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Offshore outsourcing the summer's hottest topic

Offshore outsourcing has been hogging the headlines all summer. It's the hottest of the hot buttons, with more and more firms ready to push it.

The outsource horse didn't slow down in July. He kept running laps around other stories on the news track.

In fact, if this article were on network television, it would be called That Outsourcing Show.

Jeff Kaplan, Managing Director of THINKstrategies, a consulting firm based in Wellesley, Mass., isn't surprised that outsourcing soaked up so much ink.

"It is the hot topic, not only of the month, but also of the moment. It really is a movement that is taking hold at every level and can no longer be ignored," he said.

Ready for the proof? Read on.

Bon voyage, IT jobs

Gartner Inc. announced that the offshore outsourcing horse will ride off with one in 20 IT jobs by the end of 2004. The percentage is even more salient in the software industry. According to research firm Sand Hill Group, more than 80% of software companies are (or will be by this time next year) offshoring code-writing duties or implementation work. Sand Hill surveyed executives from 51 software companies to get its figures.

Gartner also said that Indian firms, while they have much to gain from the offshore outsourcing trend in the U.S., also have some work to do. An analyst with Gartner India said that Indian firms need to do some advance damage control, play up the pluses of outsourcing, and put a positive spin on their public image in order to blunt backlash in the U.S. Those firms know backlash is likely, but few of them are doing anything to deal with it.

And while Gartner predicts the outsourcing brouhaha will die down within a couple of years as the economy picks up, an IT association in India has already started the damage control. The National Association of Software and Services Companies (Nasscom) claims that offshore outsourcing is actually good for the U.S. economy and could help businesses save more than $300 billion over the next six years. Nasscom is also countering the idea that offshore outsourcing is, as some critics call it, an "unhealthy epidemic."

Speaking of backlash -- it's hardly limited to the U.S. Offshore outsourcing has some folks Down Under downright down on IT. According to an IT Manager Australia survey, more than 90% of the group's members think that if, offshore outsourcing continues to erode onshore IT jobs, then they will not consider IT a solid career choice.

THINKStrategies' Kaplan said that the same kind of attitudes about IT exist in the U.S. "It [offshoring] raises some real questions about where IT is going as a career path, as an industry and about what people need to do to ensure that they're not throwing the baby away with the bathwater."

Quality and quantity

Back to Gartner now -- the Stamford. Conn.-based firm's outsourcing experts crunched the numbers and cranked out the reports in July. They proclaimed that offshore business process outsourcing (BPO) will swell to a $1.8 billion market this year -- a nearly 40% increase over 2002's total. India will be raking in most of the cash -- surprise, surprise.

Gartner also announced that about one out of four outsourcing deals will fail -- namely because companies are fixated on saving money rather than building trusted relationships with their service providers. Outsourcing consulting firm Morgan Chambers found that quality of relationships is proving to be a priority. The London-based firm said that high-end service providers are looking at ways to reduce the length of contracts in an effort to nurture relationships with customers. Large-scale IT contracts are becoming five-year commitments -- down from the seven-year norm of a few years ago.

The trimming of contract time may be an effort to wash away the bad taste outsourcing has left in some corporate mouths. According to a study by business research firm Cutting Edge, 33% of all firms have had negative experiences with their outsourcing contracts. Researchers say there's an overall failure in contracts to measure performance, which is the source of the dissatisfaction. Only 60% of the 50 companies surveyed make specific performance criteria part of their outsourcing contracts.

Boarding the bandwagon

A couple of blue chip firms made waves as they announced their overseas plans. IBM may as well have hung a sign in the window that says "Offshore or bust." In a conference call, two IBM officials made it clear that the company will ship out jobs in order to shape up bottom lines. They talked about how Big Blue needs to send more of its white-collar, high-dollar jobs offshore. The officials said that they expect the news won't go over well with politicians or employees. In fact, a blue employee of Big Blue helped "externalize" what was supposed to be internal information.

Microsoft also booked a seat on the offshore bandwagon. The company announced that it would be moving more jobs out of the United States and into India. Tech support jobs in Charlotte, N.C.; Las Colinas, Texas; and Issaquah, Wash.; will be moved to Microsoft's call center in Bangalore, India. About 800 people work at each site -- there's no official word on how many of those jobs will be lost.

"People on the 'receiving end' [of offshoring] will have to figure out how to protect not only their jobs, but also their assets," said THINKStrategies' Kaplan. He added that onshore roles will become more strategic in nature and will be more customer-facing.

Welcome back

Finally, just so the outsource horse doesn't become the one trick pony of this supposedly broad article, a story from The Boston Globe should give you a little confidence boost. Evidently, it's cool to be a CIO again! According to the Globe article, CIOs fell out of favor in the fallout of the dot-com crash. Now, three years after the fact, they seem to be rebuilding their standing within companies, especially the CIOs who know how to do more with less. CIOs who can pull that off with success -- by doing things like getting good deals out of vendors -- are proving themselves to be key players in business strategy, according to analysts.


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