ISG Outsourcing Index®: Smaller Contracts Drive Value Growth in 1Q

The value and volume of outsourcing contracts worldwide grew by double digits in the first quarter, fueled by a surge in smaller deals and a record number of contract restructurings, according to data released today by Information Services Group (ISG) (NASDAQ: ), a leading technology insights, market intelligence and advisory services company.

Data from the ISG Outsourcing Index®, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show that first-quarter ACV rose 20 percent, to $6.1 billion. The total annual value of smaller deals, those worth $40 million or less, surged 40 percent, to $4.1 billion, while the value of restructured contracts soared 48 percent, to $2.8 billion.

The global market saw volume exceed 400 contracts for only the second time ever in a quarter, with the total number of deals — 404 — surpassed only by the record volume of 446 set in the second quarter last year. Overall, volume was up 32 percent versus the prior year, fueled by growth in restructurings, up 78 percent, to a record 173 contracts, and information technology outsourcing (ITO), up 51 percent, to 301 contracts. Meanwhile, the number of mega relationships, those worth $100 million or more, totaled only 5 for the quarter, down from 7 in the prior year.

For the trailing 12 months, ACV totaled $24.7 billion, the highest level in the last four years, while volume reached a record 1,542 contracts, both pointing to overall market health.

“As forecast by ISG, 2016 has gotten off to much stronger start than last year, with ACV exceeding $6 billion for the second consecutive quarter, a sign of healthy market flow,” said John Keppel, partner and president of ISG. “There’s a good balance between the number of new scope and restructured contracts, indicating plenty of new business is coming to market. The strong growth in ITO value and volume shows that technology solutions are having a positive impact in many areas, even as work increasingly is moved to the cloud.”

The total value of ITO contracts in the first quarter rose 24 percent, to $4.2 billion, while the value of business process outsourcing (BPO) deals grew 12 percent, to $1.9 billion, despite a slight decline in the number of BPO contracts.

Americas

The Americas maintained its momentum, posting its ninth consecutive quarter of ACV above $2 billion. ACV of $2.8 billion was up 30 percent over last year’s first quarter, and contract counts soared 49 percent, to 217 deals, the second-highest quarterly volume ever.

Restructuring activity reached a record 102 contracts, while the value of such deals, $1.4 billion, was the second-highest ever, surpassing the value of new scope awards, a regional rarity. ITO value surged 76 percent, to $2.1 billion, while BPO value declined 29 percent to its lowest level since the fourth quarter of 2013.

Among industries, financial services turned in its best quarter in more than a decade, with value and volume up 80 percent and 50 percent, respectively. Healthcare and pharmaceuticals notched one of its best first quarters ever, fueled by structural changes in the U.S. healthcare industry, while two smaller sourcing industries, consumer packaged goods and retail, recorded strong ACV gains.

Europe, Middle East and Africa (EMEA)

EMEA posted ACV of $2.8 billion, up 19 percent from the prior year, while contract counts, at 160, were up 28 percent. Restructuring activity drove the market, with ACV up 115 percent and volume up 91 percent, the most active quarter in the last two years. Meanwhile, new scope value slumped 13 percent, to $1.5 billion, its lowest level since the third quarter of 2014. Both ITO and BPO registered gains, with ITO driven by applications design and maintenance work, and BPO by facilities management, contact center, finance and accounting, and multi-function work. With ACV up 41 percent, BPO had its best first quarter since 2012.

By geography, the UK saw a modest increase in ACV, while the region’s other major market, Germany, Austria and Switzerland (DACH), saw its ACV decline despite an increase in contracting activity. Among smaller markets, the Nordics had strong ACV growth, fueled by a large deal between Volvo and HCL and stepped-up contracting activity, and southern Europe grew by a triple-digit percentage off a small base, while Benelux dropped sharply.

Among industries, manufacturing and telecom turned in strong quarters, fueled by increased deal activity, with telecom benefiting especially from a large finance and accounting deal between Telefonica and IBM. Financial services ACV, meanwhile, was off 30 percent from a strong 2015 first quarter, but volume increased, with the HSBC-Jones Lang Lasalle facilities management transaction and the Accenture-RSA Insurance BPO deal being noteworthy.

Asia Pacific

Asia Pacific continued its marketplace roller-coaster ride, as first-quarter ACV dropped 13 percent versus a year ago, despite the signing of a mega deal in Australia, and contract count dropped sharply, down 23 percent, to its lowest level since the fourth quarter of 2011. Both new scope and restructuring values edged down slightly, but ITO value plunged more than 50 percent, recording its worst first-quarter performance in nearly a decade. BPO, on the other hand, logged its best ACV quarter since the third quarter of 2012, but the boost came from a large, 10-year contract in Australia between Rio Tinto and Sodexho for facilities management.

Among subregions, Australia-New Zealand, fueled in large part by the Rio Tinto mega-deal, recorded triple-digit growth in both value and volume over a weak prior-year quarter. India, meanwhile, had its weakest ACV showing in almost 10 years, but Southeast Asia recorded triple-digit ACV growth on the back of the five-year IBM-Indosat Ooredoo deal. Manufacturing was the only gainer among the region’s major industries, while financial services and telecom slumped significantly over last year’s first quarter.

Public Sector

Outsourcing in the public sector, previously on par with the commercial sector, now far exceeds that market, according to an ISG special-topic analysis presented this quarter. Over the last five years, the annual contract value of sourcing in the public sector has more than doubled, and now accounts for two-thirds of total outsourcing ACV, or $65.6 billion. While contracting activity in the commercial sector has grown by about 20 percent in that span, public sector activity has remained flat. The public sector is still dominated by large deals averaging more than $40 million in ACV, versus an average ACV of $16 million in the commercial space.

North America, led by spending from the U.S. Departments of Defense, Homeland Security and Health and Human Services, remains the world’s largest public-sector market, followed by the UK, Europe and Australia.

Forecast

“Looking forward, we expect a more difficult year-over-year comparison in the second quarter of 2016,” said Keppel. “For sustained market growth, the industry will need to continue seeing stepped-up activity in the smaller deal category.

“Longer term, ACV levels should remain in positive territory for the year due to the market’s fast start in 2016. We see pockets of increasing long-term demand across several secondary markets in parts of Europe and Asia Pacific, and consistent demand in both the U.S. and UK.”

 

Source: prnewswire.com-ISG Outsourcing Index®

Why outsourcing customers are terminating their call center deals

No longer content with simply lower costs, call center outsourcing buyers are looking for providers to deliver emerging technology and improved business outcomes as well.

The contact center outsourcing industry has always been subject to greater provider churn than other areas of IT and business process services. Historically around a quarter to a third of call center deals up for renewal are terminated every year compared to just fifteen percent of non-voice contracts.
But that termination rate has risen dramatically in recent years. Over the last two years, more than half of customers with end-of-term call center contracts decided not to renew their vendor relationships, according to recent research by outsourcing consultancy Everest Group, funded in part by business process and IT outsourcing provider TELUS International.

Meanwhile, those customers that decided to retain their providers often increased the scope of their deals—adding geographies, lines of business, or higher-value processes.

What’s going on, say Everest’s analysts, is that buyers have greater expectations from their call center providers today. No longer content with simply lower costs, they are looking for vendors that can partner will them to deliver improved business outcomes. They are seeking engagements that incorporate emerging technologies, automation, and big data analytics. And they’re showing the vendors who can’t meet these increased demands the door.

CIO.com talked to TELUS International president Jeffrey Puritt about the shifting dynamics in the call center outsourcing market.

CIO.com: Why are more than half of contact center deals being terminated?

Jeffrey Puritt, president, TELUS International: The global BPO industry, which has grown to $150 billion, has evolved significantly over the years. For most buyers, it’s no longer just a cost optimization play. Instead, buyers and their service providers are moving towards more engaged outsourcing models that foster strategic value creation. But getting there is not easy.

When the focus was more on cost reduction and risk mitigation, multi-vendor strategies worked well. But now [that] the focus has shifted towards business outcomes, buyers are expecting their outsourcing partners to address the entire business process value chain. This means adding more judgment-intensive, value-added services involving new technology, automation, or analytics, as examples. Call center outsourcing (CCO) buyers now expect their incumbent providers to go ‘beyond the obvious’ of the service-level agreement (SLA), especially after the first few years of the relationship. Contracts are not renewed because these relationships have failed to deliver meaningful, long-term, value.

CIO.com: How does this current state of provider churn impact customers in the short term?

Puritt: Having too many relationships can be counter-productive, because they each require time and effort to manage. As a result, buyers are looking to focus on fewer but more meaningful relationships. And while the end goal is more engaged partnerships, there are often pains along the way in the form of lost business for service providers and increased transition costs for CCO buyers.

That said, from an operational perspective, buyers already expect some level of transition stress at the beginning of any relationship. But if both parties are committed to a more engaged, meaningful partnership from the beginning, they can work together to proactively nurture the relationship to avoid value leakage. With the shift towards consolidation, there’s an opportunity to focus on building better, more comprehensive, outsourcing relationships from the start. The current industry trend towards consolidation is actually a good thing for both buyers and providers of CCO services.
CIO.com: There has been an evolution in the larger IT and business process outsourcing market from cost-focused, transactional relationships to those focused on long-term improvements and business outcomes. Is that taking hold in the CCO industry as well?

Puritt: The move away from a cost-focused relationship to a more business-outcome oriented one is already well underway in the CCO industry. And while it’s an exciting shift towards greater engagement, collaboration, and mutual business success, let’s not forget, outsourcing is still often about cost-savings.

The biggest hurdle is to stop focusing solely on costs-savings or cost avoidance. The evolved outsourcing relationship involves a lot more give and take. Service providers must deliver on the day-to-day operations while making time to understand the client’s overall strategic direction. And buyers must invite their service providers to the table, educating them on where the business is headed—even sharing more data and system access.

Again, this is easier said than done: the study found that a lack of communication is one of the biggest complaints among buyers. [However], enabling a service provider to truly collaborate with buyers requires a heightened level of two-way communication, which goes far beyond simple reporting on metrics.

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CIO.com: What are the biggest factors impacting the value that CCO deals deliver?

Puritt: Our research with Everest Group identified six key factors impacting outsourcing relationship value including communication, executive relationship building, customer experience innovation, employee engagement, service quality and aligning business objectives. I’ve already discussed the critical importance of communication. The next biggest factor, in my view, is frontline engagement. According to human capital consulting firm Aon Hewitt, the financial implications of an engaged workforce are significant. Their studies have found that a five percent increase in employee engagement is linked to a three percent increase in revenue growth in the subsequent year. In the CCO industry—which is plagued by high attrition—this correlation is eye-opening.

CIO.com: What steps can buyer and service provider take to foster increased engagement?

Puritt: The first step is to ensure that both parties have a shared set of values that underpin their business philosophy. For example, is the buyer interested in avoiding costs and nothing more? Similarly, is the service provider’s value proposition “your mess for less?” If so, then they may have something in common. But if the buyer is looking for a brand ambassador and long-term value, they need to find a service provider that is willing and able to think, act and invest for the long term as well.

Next, they need to establish a relationship framework that targets mutually beneficial outcomes. That framework starts with the basics: defining a governance model that supports the working partnership and ensures accountability from the operational level to the executive level. And while the governance model lays the foundation of a healthy relationship, that relationship needs to be nurtured on an ongoing basis. That means building trust via regular ‘health checks’ to discuss current program status, identify issues and evaluate the potential for innovation. Innovation projects are often considered beyond the scope of the existing engagement and are not planned for at the time of contracting. Making innovation an agenda item ensures that it remains a priority in the partnership.

Of course, any engaged buyer/service provider relationship has employee engagement at its core. Engaged, tenured agents mean more happy and satisfied customers, which in turn, means more value to the buyer. Employee engagement programs, along with the ability to capture agent feedback, are essential so that outsourced agents feel and act like they are part of the buyer’s organization and best represent the buyer’s brand.

CIO: How can customers measure the engagement level of their CCO relationship?

Puritt: There are clear signs that the relationship is on solid ground. With increased comfort and understanding comes a [greater] focus on business outcomes rather than just the operational ones. When this happens, traditional SLAs are either supplemented or changed to include more business-outcome oriented objectives.

For example, while efficiency and effectiveness metrics (like agent utilization, average handle time, or first contact resolution) continue to be most prevalent, engaged outsourcing partnerships are likely to use of business-outcome related metrics such as sales conversions, customer satisfaction, likelihood to recommend, or net promoter scores.

CIO.com: What kind of benefits have you seen these more evolved relationships deliver to CCO customers?
Puritt: In more mature and engaged relationships, service providers have been able to deliver radical innovation improving business outcomes. When we focused on innovative ways to improve one of our client’s employee engagement programs within our centers, agent engagement increased by 12 percent, attrition fell by 7 percent, customer satisfaction increased by 14 percent, and revenue increased by 7 percent—all in the span of one year.

In another example, when we examined our client’s quality assurance program [for] frontline agents, we found that their check-the-box auditing approach did little to motivate and strengthen the customer service attributes of the frontline. We proposed more one-on-one, real-time coaching. Not only did agent engagement scores increase because agents felt that the client cared and was investing in their success, but customer satisfaction also increased by more than 20 percent—all in less than five months. This also worked because the buyer was willing to invest in a new, more innovative, QA model.

Source: CIO.com-Why outsourcing customers are terminating their call center deals

The Value of Key Performance Indicators in a Lean Transformation

How do we measure our progress in an organization? How do we know what type of indicators we are using and what do they tell us about the current state of our processes? How do we know when we get there? What do we raise the bar on to show improvement?

These are just a few of the questions we hear from organizations that want to understand more about what data they are tracking and how they respond to what that specific information tells them. How much of it is truly value added to the company and customer?

What we do is break down the key performance indicators (KPIs) that organizations track into two categories: lagging indicators and leading indicators. Lagging indicators are results-oriented, in that they appear after something has happened. Some would say they’re historical in nature, since they are often a reaction to something that has already taken place in a process, perhaps months ago. In the car industry, for example, this could be a warranty claim a customer filed with the dealership for a creaky suspension. As the manufacturer, it takes a lot more effort to know what actually happened to cause the problem and when. In fact, it’s impossible to go back in time to re-create the exact scenario that allowed the discrepancy to happen. This can often put us in symptom-fighting mode, also known as firefighting. This mode is not always sustainable, nor is it especially value added.

Leading indicators, on the other hand, are KPIs that are tracking right at the process. This gives us a real-time measure as to when we may be out of standard or don’t have what is needed, when it’s needed, to produce our service or output. The beauty of leading (process-oriented) indicators is that while it can take months to get a report that tells the organization, “How are we doing?”, they can tell you what’s happening in the moment.

So for example, let’s look at safety—say a team member gets injured during their work process. This gets documented on an incident-rate report in most organizations. So think about it – I am tracking an injury after it happened. This is a necessary process in the majority of organizations due to OSHA or other safety mandates, but now I have to ask myself, “What does this information tell me about the process?” If the actual incident happened 1-3 days before the report came out, are we able to know what really caused it? Maybe, but it won’t be easy. That incident-rate report is a lagging indicator.

We find the majority of KPIs tracked are lagging (results-oriented) indicators. It seems to be a pattern across various types of industries – not just manufacturing. It is a common misconception that we should only track lagging indicators, as many feel they give us the most information.

But isn’t it better to have a process indicator that gives us a predictive factor before the injury actually happens? That would be more of a leading indicator – and that is where you can shift the focus from results after the fact, to process in the moment. Given the above example, maybe there were trends that were overlooked. Perhaps someone mentioned “This flow rack is very high and I have to reach several times a day.” Maybe there was a near-miss incident that hinted at a larger problem. That information could be predictive to an injury, letting us address the problem in real time – not just waiting for something to happen before we take action.

So, how do you start identifying your indicators?

One way is to take a closer look at your daily processes. Asking questions of your team members about how their process is going and whether or not there are issues can help you grasp the situation of predictive measure versus reactive. One way we have seen organizations do this is a “how’s your process” check. This creates a daily touch-point so the supervisor can see if there are any issues with processes. This is then logged on a visual management chart for Safety and posted daily. If something goes wrong it gives us a very specific window of time to track the discrepancy. This check can greatly reduce incident rates by shifting focus to the process itself (leading) versus tracking only after a problem has happened (lagging).

If an organization can shift a percentage of its lagging indicators to leading, they will see that the new focus on processes (and improving them through standardization) will begin to show the results they normally would be focusing on. Measuring the process in real time each day gives us a trend analysis that is perhaps a few hours old, versus a three-month quarterly report to which we will react in hopes that we make changes in something we are unsure of. I often say it’s like “throwing a dart at a moving target.”

So if you want to stay out of an endless “firefighting mode” with a team of hose-holders, then it’s time to change viewpoints and analyze your available measurements of a process’s success. There will always be a level of reactivity in an organization and that is normal in most businesses. But to do business each day in a reactionary mode is not good for long-term sustainability and growth. The key is to bring awareness to the indicators at your business – and you can do this through gemba walks, problem solving, creating standardized work, and better visualization (e.g. what is the current state versus the ideal state through visual management?). The more people can see, the more abnormalities will surface, the more the problem awareness muscle can be strengthened, and your culture can finally start to change.

Source: lean.org – The Value of Key Performance Indicators in a Lean Transformation

You have the power. Should you use it?

Technological and legal changes over the last generation have dealt employers an increasingly strong hand in setting the terms of their relationships with the people they hire. Regardless of whether you think that this is a good thing or a bad one, it’s hard to deny employers’ clout.

What’s less easy to see is the costs of exploiting that imbalance in power. They are worth considering. First, though, some background.

Evidence of the aggregate power shift can be easily seen in the changes to the conditions under which employment takes place today. In the U.S., wages have been largely stagnant for three decades, though productivity has risen. That means virtually all the benefits of higher worker productivity have accrued to employers.

Meanwhile, employers have reduced the financial burdens of providing employee security. The percentage of people in the U.S. working as contingent workers had risen to 40.4% of the U.S. workforce by 2010, according to a study by the Government Accounting Office, which also concluded that the contingent workforce level had been at 30.6% in 2005. (Admittedly, the so-called Great Recession fell in the years between those two dates, but 10 percentage points is a very large shift.) And obligations to the full-time workers who remain have been reduced as well. We’ve all seen how guaranteed pensions have been replaced by defined contribution accounts such as 401(k)s.

In IT, outsourcing continues unabated. And, as Computerworld’s Patrick Thibodeau has been reporting, some particularly aggressive companies are exploring new ways to press their advantages even in the terms under which their replaced workers depart.

Every manager walks into the office each morning holding some of the power that flows from just being an employer. You, as a manager, may not feel so powerful in your day-to-day interactions with your staff, but when it comes to dictating the terms of employment, you are. And you are probably under constant pressure to use that power to:

• Produce results
• Reduce short-term costs
• Minimize long-term obligations

The question for a manager of technical people is, “When and how should I use that power?” Because you have the power, you can use it whenever you want, but it may not be such a good idea to push too often or too hard.

That’s because exercising power is not a cost-free activity. You can coerce people into submitting to the conditions of employment (“It’s $10 an hour, take it or leave it.”), but you can’t control how they respond to being coerced. If you’re negotiating a one-time transaction, such as buying a new car, you may not care that the dealer’s sales manager will be offended by the tactics you use to squeeze an extra 1% out of the price. With luck, you’re never going to see him again.

But when you’re exercising power in an ongoing employment relationship, you should care a great deal about how the terms you dictate and the tactics you use make people feel. Their attitude toward the organization and you, their manager, directly affects the value they deliver as their part of the bargain.

This is especially true when you’re dealing with geeks. The work they do requires engagement, creativity, dedication and commitment. It follows, then, that negative feelings can cost a great deal in productivity and quality. A developer who feels that she is being paid less than her equally capable peers is unlikely to think creatively day and night about how to better architect your system. A support technician who fears that his job may be converted to a contract position is thinking more about where to get a new job than about how to make a user feel good. A contract project manager who has had his hourly rate cut may quit or do something even worse: tell everyone who will listen about his resentment and rage, spreading discontent like a virus among the staff.

This is not to say that you need to pay people outrageous, above-market salaries to avoid offending them. But you do need to think carefully about the consequences of dictating significant or frequent changes to the employment relationship. The value you lose may far exceed the costs you cut.

Source: computerworld.com-You have the power. Should you use it?

Opportunities and risks in 5 global outsourcing locations

A look at some of the key trends impacting IT and business process outsourcing locations around the globe—from U.S. veterans entering the IT outsourcing talent pool to currency fluctuations in China and Latin America to the geopolitical situation in Ukraine.

Everest Group’s 2015 outsourcing year in review report included a quick peek at some important trends taking place in five global outsourcing geographies around the globe including India, China, the United States, Latin America, and Ukraine. CIO.com talked to Aditya Verma, practice director in Everest Group’s global sourcing practice in detail about the opportunities and risks that are arising in these areas.

1. United States: Inflows of military-trained talent

Hiring veterans has become a key focus for a number of U.S. companies in the IT and business processing space, says Verma. JPMorganChase, Bank of America, HP, USAA, Wells Fargo, Amazon, Intel, Shell, Accenture, CSC, CGI and IBM all having dedicated programs for hiring former military personnel. “While companies have been hiring veterans for a long time, there has been an increased push lately as companies are looking at them as an alternate talent pool to mitigate the higher competition for traditional sources such as college graduates,” says Verma. And that increased competition is of rising demand for onshore deliver of IT and business process services, particularly in tier-three and tier-four cities.

Federal and state governments provide incentives (usually in form of tax credits ranging from $2,000 to $10,000 per year) to companies for hiring and training veterans with additional benefits often negotiated for, say, building a delivery center near a military base with a specific veteran recruitment plan. The military provides relocation costs for veterans, saving employers that overhead. “Regular hiring of veterans provides a stable and consistent talent pipeline,” says Verma. “Veterans also typically have a higher retention rate than traditional talent.”

Veterans of the Navy, Air Force, and intelligence branches also typically have prior training on technology and related platforms and may have security clearances that make them very attractive to companies working in the public or government sector.

2. Brazil and Colombia: The upside of depreciation Currency fluctuations impacted almost all leading offshore destinations in 2015, says Verma. But the impact is more prominent for certain Latin American countries, especially Brazil and Colombia. Brazil saw its labor arbitrage benefits double in comparison to Dallas (from 20 percent savings in 2014 to 40 percent in 2015). Similarly, Colombia Peso depreciation is creating a positive outlook for the country. “This fluctuation has impacted both countries in a positive manner, improving their relative attractiveness for global services, and is likely to impact both existing players and companies considering these countries,” says Verma.

However, there are other mitigating factors. “Even with a significant change in its currency, players have remained cautious in making fresh investments in Brazil due to the uncertainty in macroeconomic scenario and recent changes in tax regulations that impact the IT and business process services sector.”

3. Ukraine: Uncertainty benefits neighboring countires

“Ukraine has been an important location for global services, especially for IT services,” says Verma. Some of the the war-torn nation’s talent and IT service operations are migrating to nearby central and eastern European countries.

“There was a spurt in outward migration of IT talent from Ukraine resulting in improvement in talent availability in other countries such as Poland, Bulgaria, Romania, Slovakia and the Baltic States,” says Verma. “While migration among CEE countries has always existed, the geopolitical situation in Ukraine has seen heightened activity, including specialist IT workers (such as game development).” The biggest beneficiaries have been countries, like Lithuania, with relatively small talent pools some of whom have simplified visa procedures for IT and software professionals.

Some companies serving global clients have shifted their employees to neighboring countries to ensure uninterrupted delivery. Luxoft, for example, shifted 500 Ukraine-based workers further west to Poland, Bulgaria and Romania.

“The geopolitical situation in Ukraine has also led players (both foreign and Ukraine-based) to adopt a wait and watch approach to Ukraine and consider alternate locations in for expansion or new operations,” says Verma. “This has also impacted areas in which Ukraine has typically led its peers, such as web design and gaming. Consequently, countries such as Poland and Lithuania have reported higher growth in non-traditional IT industries. Lithuania, for example, has attracted a number of computer game development companies from Ukraine and Russia, including Insight, Melior Games, Charlie Oscar, Flazm and Alternativa Platform.

4. India: Pune gets big and digital India takes off

Pune is officially a tier-one location for global services delivery. The city saw a surgey in activity in 2014 and 2015 with companies like Deutsche Bank, MasterCard, Allstate, Volkswagen, Tech Mahindra, and TCS setting up shop. However, says Verma, Pune offers several advantage to its peers like Mumbai and Bangalore, including lower attrition, wage inflation, and operating costs and better quality of life.

Source: CIO.com-Opportunities and risks in 5 global outsourcing locations

In-house vs. outsourced IT: what makes the most business sense?

‘Building the right in-house IT team requires patience, diligence and a clear understanding of the skills a company will require in the long term’
In the modern age, businesses of every kind have a wide range of IT requirements, including website design, search engine optimisation, online marketing, graphics, social media engagement, and customer resource management.

Human resources, accounting and customer service also have increasing IT dimensions, and the whole network needs to be constantly managed and maintained.

Of course, security is also a major issue for all companies. Without specialist staff, ever-mutating viruses, spyware and malware can easily slip past cyber-defences that were previously considered entirely satisfactory.

So there is no argument that IT specialists are not required. The question is whether to hire a full-time, in-house team, or contract out and bring in experts only when needed. There are pros and cons to each approach, which are summarised below.

Outsourcing

The benefit of this approach is that a company can bring in someone with a very specific skill set to take on a particular task. Once that task is accomplished, they may not need those particular skills again, so it makes sense to hire the specialist only for the duration of the project.

This makes financial sense and also means that a company can bring in a specialist absolutely focussed on the issue at hand, whereas a full-time employee would likely have a more general set of IT skills that could be applied to a variety of situations.

When a company outsources, it also doesn’t need to invest in the equipment or software necessary to do that particular job. The contractor will either provide their own tools or they will include the cost of acquiring the equipment in their fee, which will be less than if the company bought the equipment outright.

The disadvantages of outsourcing start with the fact that a freelance IT contractor can command a much higher hourly rate than an in-house operative. It can also be both difficult and time consuming to find someone with the right skills at the right level who is also trustworthy, affordable and available when needed.

Sometimes, as well, companies just don’t know what to look for. In time, any company will build up a book of contacts they can rely on for outsourced IT work, but this will need to be constantly updated. Outsourcing agency fees should also be considered.

In-house IT

Building up an in-house IT team means that they can be trained to the company’s specific needs, and they will always be available when needed. This can be especially invaluable when an emergency arises, such as a security breach.

In such a case there is no time to look for a specialist, call them and be told they can fit you in next Monday. The situation needs to be locked down immediately, and the damage dealt with.

With an in-house team, the company can ensure they are trained to the requisite level and, via exclusive contracts, can hang on to any star performers whose work differentiates the company from the competition.

For instance, if a company’s website stands out due to its unique design, it is hardly in their interests for the designer responsible to be doing similar work for twenty other companies.

The cons to building an in-house IT team can mainly be seen in terms of initial financial outlay. Finding the right people and training them can be a costly and drawn out affair. The training never stops either, as they will need to constantly update their skills and knowledge, gain certificates and so on.

Of course, they will also need to be kept on a regular salary with employee benefits. If these employees have in-demand skills at a high level, which they should, then they will need to be paid at a very competitive rate in order to keep them within the company.

However, the principle that you get what you pay for is no reason not to go down this route. In-house employees will also have a greater personal investment in making sure the job is done right and will be more likely to go the extra mile and provide exemplary service.

They also know exactly what is needed and are familiar with all aspects of the company. While an outside contractor can be brought up to speed, this takes time, which needs to be paid for.

Also, some details that might seem irrelevant at the time could prove crucial if omitted. With an in-house specialist, costs can be kept under control, and expenses won’t suddenly balloon, as they will remain on the same salary with whatever work they are required to do.

Companies such as World Escapes have found that keeping an in-house IT team works for them, but insurance firm Hiscox felt that outsourcing a variety of roles is the most economical way for them to progress. It is clear that there is no one-size-fits-all solution to this dilemma.

A hybrid approach

Ultimately, most companies opt for a mixture of both approaches. An in-house IT team is essential to some degree for all but the smallest companies. These may be focussed on customer support, security, online marketing or any other IT area that requires constant supervision.

Outside contractors, like graphic designers or problem trouble-shooters, can be kept on-call. Recent studies suggest that media buying and digital marketing are being handled increasingly in house, while other less crucial and perhaps more esoteric roles can be outsourced.

Building the right in-house IT team requires patience, diligence and a clear understanding of the skills a company will require in the long term. While outsourcing may seem a more immediate, cost-effective solution, taking the major roles in-house will undoubtedly prove more efficient over time.

What is clear is that as IT becomes more central to the running of any successful business, more companies will realise that they need to have experts in various IT fields working for them full-time.

Source: information-age.com-In-house vs. outsourced IT: what makes the most business sense? 

Can You Outsource Your Corporate Culture?

It makes sense for a focus its resources on its core business and hire outside service providers for other things. Businesses outsource all kinds of things from janitorial services to printer repair, and many also outsource management of IT itself. When it comes to DevOps, though–which is primarily a shift in IT culture–is it still possible for an organization to outsource? Can you hire outsiders to be your corporate culture, or is it possible to adopt the DevOps culture internally, but still hire outside providers to deliver or manage certain technical aspects of it?

Many organizations outsource elements of their IT capabilities. As companies embrace DevOps, though, it becomes more important than ever that all parties—whether internal or outsourced—are on the same page and function at the same pace. This raises the question: Is it possible for an organization with a DevOps culture to outsource IT? What sorts of unique challenges arise when outsourcing with DevOps?

Outsourcing in general is an effective tactic. It allows a company to stay focused on its core values and mission, and dedicate as much of its resources to innovating and delivering the things that make it unique. Meanwhile, peripheral tasks—whether accounting, janitorial services, or IT support—can be handed off to a third party. The third-party is ostensibly expert at that one specific thing, and the costs of hiring the third party are generally less than trying to develop and maintain a similar capability internally.

When outsourcing, it’s always important to find a provider you’re comfortable with and that you trust to get the job done efficiently and effectively. In most cases, you can let go beyond that and just allow the third party to handle what it has been brought on to do. But with DevOps, things get a little trickier. This article describes the ways you can take advantage of outsourcing within a DevOps environment and recommends a few things to avoid, too.

Can your work culture be extended beyond your team?

Taken by itself, adopting DevOps doesn’t necessarily alter the pros and cons that typically affect an IT organization’s decision to outsource elements of its processes. The primary difference is that traditional IT outsourcing is typically driven by a focus on cutting or reducing costs. An organization looking to implement DevOps is typically seeking to gain business benefit, such as agility and reduced IT costs through improved productivity.

In order for an organization to succeed at DevOps, though, the initiative must start with a culture shift. DevOps relies on breaking down traditional silos and removing the bureaucratic hurdles that bog things down. There are tools and practices that are part of DevOps as well, but a successful DevOps transition begins with changing the core mindset of how things get done and working more seamlessly and collaboratively. While accomplishing that internally is challenging enough, it’s even more difficult to extend such a culture outside of the organization with outsourcing.

Pros and cons of outsourcing DevOps

Just as there are unique benefits and pitfalls when outsourcing any aspect of your business—particularly IT—there are also pros and cons of outsourcing DevOps. One of the primary benefits of outsourcing remains the same: You can engage with a partner that is more experienced or more skilled at a specific aspect of DevOps rather than trying to organically grow that capability internally.

Mirco Hering, an analyst at Accenture, says it’s not necessary for every company to try and reinvent the wheel but adds it’s important to be careful about how your cultures mesh. “The con is obviously the need to align culture and incentives across two different organizations, which is an extra challenge. If you are OK to use a PaaS [platform as a service], then you can leverage the vendor to create your own PaaS and you don’t have to worry too much about the cultural aspects.”

Martin Croker, Hering’s colleague at Accenture, describes DevOps as a spectrum rather than a binary black-and-white solution. He suggests that organizations consider DevOps as an aspect of how IT services are delivered rather than a stand-alone IT function. Hering adds that hiring third-party providers to deliver DevOps capabilities can also be a catalyst for adopting DevOps internally through the consultancy and services provided.

Source: techspective.net-Can You Outsource Your Corporate Culture?

Google IT: Outsourcing deal search may become more rewarding for Indian firms

Analysts estimate that Google spends several hundred million dollars annually on IT, among the highest for a Fortune 500 company.

Google, a hitherto parsimonious outsourcer of software services work, has started becoming open-fisted in this regard, thus presenting Indian IT the chance to add a prestigious and lucrative client to their roster.

In doing so, Google is showing the same openness that Apple did by outsourcinglarge chunks of work to Indian IT services companies like Infosys and Wipro in the last few years.

In the past six months, Google has ramped up its outsourcing strategy and started handing out more business to companies such as US-based Cognizant, which currently has most of its employees in India, as well as other multinational firms like IBM & Accenture, three people directly familiar with the discussions said.

Analysts estimate that Google spends several hundred million dollars annually on IT, among the highest for a Fortune 500 company.

Outsourcing is not new to Mountain View, California-based Google. Over the past decade, the company has handed out some software maintenance anddevelopment projects to third-party technology vendors such as Genpact and Infosys.

What, however, has changed is Google’s strategy on outsourcing — the company now increasingly is starting to outsource non-core parts of its business, such as IT infrastructure management, software development and maintenance to IT services firms, the people mentioned above said.

“Outsourcing is not something that’s new to Google —it has always given out small amounts of work to thirdparty service providers. Now what has happened though is that Google sees greater value in outsourcing noncore parts of the business, as it is more cost effective,” said a top US-based executive at a multinational technology services firm, which currently manages software projects for Google. He requested anonymity as these discussions were confidential.

Google’s shift in strategy would spell good news for top executives at homegrown software exporters such as TCS and Infosys, who will be hoping to negotiate more outsourcing business from a company that is widely percieved as a marquee customer. Indian IT firms such as Infosys also currently manage some IT projects for Google, the people mentioned above said.

A Google spokesperson declined to comment for the story. Other technology firms mentioned in the story, including Cognizant, declined to comment as well. “As a policy, we do not comment on clients or prospects,” a Cognizantspokesperson said.

THE APPLE CART
Experts tracking Google said that its new outsourcing strategy is somewhat similar to that of Apple, which currently outsources commoditised softwaredevelopment and maintenance to Indian IT services firms such as Infosys and Wipro. Infosys, in fact, currently counts Apple as one of its large strategic customers and gets well over $100 million of annual business from the Cupertino, Californiabased company.

Source: economictimes.indiatimes.com-Google IT: Outsourcing deal search may become more rewarding for Indian firms

Technavio Announces Top Seven Vendors in the Global IT Outsourcing Market Until 2019

Technavio has announced the top seven leading vendors for the global IT outsourcing market in their latest research report. This report also lists 13 other prominent vendors who are expected to contribute to this market’s growth over the forecast period.

Technavio announces top seven vendors in the global IT outsourcing market until 2019.

To identify the top vendors, Technavio’s market research analysts have considered the top contributors to the overall revenue of this market. To calculate the market size, the report considers revenue generated from infrastructure and application outsourcing services.

“Increased adoption of application outsourcing is predicted to fuel the growth of IT outsourcing until 2019. To meet the growing demand, vendors are providing application development outsourcing services that include modular architectures and are compatible with advanced IT infrastructures like cloud computing. In addition, IT outsourcing service providers are also developing applications that are embedded with intelligent systems for handling multiple features and high volumes of data,” said Amit Sharma, one of Technavio’s lead analysts for ITO and BPOs.

“For adding value to their service offerings, IT outsourcing service providers are giving prime importance to their clients’ application portfolio. Application development through DevOps and Agile are increasing innovative solutions for software development. Automation of applications is predicted to vastly improve performance of routine tasks over the next four years,” adds Amit.

Seven leading vendors in the global IT outsourcing market:

Accenture

Accenture was incorporated in 2009 and is headquartered in Dublin, Ireland. The company provides management consulting, and technology and outsourcing services globally. As of August 31, 2014, the corporation had 305,000 employees across the world and reported a net revenue of close to USD 28.56 billion in FY2013 and USD 30 billion in FY2014.

Accenture provides IT professional services, including management consulting, technology, and outsourcing services to clients across a wide range of industries globally. The company serves the communications, electronics and high-tech, media and entertainment, banking, capital markets, insurance, health, public service, air, freight and travel services, automotive, consumer goods and services, industrial equipment, infrastructure, life sciences, retail, chemical, energy, natural resources, and utilities sectors.

Capgemini

Capgemini was founded in 1967 and is headquartered in Paris, France. It provides consulting, technology, outsourcing services, and local professional services. As of December 31, 2014, the company had 137,747 employees and the revenue generated by the company was close to USD 14.05 billion in the FY 2014. Some of its subsidiaries include Capgemini North America, Capgemini Oldco, Capgemini Consulting Österreich, Capgemini Magyarorszag, and Immobilière les Fontaines.

Capgemini focuses on the IT professional services market and has implemented various strategic initiatives for this market. In July, 2015, the company entered into a services agreement with SSP, a provider of insurance technology, to expand its legacy systems and digital ambition. Under this agreement, Capgemini can strengthen its deep insurance expertise, process improvement and systems integrator expertise across the insurance value chain. In May 2014, Capgemini France, a subsidiary of Capgemini, completed the acquisition of the French IT service company, Euriware (which provides advanced consultancy and IT services to the energy, industry, and defense sectors) and its subsidiaries.

CSC

CSC was founded in 1959 and is headquartered in Falls Church, Virginia, US. The company is a global leader in supplying next-generation IT services and solutions. The company offers a wide range of business solutions to various industries, including aerospace and defense, automotive, banking, chemical, communications, media and entertainment, energy, financial services, healthcare, life sciences, retail, technology, and travel and transportation. For FY2015, the company reported revenue of close to USD 12.2 billion and has around 70,000 employees in over 60 countries.

Fujitsu

Fujitsu was established in 1935 and is headquartered in Tokyo, Japan. Fujitsu is an ICT company that offers a range of technology products, solutions, and services. The company operates in over 100 countries in Japan, EMEA, APAC, China, and the Americas. They provide solutions to various industrial and technology sectors such as automotive, healthcare, financial, retail, telecommunications, biometrics, smart network technology, and technical computing. The company has around 97,000 patents worldwide and has around 159,000 employees. For FY2015, the company generated revenue of around USD 43.25 billion.

Fujitsu offers innovative, managed solutions that enable employees to work more productively. Their offerings include virtual client services, classic client services, managed mobile, and unified communication and collaboration services. Fujitsu Virtual Client Services is a streamlined approach to desktop transformation harnessing Citrix virtualization technologies. Its classic client services provide employees with localized access to applications and data. The company also provides a complete life cycle management solution.

HP

HP was founded in 1947 and is headquartered in Palo Alto, California, US. It is a global provider of products, technologies, software, solutions, and services to individual consumers, SMEs, and large enterprises. It has customers in various sectors such as government, health, and education. As of October 2014, the company has around 302,000 employees and more than 34,000 patents worldwide. This segment provides a broad portfolio of enterprise technology infrastructure solutions for a variety of operating environments. The company’s integrated solutions enable organizations of all sizes to efficiently utilize IT staffing resources and deploy applications faster.

The company offers a single-point-of-contact IT service desk software and solutions that utilizes a dependable set of automated processes to handle service delivery and support. It brings together a broad range of ITSM capabilities, big data, and social collaboration to enable a workforce with connected intelligence.

IBM

IBM was founded in 1911 and is headquartered in New York, US. The company provides a wide range of computer products and services. they offer various types of hardware, software, consulting, and infrastructure services. IBM serves various industries, including automotive, banking, chemicals and petroleum, communications, insurance, life sciences, media and entertainment, metals and mining, and retail. They have around 379,592 employees and operations in more than 175 countries. IBM offers a broad array of IT infrastructure and business solutions through two reportable segments that include global technology services and global business services.

Infosys

Infosys was established in 1981 and is headquartered in Bangalore, India. Infosys is a global provider of business IT services, consulting, technology and outsourcing services, and software products. As of March 2015, the company had 176,187 employees and reported a net revenue of close to USD 8.71 billion. Globally, the company has 85 sales and marketing offices and 100 development centers.

During FY2014, the company reported revenue of around USD 8,711 million, an increase of 9.6% over the previous year, which generated around USD 6,041 million worth of revenue. This growth in revenue is attributed to, among other factors, an increase in the number and volume of executed projects.

 

Source: businesswire.com- Announces Top Seven Vendors in the Global IT Outsourcing Market Until 2019

Outsource or Insource?

Should you outsource or not? That question comes up often and seldom has a simple answer.

For example, suppose your top sales rep just landed a contract to handle all of the electrical work for a planned shutdown nine months from now. Some of the things the customer wants done are outside your skill set. You’ve got time to send people to training classes and time to buy the test equipment and PPE needed. So it sounds as if you should skip outsourcing. But wait. The total time for that extra work will be about six hours.

In this case, outsourcing makes sense, right? Unless, of course, you want to get into that line of work yourself and need some small projects to build experience. And you do, so don’t outsource. Right?

But wait. This is a new client that has huge amounts of work within your existing skill set. You will have to work your people longer hours and hire more, just to handle that. Outside help would alleviate the pressure, and there’s the fact that you want this first engagement to be as flawless as possible. You don’t want your people making “learning mistakes” on this job.

Then there’s the question of to whom you will outsource these bits of work. What quality standards do they have? Are they reliable? Do they have industry certifications relevant to this particular work? Do they have the right test equipment and know how to use it? Who owns the test data? What’s the supervision chain of command? Rates, insurance, liability concerns…on and on it goes.

Questions like these may come up when you consider outsourcing. You don’t want to be forced into dealing with them when you’re buried in other things. Nor do you want to try thinking them through during a meeting when a client asks, “Will you do this relay testing yourself, or will you outsource it?”

If you don’t know the answer when you walk into the conference room, you could of course say, “We’ll get back to you on that.” But that kind of reply doesn’t inspire confidence.

The solution to the outsourcing question is to have an outsourcing strategy in place prior to any meeting. It is best developed with the involvement of your senior management team. And it’s not a question of what to do about a particular project. The strategy needs to address outsourcing as if it’s an ongoing practice (it may well be). It needs to spell out what specific resources you will outsource and under what conditions.

The strategy formation will have to consider your business strategy. We do A, B, and C. We outsource D and E to our trusted partner, ACME Electric. You don’t do F and G. If doing F and G is a requirement for getting a contract, maybe it is not the right firm for you. You haven’t been building expertise there and you don’t have an arrangement with a firm that does.

You also will have to consider your existing resources, the costs and benefits of expanding those resources, and the cost and benefits of outsourcing the resources you don’t have.

Will you outsource only to fill a skill gap? What about a headcount gap? Suppose one project is going to need six master electricians and you have only seven to cover all of your projects? Exactly how thin do you spread a resource like that?

Don’t try to develop a strategy document that accounts for all possible scenarios; that would make it an operating manual and one that would take too long to develop. A way to limit the scope is to identify four or five situations in which you would outsource, and four or five in which you definitely would not.

Anything outside what makes the list will just have to be decided if it comes up. You can use your pre-determined situations as a reference. We always outsource relay testing, for reasons A, B, C. What about transformer testing? Gee, the same reasons apply there; easy decision.

For those situations in which you would outsource, assign a manager to find prospective outsource “partners” (not actually partners in the legal sense, but in a loose agreement in which they are the ones you go to first). You can vet those partners the same way you vet prospective hires, and write up a contract the same way you do for clients.

It’s much better to do this work ahead of time with low pressure, than to have to locate an outsource partner when the clock is ticking and your back is against the wall.

So back to that question the clients asked about the relay testing. What they really want to know is if their trust in you will extend to that testing. “We’ll get back to you” does not put them at ease on this question. And what are these people supposed to tell their bosses? “We don’t know who is doing that testing.” Don’t put your client in that position.

How much better when you can say: “Thanks for asking. I’m happy to let you know that we’ve been working with ACME Testing for the past three years on all kinds of projects and are very pleased with their work. For that reason, we are outsourcing this particular part of the project to them. That will allow us to focus on the other work.”

And because you already have worked things out with ACME, you’re prepared when the client says, “Well, I’d like to meet someone from ACME or at least talk to them.”

No problem. You take out your phone and call Paul at ACME. You’d already told him about this meeting. You have that kind of relationship with your outsource partners.

Source: ecmweb.com -Outsource or Insource?