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Transcript Outsourcing Slides,
IT Outsourcing
Prepared by
Travis Reed
Karen Murakani
Kevin Whitaker
Jon Powell
Jennifer Ayuyu
What Are We Going To Talk About
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
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.
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
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:
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
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)