EXTENDING YOUR REACH GLOBALLY THROUGH OUTSOURCING

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1 WELCOME

2 EXTENDING YOUR REACH GLOBALLY THROUGH OUTSOURCING Realizing benefits An Insight by: Dr. Madhu Singh, PMP VP Telecom Group Global Consultants Inc. (GCI)

3 Outsourcing (i.e., Global Sourcing) A Mantra for Survival Proven strategy being adopted by leading organizations across various industries to address business and financial objectives. Outsourcing transforms important non-core business and IT functions using external resources while maximizing value from internal resources focused on core business functions. Provides leverage and economies of scale. Outsourcing provides effective strategies for: Realizing business value Decreasing operational costs and improving efficiency Improving time-to-market and customer responsiveness Improving flexibility and adaptability to changing market dynamics Access to critical skills and ability to reallocate resources dynamically Improved processes and standardization Improving competitiveness

4 Current Outsourcing Trends Growth of outsourcing in traditional areas: customer care, financial services, manufacturing, IT and ITES (IT Enabled Services) Large MNC's investing in captive BPO units Outsourcing is becoming sophisticated - business process excellence, speed to market, improvement in quality, benchmarking to world-class standards. Increasing global competition & pressure on margins In past two decades, China (growing at an 9.5% P.A) and India (Growing at 6% P.A) - impacting the global economy - leading the outsourcing revolution.

5 Today s Outsourcing Destinations Country Population IT wage English Skills China 1.3 billion $3-8k Poor Transaction processing, low-end software development and maintenance India Over 1 billion $5-12K Good Application development, maintenance, call centers, financial processing Philippines 77 mil $5-10K Medium Accounting, finance, call centers, animation, human resources. Russia 155 m $6-10K Poor Web design, complex software development, aerospace engineering Canada 107 million $25-50K Good Software development and maintenance, call center, tech support. Mexico 107 million $22-35 K Spanish a plus Spanish-language call centers, software development, data center outsourcing Ireland 5.5 million $25-35K Good European shared-services centers, software development, call center

6 Outsourcing Forecast by Industry

7 Strategic Prediction for Outsourcing BPO & IT By 2008, the need to improve business processes will be identified as one of the topthree requirements for organizational success (0.9 probability). By 2008, more than 50 percent of new outsourcing deals will include IT utility service components (0.7 probability). By 2010, 60 percent of custom BPO contracts will include related application and IT infrastructure outsourcing (0.7 probability). By 2012, BPO (custom solutions and utilities) will be the dominant outsourcing relationship vehicle (0.6 probability). By 2012, more than 50 percent of Global 1000 companies will use an external IT infrastructure (0.7 probability). By 2012, organizations that employ application utilities and BPUs will reduce their total cost of IT ownership (for comparable custom solutions) by 30 percent or more during the life of the solution (0.6 probability). Source: Gartner October 2005

8 In News : Outsourcing Deals Client Vendor Work Value DuPont Convergys HR Outsourcing Deal to provide Transactional services to DuPont s 60,000 employees & 102,000 retires Bank of America EDS To integrate FleetBoston Financial Corp.'s communication infrastructure into Bank of America's voice and data network 3UK Ericsson Ericsson will manage 3UK s network and IT management $1.1 Billion, 13yrs $1.3 Billions $2.6 Billion Proctor & gamble Five Back office integration and maintenance $5.8 Billion New Hampshire s Dept. Of health & Human service Affiliated Computer Services Five-year deal to develop & implement Web-based Medicaid Management Information system $61 Million U.S.Navy CACI Intl, Inc CACI would provide support for Navy maintenance information system through the pacific fleet $21.1 Million ** Source : International Data Group According to Technology Partner International (TPI), $100 billion worth of major outsourcing contracts are due for renewal internationally in the next two years

9 Global Sourcing Reasons for Moving Offshore ** Source- Ventora Offshore 2005 Research

10 Global Sourcing Root Failures of Offshore ** Source- Ventora Offshore 2005 Research

11 Global Sourcing Rewards and Drawbacks Reward Direct costs savings Financial engineering and Renewed focus on core business Access to a vast pool of knowledgeable domain & technology resources Reduced project cycle times Improved productivity and quality Enhanced ability to adapt to change Operational Flexibility Drawbacks Cultural reasons Lack of industry expertise with outsourcing vendor Loss of control and inability to manage outcomes Change management Lack of mature models to quantify long term strategic benefits of offshore outsourcing Dependency on offshore outsourcing vendor for critical applications Confidentiality and security risks

12 Global Sourcing - Future Trends Brand leverage High Competition High Pricing pressure High Decision cycle - Medium Strategic Outsourcing Competition Medium Pricing pressure High Decision cycle - High Consulting/SI Low Tactical Outsourcing Opportunity size Competition High Pricing pressure High Decision cycle - Low High Low Political backlash diminishing Increased global stability through interlinked supply chains. Regional outsourcing hubs arising in response to strategic near shoring company initiatives Vendors moving up the value chain Increased client control in driving and designing deals

13 Global Sourcing Selection Tips LOOK FOR Understanding of business CRITERIA'S Test- response to real life situations Expertise and cases studies SLA s & cost proposal detailed/realistic plans Capability Governance: Program/ Project Operational Technology competencies Human Resources Infrastructure Commitment Contracts/ SLA compliances Time lines and schedules Efficiency levels and outputs Cost Management Attitude Can-do : Creative/ flexible and responsive Approachable Team effort Customer and objective centric

14 Global Sourcing -Risks and Challenges Key Components of Total Cost to Offshore: Wage Rate Communication Systems Physical Infrastructure and Support Transition Governance Resource Redeployment HR Change Management Training and Productivity Disaster Recovery and Business Continuity Capabilities Offshore Knowledge Development/Advisory Services Travel costs Exchange Rate Fluctuations

15 EXTENDING YOUR REACH GLOBALLY THROUGH OUTSOURCING Global Software Development An Insight by: Susan Fojtasek, PMP Director, Global Sourcing Valtech Technologies, Inc.

16 Agenda IT Offshore Trends IT Offshore Execution Models Choosing an IT Offshore Strategy Agile Applied to IT Offshore

17 IT Offshore Trends Hype Cycle for IT Offshore Outsourcing Economic malaise, weak tech sector, geopolitical risk begin to drive negative hype Vendors make investments, including acquisitions relentless cost pressure Market reaches reliable global sourcing model General Electric, early adopters prove model Stabilized pricing schemes

18 Why Disillusionment? No silver bullet Hidden costs Missed expectations

19 Why Long Term Growth?

20 IT Offshore Strategy Key factors Yield Tolerance for risk Business goals

21 Agenda IT Offshore Trends IT Offshore Execution Models Choosing an IT Offshore Strategy Agile Applied to IT Offshore

22 IT Offshore Execution Models Onsite staff augmentation with offshore staff Offshore staff augmentation Blended onsite/offshore staff augmentation Collocation Project outsource Dedicated Offshore Lab Buy Build Build Operate Transfer (BOT)

23 Execution Model Descriptions Onsite staff augmentation with offshore staff Bring staff from offshore location to work on projects in your home country Offshore staff augmentation Hire offshore staff to supplement the capacity of your onsite team Blended onsite/offshore staff augmentation Hire a mix of onsite and offshore staff from a single vendor to supplement your onsite team Target ratio: 30% onsite, 70% offshore

24 Execution Model Descriptions Collocation Send your onshore resources to the vendor s offshore development center. Team members work together on project assignments. Project outsource The entire project is sent to the offshore location. All development and test work is done remotely, and the finished product is returned. Dedicated offshore lab You retain a set of vendor employees that are dedicated to work solely on your projects. The environment is secured and maps to your corporate environment.

25 Execution Model Descriptions Buy You purchase an offshore company and its employees to become your offshore office. Build You setup a company in the offshore location and hire your own management and employees. Build Operate Transfer (BOT) Partner with a vendor build your offshore practice. The vendor assigns team members to your projects and they learn the business domain. A new business entity is created for you in that country. After a specified period of time, the employees transfer to your company.

26 Agenda IT Offshore Trends IT Offshore Execution Models Choosing an IT Offshore Strategy Agile Applied to IT Offshore

27 Yield - which is most important? Savings Productivity Flexibility Capacity Quality Scalability Domain Knowledge Customer Satisfaction

28 Savings Yield Assessment Quantified Yield Onsite Staff Aug Offshore Staff Aug Blended Staff Aug Project Outsource ODC/DDC Collocation Buy Build BOT

29 Analysis Build Buy Offshore Staff Aug Blended Staff Aug ODC/DDC Risk Collocation Project Outsource BOT Onsite Staff Aug Yield

30 Agenda IT Offshore Trends IT Offshore Execution Models Choosing an IT Offshore Strategy Agile Applied to IT Offshore

31 Traditional Development Practice Inflexible to changes during lifecycle of the project Sequential progression through requirements, design, code, test Focus on documentation and review meetings Large amount of uncertainty around meeting end deliverable dates Limited management visibility until late in the schedule Big bang integration late in the lifecycle Typical issues Lack of clarity in the requirements definition Due date promised Inability to handle change effectively

32 AgileOffshore TM Best practices Iterative development SCRUM Test driven development Backlog/Burndown charts

33 Iterative Development Project is segmented into a series of time-boxed iterations, usually 2-4 weeks in length During each iteration: Design, development, unit testing, functional testing occurs Working system code produced Demonstration made for stakeholders at completion Schedule is fixed; scope is variable Benefit: Product is delivered when promised

34 Scrum Each iteration is called a Sprint Sprint planning Spring backlog Sprint review Daily Scrum meeting ScrumMaster removes roadblocks Three main questions to be answered: What have you done since last Scrum? What are you planning to do before next Scrum? What blocks are you facing? Benefit: Improved Communication

35 Test Driven Development Tests are developed before code is written Expected functional test results are delivered when requirements are delivered Primarily aimed at development process Unit tests are designed and implemented before actual source code is written Tests are run after every build to ensure that tests passed (continuous integration) Benefit: Increased quality, Decreased maintenance cost

36 Backlog/Burndown Charts Backlog List of all features that are to be included in the development cycle Features can be added or removed at any time Effort estimates established for each item in backlog Prioritized based on business priority and complexity Burndown Chart Tracks progress for an iteration and/or release Plots work remaining each day Benefit: Visibility Hours remainin Burn-down chart Start 18- Oct 19- Oct 20- Oct 21- Oct 25- Oct Dates 26- Oct 27- Oct 28- Oct 29- Oct Actual IEH Burndown Expected IEH Burndown End

37 Potential Offshore Yield Effects of Agile on Offshore Strategy Build Buy Offshore Staff Aug. Risk Blended Staff Aug. BOT Offshore Dev. Center Project Outsource Collocation Onsite Staff Aug.

38 Q & A

39 4:00 5:00 CLOSING SPEAKER: Mr. Arthur Rothkopf United States Chamber of Commerce

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