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Offshore outsourcing

Offshore outsourcing. Vincent CAYEUX. Index. History The worldwide market In the World In France The main actors Before going offshore: the right questions to be answered: What? Why? Where? How? The Impacts for the companies The Risks, The Key success factors The hidden costs

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Offshore outsourcing

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  1. Offshore outsourcing Vincent CAYEUX

  2. Index • History • The worldwide market • In the World • In France • The main actors • Before going offshore: the right questions to be answered: • What? • Why? • Where? • How? • The Impacts for the companies • The Risks, • The Key success factors • The hidden costs • Savings

  3. History • The origin • Mi-90: the ERPs • Y2K bug • After 2000:The e-commerce • The maturity (2001-2005) • Software activity • SW Maintenance • SW development • IT production • IT administration outsourcing • Data centers backup • The processes • The call centers • The Business Process Outsourcing (BPO)

  4. Offshore is going up the value chain

  5. Worldwide market • Intentions to use offshore services: • More than 50% of the big companies in the USA (+ 5000 employees) • More than 40% in Europe • 12 to 15 KMUSD in 2005 (2,8% of the IT services in the World) • USA: 80% of the offshore World services demand • UK: 70% of the European demand • India: 80% of the total offshore services revenues • The most important fields of activities are : • The SW activities (maintenance, development) • The BPO • The IT infrastructure outsourcing

  6. Source: Syntec The market in France • France: - 2% of the total amount of IT services • Growth in France: 20% per year

  7. French characteristic • A majority of Time and material contracts • Rigid Social protective laws • Importance of the language and culture • Preference of Nearshore (North Africa/Eastern Europe) • Local IT services leaders have developed « Factories » in regional towns • Unitary price reduction • split of the resources between several projects/costumers • industrialization of processes -> Effective cost reduction and productivity improvement

  8. The countries (80 to 90%)

  9. Source: Groupe Alpha The leading countries

  10. Source: Syntec Suppliers competition

  11. Before going offshore, the right questions to be answered: What?Why?Where?How?

  12. What? • SW development? • Which SW? • Which technology? • SW maintenance? • TMA? • SW Integration? • IT infrastructure? • Business Process?

  13. Why? • Reduce the costs (20-40%, 19% in average) • Increase the flexibility • Reduce the delivery time • Improve the service availability (24h/24, 7d/7) • Improve the quality (CMM,…) • Look for specific talents • Increase the production capacity • Global sourcing approach (more suppliers in more countries)

  14. Source: Groupe Alpha Why?

  15. Where?

  16. Where? • Offshore: • India (<-> USA, UK) • Pro: very experienced (CMM, strong processes, references…), large capacity • Cons: cultural and language differences, time zone, distance • Canada (<-> USA) • China (<-> Japan) • Nearshore • Morocco, Tunisia, Senegal, Mauritius: • Pro: French speaking, same time zone, close, low prices • Cons: small qualified population, less experienced • Tcheky, Slovakia • Pro: cost, Time zone, distance • Cons: less experience, language • Spain

  17. How? • Pure Offshore • On-site / offshore • Pivotal provider • Offshore ressources

  18. How? Front office/Back office Client Front Office Analyze the client’s requirements Write the detailed specifications Transfer the spec to the B.O Follow the realization Validate the developments Deliver to the Client Back Office Perform the developments Update the documentation Test Deliver to the Front Office

  19. Impacts • Organization (OPMO, external advice) • Processes (Industrialization) • HR aspects preparation • Jobs losses, jobs evolution-> heavy training • External/Internal image • External/Internal communication • customers, employees, shareholders, partners • Costs control • Hidden costs

  20. Key factors for success • The pre-requisite • Process industrialization • Local outsourcing experimentation • International experience • Telecom and IT infrastructure preparation • Clearly define the targets • Why and what offshoring? • Quantify the expected gains (cost, quality, flexibility, skills…) • Have a strong support from the management • Work hard the “How?” And “Where?” aspects • Consider the transfer phase as an investment • Start small and grow up smoothly in projects size and complexity • Perform a contingency planning • Build specific indicators for management dashboard

  21. Risks • Hidden costs • Communication problem • Cultural and language misunderstanding • Distance, Time zone • Loss of productivity • Telecommunication, infrastructure • Country risk • Geopolitics (Political or Economic instability, War, Natural risks) • Laws • Taxes • Data security • Intellectual property risk • Image • Change management • HR risks • Contractual issues • Loss of control of the outsourced activity • Loss of competence

  22. Hidden costs • Due diligence • Contract • Transfer costs • Project management • Loss of productivity • Real Menxdays costs • Telecommunication, • Travels • Telecom and IT infrastructure • Data security • External Advices • Reorganization, • Process review, • Training • Job losses • Contractual Reversibility clause

  23. Source: Groupe Alpha Source: Groupe Alpha Savings Average of savings: 19%

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