopics/careers/story/0,10801,106774,00.html.
Sullivan, L. (2006). Hey, wal-mart, a new case of pampers is on the way. Retrieved Feb. 01, 2006, from InformationWeek Web site: ie.bizintelligencepipeline.com/177102939.
Would you like fries with that?”. (2005). KXMC CBS News, . Retrieved Feb 01, 2006, from www.kxmc.com/news/local.asp?ID=3940
Thibodeau, P. (2006). Szygenda: gm deal could have far-reaching impact on it. Retrieved Feb. 06, 2006, from ComputerWorld Web site: www.computerworld.com/industrytopics/automotive/story/0,10801,108303,00.html.