Transcript Outsourcing Slides,

IT Outsourcing
Prepared by
Travis Reed
Karen Murakani
Kevin Whitaker
Jon Powell
Jennifer Ayuyu
What Are We Going To Talk About
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What is Outsourcing
What Types of Jobs Are Outsourced
Why Companies Are Outsourcing
How Big IT Outsourcing Is
What Trends Can Be Observed
Is IT Outsourcing Growing
How Does This Effect Us
What is Outsourcing
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The practice of subcontracting
manufacturing work to outside and
especially foreign or nonunion companies
(Merriam-Webster)
 Specifically it involves transferring a significant
amount of management control to the supplier.
 Involves a two way information exchange and
trust.
What Is Not Outsourcing
Vendor Relationships
 Buying products or services from another
company – external auditing vs. internal
auditing by outside companies
Offshoring
 Relocation of a business practice to another
country – transfer of management
What IT Jobs Are Outsourced?
 Support for product development and IT
systems
 Application Development
 Product Development
 Test Outsourcing
 Build, Operate, Transfer
Outsourcing
 Annually over 100,000 “white-collar” jobs are
moved offshore (Ghate).
 Compared to the invention of the assembly line,
revolutionized the industry
Why Companies Are Outsourcing
 Improved Product Quality – expert engineering
and scientific research
 Increased Revenue as a result of lower costs
 For every dollar spend in outsourcing the United
States reaps $1.12 to $1.14 in benefits
(Drenzer).
 Capitalize on governmental tax incentives or
governmental assistance.
 Flexible intellectual property laws concerning
joint research.
Why Companies Outsource cont…
 Low Costs of Research
and Development
 The conducive culture
to creating new
business enterprises
 Few regulatory or
research restrictions
 Ease of export from
site to world wide
countries
 Establishment was a
legal requirement for
local access to local
markets
How Big Is IT Outsourcing
 $70 billion in reported global IT outsourcing
Revenue in 2002 (CNET News).
 Expected to grow 7.7% annually over the next
five years – nearly $100 billion in 2007
(IDC research company).
 73% of North American Companies outsource at
least some of their IT operations
Trends In Outsourcing
 IT Outsourcing Revenues Declining
Multi-sourcing – contracting multiple specialized
contractors vs. one large all encompassing contract.
 Omitting capital equipment purchases in contracts –
established companies
 New lower cost countries are being utilized, which in
turn makes the market look stagnant.
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In Truth, IT services are being outsourced to bigger,
more specialized, established sources, with their own
internal staff and capabilities.
IT Outsourcing Growing
 Microsoft announced plans to invest $1.7 billion in India
over the next four years.
The only thing that limits us in India, is
– Bill Gates
 Intel announced an investment of $1 billion over the
next 5 years in India.
 Cisco Systems joined with a pledge of $1.1 billion in
India.
 The big three IT services providers in India, Tata
Consultancy Services (TCS), Infosys and Wipro, and
each recruiting 1,000 new employees each month.
the speed at which we can recruit."
IT Outsourcing Growing cont..
 India had $17.2 billion in revenue year ending in
March 2005, and projected to be in excess of
$60 billion in 2010.
Why is it Growing?
 India has the largest pool of employable people-those with the necessary language and
technical skills. On this measure, India, which
produces 2.5m graduates a year, 250,000 of
whom are engineers, has 28% of the global
available workforce.
 With American lawyers costing $300 an hour or
more, Indian firms can cut bills by 75%.
DuPont Case Study
 Multinational company that operates in
agriculture & Nutrition, coatings and color,
electronics, safety, textiles, etc…
 At year end 2004, 27. 3 billion in revenue with
55, 000 employees world wide.
 1997 they signed a 10 year, 4 billion dollar IT
outsourcing contract with CSC and Accenture
 By 2002, 80% of its IT spending(480 million)
and 75%(3000) of its IT staff transferred to
alliance partners.
DuPont cont…
 They retained IT leadership control and the
ability to source world wide.
 By 2001
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Reduced its IT fixed costs from 90% to 50%
There was a noticeably quicker injection of skills and
technology
Increased service speeds
DuPont lessons learned
 So much dependence on IT Outsourcing that:
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Some of DuPont It managers left out of critical IT
decisions
Absence of competent managers at DuPont to fill IT
management positions, lost IT control and direction
 Short fall reduced from 30 people in 1999 to 2 people in
2004
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Made IT personal develop career goals and paths to
take to achieve those goals.
How Does This Affect Us?
 IT jobs moving offshore
 Differences in culture – software norms and
rules
 Language differences – An Indian firm creating
your in-house software
 Higher quality, more effective services
 Allow us to focus on larger, more cost intensive
tasks
 Higher Revenues lead to higher salaries.
Things To Remember
 Outsourcing – involves an exchange of a significant
amount of management responsibility
 IT Services are now being outsourced to bigger, more
specialized, established sources.
 India has 28% of the properly educated global work
force
 For every dollar spent in outsourcing, the U.S. reaps
$1.12 to $1.14 in benefits
 Annually over 100,000 “white collar” jobs are moved
offshore
Sources
Ghate, Onkar. To Outsource or to Stagnate. Capitalism
Magazine; July 26, 2004
 Drezner, Daniel. The Outsourcing Bogeyman. Foreign
Affairs, May/June 2004
 Cooney, Michael. Cost not only factor in Offshoring work.
NetworkWorld.com, February 27, 2006
 Diamond Cluster. Spring 2005 Global IT Outsourcing Study
 Gilbert, Alorie. Big Blue still biggest in IT outsourcing.
CNET News.com, October 1, 2003
 Willcocks, Leslie P.; Feeny, David. Information Systems
Management, Winter2006, Vol. 23 Issue 1, p49-56, 8p;
(AN 19141705)
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