Outsourcing

9 IT outsourcing myths, and the outsourcing facts CIOs should consider

When Deloitte LLP turned to IT outsourcing, “the business case was predicated on saving money,” said Larry Quinlan, CIO at the professional services firm.

“But now we stay for the value,” Quinlan continued. “We think we’re getting more out of the deal than we expected.”

Deloitte now has 40,000 employees in the U.S. and 150,000 people in more than 100 countries around the world. Speaking at this week’s Global Sourcing Forum + Expo in New York, Quinlan shared what he’s learned about outsourcing, including what he called nine global outsourcing myths, and accompanying outsourcing facts CIOs should consider:

Myth: IT offshoring is not successful. “That’s absolutely not true,” Quinlan said – if it were, why would so many U.S.-based companies be pursuing it? In its studies, Deloitte is seeing “a significant uptick in global outsourcing activity,” particularly in the Philippines, Mexico, China and Costa Rica.

Myth: Wage inflation negates the sourcing cost advantage. The global nature of this recession has depressed salaries worldwide. “There are very few things a recession is good for, but one of them is it takes away the whole issue of wage inflation,” he said.

Myth: Offshore labor pools have been exhausted. “There are a whole lot of things [U.S. companies] have to do to attract the labor pool we want,” Quinlan acknowledged. Still, as individual countries refine their outsourcing crafts, more and more up-and-coming professionals are seeking the schooling and training to provide needed IT skills.

Myth: There are only a few suitable locations for IT outsourcing. But different countries do offer outsourcing pros and cons, so if you’re starting out or thinking of changing locales, SearchCIO.com has gathered some information on some outsourcing locations in Asia and Latin America. “You do have to figure out, in a methodical way, where you want to be,” Quinlan said.

Myth: My competitor’s successful location will work for me. “It’s important not just to say someone went to Hyderabad or Sao Paulo, and say ‘That’s where I’ll be,’” Quinlan said. “There are more thoughtful approach factors you should consider.” Conduct your due diligence and really consider your needs as far as pricing and skills sought.

Myth: The risks are too high. The cost savings and skill sets make the case for outsourcing, but it’s certainly important to consider personal safety and the risk of a natural disaster or political instability in the country or countries in which you are considering outsourcing, Quinlan said. You can mitigate accordingly by diversifying your outsourcing base.

Myth: Shared services are difficult to manage. OK, this one might be a little bit true, Quinlan admitted. Time zone differentials, the cost of travel and the quality of staff interaction can be challenging to oversee when outsourcing. But nothing worth having comes easily, he said. “To do this well, you’ve got to put a whole lot of effort in and make sure it’s managed.”

Myth: There’s no need for captive centers – you should outsource everything. “You really have to think about what services you’re providing,” said Quinlan, whose company has two captive centers in Hyderabad and Mumbai, India, facilities that house 7,000 employees. If torn, he recommended considering a hybrid model, whereby firms establish a blend of a captive center (a firm’s own facility abroad) and outsourcing.

Myth: Offshoring is bad for the U.S. economy. Quinlan compared this to a religious debate with no definitive answers, and “religious debates cannot be won.” Yes, outsourcing sends jobs overseas, but it also provides for enterprise growth, which can in turn spur domestic job growth.

Is Quinlan on the mark? Are there any IT outsourcing myths you’d like to dispel? Share your thoughts below!

Layoff survivors (and other gainfully employed IT) unite

This sure was a gloomy week. If you subscribe to any regular newsfeeds, your inbox has probably never seen anything like it. My WSJ News Alerts flowed in like a drumbeat of despair:

Japan’s NEC to Cut 20,000 Jobs, Posts Wider Loss ; (today, 5:34 a.m.);

Kodak to Cut [3,500 - 4,500] Jobs Amid Sales Slump (Thursday, 7:43 a.m.)

Ford Posts $5.88 Billion Loss (Thursday, 7:29 a.m.)

Starbucks to Close 300 Stores, Cut Nearly 7,000 Workers (Wednesday, 4:20 p.m.)

Wells Fargo Posts Loss; Wachovia Loses $11 Billion (Wednesday 8:53 a.m.)

Japan’s Nomura Posts $3.8 Billion Loss (Tuesday 1:51 a.m.)

Worst of all was Monday, which set the tone for the week with 35,000 layoffs announced before I’d had my second cup of coffee. By the time the day was over, the layoff total was something like 62,000, including:

Sprint Nextel to Cut 8,000 Positions (Monday, 8:17 a.m.)

Caterpillar to Cut 20,000 Jobs (Monday, 8:25 a.m.)

Home Depot to Cut 7,000 Jobs, Close Expo Home-Design Business (Monday, 9 a.m.)

Since the downturn-cum-recession began, tech companies have also been in the mix, as have companies of all sizes in many industries — supply chains for financial services, housing/construction, cars, consumer goods, media (especially newspapers) among them. Most of the layoff announcements don’t go into any detail about who’s being let go or why; we all know there’s probably restructuring involved (i.e., layoff survivors Joe and Mary can now do two jobs each, and Sid and Tom will be underemployed for a while) and that the cuts probably involved IT.

In one layoff where I knew some folks who were let go, the IT tally was almost 25% of the reduction in force. Why? Many projects were canceled. In fact, many organizations are finding that their project management office is busier than ever, helping to choose what’s still essential and, sadly, what must go under the guillotine.

How else are organizations hanging on? Recent research by our SearchCIO.com site found that more than 40% of 319 respondents have had budget cuts so far this year. Other organizations are resorting to the kind of outsourcing we saw in the ’90s, like Warner Brothers divesting IT to Cap Gemini, which will hire back a portion of the employees.

As the recession continues, as most experts now say it will through at least most of this year, many of us (layoff survivors and all) are simply hunkering down, making the best of sparse resources and finding creative ways to stay energized and hopeful for the projects that remain. The new administration in Washington may also have something to do with this. How are things at your organization?  What are your survival techniques, innovative shortcuts, techniques for staying optimistic? If anything, community is one thing that will keep us all going, so let’s talk about it here.

Dude, the world is getting a Dell

The slowing U.S. economy has apparently encouraged Dell to reexamine its international growth model. Today, the computer giant unveiled four low-cost computer models for China, India and other emerging economies.

The two notebook and two desktop PCs are the first Dell models designed especially for emerging markets, according to Steve Felice, the U.S. computer maker’s president for the Asia-Pacific. They are meant for small-business users and are to be sold in 20 countries across Asia, Africa and Latin America, according to the AP.  Prices for the new Vestro notebooks will start at 3,299 yuan ($475) and for the desktop PCs at 2,999 yuan ($440).

Now, I know the SearchCIO.com readers aren’t “small-business users,” but this statistic struck me: Dell’s first-quarter sales in China India, Russia and Brazil grew by 50%, about 10 times the U.S. rate! No wonder Dell is one of many companies turning to foreign markets!

I’m trying to find out if these are available for purchase to American companies with foreign outposts. In the meantime, read the full article and let us know what you think of Dell’s strategy. I know SearchCIO.com has some international readers, and it would be great to hear from you, too.

A view from across the pond

Today, we posted a story on SearchCIO.com about mitigating risks in your outsourcing contracts. Clearly, it’s a topic affecting organizations all over the world and, while catching up on my tech-news reading this morning, an article from Financial Times dealing with chemicals manufacturer Ciba’s outsourcing contracts and efforts caught my eye.

Since 2006, Ciba has agreed to four main IT contracts, each covering a set of “service towers” for different IT functions, the article says. The company’s CIO, Erwin Becher, goes on to cite the triumphs, disappointments and lessons learned from his firm’s outsourcing contracts.

Check out both articles and come back to share your thoughts. Is your company outsourcing some or all of its IT functions? If so, what elements have you found most crucial in crafting a contract?