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GLOBAL IT OUTSOURCING. Dr. Subbu K. Murthy VP & CIO QTC. Introduction History Drivers Types of Outsourcing Major Players Framework CSFs and SFFs Establishing a World Class IT Organization The Small CIO and Outsourcing. Discussion Themes.

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global it outsourcing

GLOBAL IT OUTSOURCING

Dr. Subbu K. Murthy

VP & CIO

QTC

discussion themes
Introduction
    • History
    • Drivers
    • Types of Outsourcing
    • Major Players
    • Framework
  • CSFs and SFFs
  • Establishing a World Class IT Organization
  • The Small CIO and Outsourcing
Discussion Themes
history
Outsourcing is not new – from agriculture to clothing to “trivial” tasks to “non-core activities”
  • Two key parts of outsourcing are:
    • Out (External)
    • Sourcing (generally refers to finished products or services)
  • Not limited to “businesses” Your Subtopics Go Here
History
drivers for it outsourcing
Voluntary Outsourcing
    • Cost
    • Focus on “core” activities (maintain balance)
    • Flexibility
    • Scalability
  • Involuntary Outsourcing
    • Lack of competence/resources
    • Lack of leadership
Drivers for IT Outsourcing
types of outsourcing
Types of Outsourcing

Fusion (JV, Investment)

Revenue Based (Strategic)

Cost Based (Tactical)

Product Development

New Custom Applications

Buy & Customize

Applications

Targeted

Communications

Data/Data Centers

Desktop/Helpdesk

who are the players
I guesstimate upwards of 4 million companies claiming to be experts in IT (more than 50% are one person shows)
  • A majority want our dollars
    • > 60% do business in/with US
    • 20% of the companies are located in California
  • Everyone knows IT and how to design, fabricate and manage IT (!ha ha)
Who are the players?
the players
The Players

Fixed fee

Project based

Delivery

(ALL)

Provide

a focused

Product or

Service

(SAP)

Provide

everything

(EDS, IBMGS*)

* Some of the more famous offshore vendors include Tatas, Infosys, Wipro, HCL, Satyam

world class it

Domain

In source

Skills

Communications

Out source

World Class IT

Off source

Business

Sourcing

People

.NET/J2EE

Architecture

XP, Agile

Legacy

CMM, ISO

CUSTOM

Process

Products &

Services

COTS

Delivery

Audience

Organization

Mixed

Anthony

External

Autonomy

Internal

Governance

people sourcing
Sourcing depends on …
    • Cost
    • Capability
    • Culture
People (Sourcing)

Critical Success Factors

Sure Failure Factors

  • Understand all parties involved (look for hidden motives)
  • Project based - not T & M
  • Clear understanding of expectations
  • Protect IP
  • BBS (The Big is Better Syndrome)
  • Three mismatches to look out for:
    • Sourcing and Strategy
    • Sourcing and Governance
    • Strategy and Governance
people skills
Skills depends on …
    • Complexity of IT
    • Target audience
    • Strategy
People (Skills)

Critical Success Factors

Sure Failure Factors

  • Balance between heterogeneity and homogeneity of skills (algebraic, domain, communications)
  • Balance between intrinsic and extrinsic motivators
  • Focus only on Technology – lack of business skills
  • Focus only on Business – forgetting it is still bits and bytes
  • Dormancy of skills – not keeping up with changes
process organization
Organization Structure depends on …
    • Industry type, size, age
    • Management maturity
    • Business maturity
Process (Organization)

Critical Success Factors

Sure Failure Factors

  • Customize to fit your IT culture
  • Flexibility in management style
  • Incremental
  • Build on small successes
  • Manage change
  • Use same strategy for all projects
  • Lack of analogical data (metrics)
  • Rely only on anecdotal decisions
  • Rely only on analytical decisions
  • Oversimplify complex problems
  • Assume that 80 + 80 = 160 IQ
process delivery
Delivery models depend on …
    • Maturity
    • Flexibility
    • Adoptability
    • Adaptability
Process (Delivery)

Critical Success Factors

Sure Failure Factors

  • Customize to fit your IT culture
  • Flexibility in tools, people and processes is critical
  • Proper training and acceptance (people and process must enjoy a love affair)
  • CMM will do the trick (Remember that CMM is tautological)
  • Lack of project modularity
  • Mismatches between Architecture, Process and Staff
  • Assuming that a good process can overcome a weak staff
real world issues technical
Requirements
    • Volatility
    • Inability to define and establish scope
    • Information explosion
    • Gaps between Users and IT
  • Technology
    • Vendor hype
    • Lack of “true” standards
    • Evolution
Real World Issues - Technical
metrics metrics and metrics
Information – analogical models, Function Points, Customized Function Points, LOC, # of web pages, etc.
  • Financial – ROI, time to break even, reduce operational costs …
  • Market based – improve customer service, increase revenue …
  • Risk Based – Cost of not doing
  • Integrated metrics – balanced score card
  • Cost of contracts/SLAs
  • Cost of safe “exit”
Metrics, Metrics and Metrics
slide15

On-shore

Outsourcing

Cost

Offshore Outsourced Vendors

50

to 100%

more than

Offshore

Managed

Development

Centers

25 to

100%

more than

Managed Centers

why are the costs lower
Buying power of US$
  • Education is much cheaper
  • Heavy emphasis by all “governing bodies”
  • Cost of living is lower
  • Perhaps the West is wrong about the epistemology of life – Theory of Karma is a fact
Why are the costs lower?
why is outsourcing so popular
Lowering Costs
  • Perceived misconception of lowering risk
  • Governance, Security and increasing IT awareness is making IT organizations top heavy
  • Aging IT population coupled with radical technology changes is contributing to this reversal
  • The 80-20 rule is reversed – most of us in IT are spending time on 20% of the issues
Why is outsourcing so popular?

D

O

E

R

S

are we all out of a job
The total number of U.S. IT workers currently stands at 10,129,000 (10+ million) compared to 9,896,000 in January of this year. In other words 1 out of every 30 persons in US is in the IT field … The fact remains that by 2005 only less than 2-5% of US jobs will move overseas - not a lot considering the talk you hear about India, China, etc. Off-shore outsourcing is still a small fraction of IT expenditures. For example, all of India's IT and IT enabled services is only 10B $. This is a very small fraction (< 2%) of the IT expenditures in US. Are we all out of a job?
slide19
Off-Sourcing Cost Model
    • Suggests whether off-sourcing makes sense or not
    • Dependent variable = True Cost of Off-Sourcing
    • Independent variables
      • Number of projects, type, size, schedule
      • Duration of relationship
      • Architecture
      • Skills (fuzzy)
      • Organization (fuzzy)
      • SLA
OCM
ocm curves
Dr. Murthy – QTC

World Class IT Organization*

  • Jeff Reid – Conexant Offshore Applications Development and Support*
  • Dr. P.K. Seshan & Dr. Murthy SriSoft

OCM – Offshore

Costing Model

* Presentations to OC CIO group

Acknowledgements

Net Benefit

OCM “Curves”

Maturity

(Partnership,

Trust,

Excellence)

Period of Adjustment

(Finger-Pointing,

Cancellations, CIO changes,

Litigation)

Early Gains

(Honeymoon,

Giveaways)

t