by Lisa Banks, computerworld.com

CIOs must revaluate their use of outsourcing and move from the role of IT manager to broker if effective resourcing is to take place, a Gartner analyst has warned.

In Sydney for the Gartner Symposium, analyst Linda Cohen spoke to CIO Australia and said the idea that outsourcing is a problem solver is not always the case.

“We ask our CIO clients to consider outsourcing as an operating strategy rather than a problem solver,” she said. “Historically, outsourcing has been a bandaid and a way to fix the problem.”

Cohen said another misconception CIOs may have about outsourcing is that it will save the business money over a period of time.

“The number one reason they choose to outsource is this theory that they can lower their costs… honestly, history tells us the act of outsourcing doesn’t save money,” Cohen said. “The real problem is how do you sustain the lower cost to operate?”

Developing a clear strategy around not only IT requirements but business requirements is an important CIO consideration, according to Cohen.

“The number one thing they have to do is bother to align, literally,” she said. “First of all bother to have a strategy, bother to sit down with the business operators…and plan for the way you will resource moving forward IT that that business needs.”

With recent suggestions that outsourcing problems are being caused by middle management, Cohen said a shift in strategy around outsourcing will see the role of the CIO change slightly.

“The CIOs new role is to go and find the new technology for the business,” she said. “The supplier of IT to the business, not the manager of IT to the business.”

Cohen’s top tips for CIOs looking to outsource included:

Take control of your outsourced technology

“We’re telling our CIO clients that its really time to take control of sourcing as a strategic endeavour,” she said. “We are not going back to a time where we did everything inside, so the CIOs have to become more savvy for standing for and utilising an outsourcing strategy.”

Avoid ‘old fashioned’ SLAs

“The old fashioned structure of these deals created service level agreements that were all about the underlying technology and how it operates,” she said. “That’s the real problem here, we lock ourselves into historic technology architectures.”

Avoid vendor lock-in

“The new method of service delivery is like a utility style service,” Cohen said. “The way the vendor operates creates the capability is their factory, their way, in their preferred location.”

BY BEN ARNOLD O. DE VERA REPORTER, manilatimes.net

EMERGING offshore destinations in South America would give the Philippine information technology-business process outsourcing (IT-BPO) industry tough competition next year amid a rosier global outlook, a research and advisory firm said. Canada-based XMG Global Inc. said global outsourcing contracts next year would total $17 billion, 42-percent higher than the about $12-billion worth of deals expected to be sealed this year.

“Given the bright forecast on the global economy, more outsourcing deals and negotiations will be closed next year,” said Lauro Vives, XMG chief analyst, adding that “majority of these contracts are smaller deals and have shorter contract durations.”

Vives said South American countries such as Brazil and Mexico—which
are nearer to the US—would likely get a bigger share of the outsourcing business.

The US remains the biggest IT-BPO market, and is the Philippines’ top source of clients.

“These up-and-coming alternative outsourcing destinations have the potential to have respectable shares in the global market. Latin American countries will collectively post $8-billion total revenue this year which is expected to grow by 19 to 23 percent in 2011,” Vives said.

“The distribution of outsourcing investments to different locations is merely a reflection of the new normalcy defined by improved business outlook and maturity of countries to deliver off-shoring services,” he said.

Traditional BPO destinations like India, China, Vietnam and the Philippines should be extended greater government support to advance their outsourcing capability and extract larger market share, the XMG analyst said.

Under the IT-BPO Road Map 2011-2016, the Philippine BPO sector aims to triple its revenues and employment to $25 billion and 1.3 million, respectively, in six years’ time.

The industry hopes to contribute nine percent of the country’s gross domestic product and corner a tenth of the global outsourcing pie by 2016.

Local BPO executives had said these targets would be achieved if the sector enjoys more government assistance in terms of funding for promotions as well as manpower training.

By Rod Newing, ft.com

Consultants believe they have a key role to play in helping governments – and the UK coalition in particular – achieve the spending cuts they are seeking, and a critical element of this will be to help them overcome concerns about offshore outsourcing.

Offshore outsourcing is relatively mature in the commercial sector, but has so far made only limited inroads into the public sector. But now the public sector is facing the need for the kind of service improvements, efficiencies and cost reductions that offshore outsourcing already delivers so well to the commercial sector.

However, offshore outsourcing is a sensitive political issue. No government wants to be accused of exporting jobs – and they need the taxes and economic activity generated by domestic employment.

“In the US, for example, the sentiment has been very anti offshoring,” says Mark Kobayashi-Hillary, an author, blogger and adviser on globalisation. “The general public has reacted quite strongly and supported any politicians who have said that they will ban any work going offshore.”

Nevertheless, offshore outsourcing is used extensively in the US commercial sector, especially in healthcare and financial services. Mr Kobayashi-Hillary points out that the Australian government sends work to India and the Philippines and the Canadian government has started offshore outsourcing, too. The UK government has no direct offshore outsourcing contracts, but parts of wider contracts are delivered from offshore locations.

NHS Shared Business Services, jointly owned by Steria and the UK Department for Health, carries out finance and accounting. Front office services are performed locally, but much administration and data entry is performed by staff in India. “Government money is paying for people to be working in another country,” says Mr Kobayashi-Hillary, “but, as Steria becomes more efficient and innovative, hard cash is actually returned to the National Health Service.”

The Pensions Authority has a contract with Tata Consultancy Services, under which front office administration is local, but some of the underlying technology is located in India. “The UK government has been more relaxed,” Mr Kobayashi-Hillary says. “Tata was quite open that the contract would be delivered from multiple locations. The government has also been offshoring application development, application management and non-core administrative processes, like data entry and image capture and transfer.”

The offshore delivery model is expanding into new territories for delivery to new geographical markets. John O’Brien, research director for business process outsourcing at TechMarketView, an analyst and research firm, highlights expansion in South America to serve Spanish speaking countries around the world.

Similarly eastern Europe is expanding, as countries such as Romania have a multi-lingual capability, skilled and knowledgeable people with very good degrees and lower wages than western Europe. The Nordic counties have taken to offshoring and France has been using nearshore services from Morocco.

Jonathan Cooper-Bagnall, head of sourcing consulting at PA Consulting Group, says the real question is not where to outsource but whether to outsource at all. “It isn’t a case of offshore, near-shore or local,” he says. “Only once you have determined that outsourcing is right for your business should you look at components like location.”

He says that offshore outsourcing is not a big issue, but organisations rarely understand all the factors that must be considered. These include labour costs, inflation, time zones, data security, political stability, labour availability, language skills, local infrastructure and legislation.

One of the biggest issues in offshore outsourcing is not jobs, but data. Organisations must clearly differentiate between information that legislation prevents crossig borders and that which can be sent to an offshore facility.

“Offshore outsourcing is no longer about labour arbitrage,” says Manish Vinayak Soman, best-shore leader for Hewlett-Packard in Europe, Middle East and Africa, “but finding out what skills you need in different countries and using offshoring as one component of a global delivery model. On-site, onshore, near-shore and offshore resources should be integrated into a balanced global delivery strategy. The process should be capability driven, rather than cost-driven.”

James Cockroft, associate director at Xantus Consulting suggests that transactional services, such as application development, service desk or call centre support, lend themselves to offshoring. In contrast, more strategic activities, where there is a greater need for bigger picture decision-making, or where transactional or cultural ambiguities may exist, should be retained in the home country.

Anthony Golledge, head of technical consulting at Detica, agrees that concerns over offshore outshoring are a red herring. Governments will need the expertise and resources of global operators to achieve the efficiencies they need.

Another reason why offshoring will cease to become such an issue is the increasing use of cloud computing, in which functionality is provided as a service over the internet. Mr Soman says that as long as the service is delivered as expected, people will be less worried about the location from which it is delivered, and will stop talking about offshoring.

“Government departments face a real dichotomy between meeting the savings and budget cuts from the spending review and keeping local jobs,” says Mr Cockroft. “Something will have to give and it will almost certainly be jobs. It is an appetite that leaves a sour taste in the mouth.”