Offshore IT outsourcing strategies guide for CIOs

This guide is part of the SearchCIO.com Executive Guide series, which is designed to give IT leaders strategic guidance and advice that addresses the management and decision-making aspects of timely topics. For a complete list of topics covered to date, visit the Executive Guide section.

Table of contents

Smart IT outsourcing advice in a declining market

Table of Contents

[Matt Bolch, Contributor]

The prevalence of IT outsourcing megadeals valued at $1 billion or more dropped 67% in the first quarter of this year, according to Gartner Inc.

But that doesn't mean IT outsourcing is showing any signs of slowing down, said Kurt Potter, research director at Stamford, Conn.-based Gartner. In fact, company research has found that end-user spending for IT outsourcing will grow at a 7.5% annual rate globally, to $318 billion in 2011.

"There are only so many megadeals out there, and 80% to 85% of the largest companies have significant outsourcing deals. We're going to see more deals in the $350 million to $500 million range. Future megadeals will come from government," Potter said, citing last year's announcement that the German military had awarded a 10-year, $9.3 billion deal to Siemens AG and IBM to modernize and run much of its communications network.

   Find out more in "Smart IT outsourcing advice in a declining market." Also:

• Report: Offshoring 'stars' in financial services ramp up, clean up (SearchCIO.com)
  The Deloitte & Touche 2007 offshoring report finds a gulf between the "best and the rest." Size of operations matters. So does quality.
• PwC study: Majority of top executives bullish on outsourcing (SearchCIO.com)
  Outsourcing, warts and all, is an "essential business practice" for CEOs, according to a study from PricewaterhouseCoopers.

Offshore outsourcing: A look at the security risks

Table of Contents

[Philip Alexander, Contributor]

Offshore outsourcing can often help companies realize substantial cost savings by sending certain functions overseas, where labor costs are a fraction of those here in the United States. However, there is more to consider than just the lower labor costs of employees in India verses their domestic counterparts. In this day and age of heightened security sensitivity, it's important to make sure that in addition to going after cheap labor, you're not buying yourself a slew of security exposures as well.

The decision on whether or not to outsource should not rest solely with the CFO. The chief security and compliance officers should also be involved because of the many security- and regulatory-related issues involved with offshore outsourcing.

   Learn more in "Offshore outsourcing: A look at the security risks." Also:

• The Big Hand-Off (CIO Decisions magazine)
  Midmarket companies are outsourcing data backup to take advantage of fast and efficient services. Just don't forget to upsize your network in kind.
• Disaster recovery outsourcing: Simple and cheap (SearchSMB.com)
  Outsourcing your disaster recovery efforts can be a wise technology strategy for resource-strapped SMBs. Assess your needs and determine if outsourcing DR makes sense for you.

Outsourcing's true value still goes largely untapped

Table of Contents

[Linda Tucci, Senior News Writer]

Companies that outsource IT functions save between 12% and 17% of the cost of doing the work in-house, a new report from Forrester Research Inc. finds.

The savings take into account the expense of moving the work to an outside provider, advisor and legal fees, severance for any employees let go, taxes and ongoing management of the deal. Moreover, the discount is conservative, said Forrester analyst Paul Roehrig, because it does not factor in harder-to-quantify benefits that can be accrued in a good outsourcing deal.

"There's additional skills that you would get, technology expertise, predictable delivery costs, none of which is included in these savings figures," said Roehrig, who covers sourcing and vendor management at the Cambridge, Mass.-based firm.

   Find out more in "Outsourcing's true value still goes largely untapped." Also:

• Gartner: U.S. IT industry needs to wake up and smell the competition (SearchCIO.com)
  Gartner plays provocateur in the opening keynote at ITxpo, challenging U.S. IT pros to "take the first-mover advantage," or risk being eliminated.
• CIOs face global competition, more cost pressures in 2007 (SearchCIO.com)
  Innovation, global competition and staff retention are among the priorities CIOs should focus on in 2007, according to columnist James Champy.

Offshoring: Improved processes now more of a draw

Table of Contents

[Shamus McGillicuddy, News Writer]

NEW YORK -- Offshoring doesn't bring CIOs the cost savings it once did. But that's OK because maturing offshore partners are offering them new capabilities that are just as valuable.

"I think over time, the [offshoring] industry, certainly in India, has matured considerably. And what you find is a little less cost savings than you had in the '90s, but vastly improved processes," Michael Baresich, CIO of CIT Group Inc., told attendees at Argyle Executive Forum's CTO Leadership Forum, held recently in New York.

In a conversation entitled "Offshoring 2.0: Assessing the landscape of the flat world" with The Wall Street Journal staff writer Christopher Rhoads, Baresich said the opportunity for wage arbitrage is still available to CIOs in the developing world, but salary growth in those countries is leading to more modest cost savings than 10 years ago. Whereas once companies could achieve a 5-to-1 savings in labor costs by offshoring, now the savings are just 2-to-1 or 3-to-1.

   Learn more in "Offshoring: Improved processes now more of a draw than cost savings." Also:

• Benefits of outsourcing go beyond pricing (SearchCIO.com)
  Companies are looking beyond cost when evaluating the many benefits of outsourcing. As the market becomes more competitive, business value and governance become the top drivers.
• Business process outsourcing can be key for survival, say CIOs (SearchCIO.com)
  Technology executives who have outsourced key business processes say the strategy can keep a company alive.

More resources

Table of Contents

• Resource center: Offshore outsourcing (SearchCIO.com)
• Offshore Outsourcing Risk Evaluator