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Friday, November 26, 2004

Outsourcers Lose Luster -Part II

Informationweek has published the annual outsourcing survey results. We covered in Part I the rankings of Delloite Consulting,IBM,EDS,HP etc. In this second part, we shall cover the role of India headquartered software companies besides other global big players. Excerpts from this important survey:

It may be no coincidence that there's something of an inverse relationship between a service provider's market share and customer satisfaction. ACS is the fifth-largest U.S. outsourcer by revenue; IBM and EDS rank first and second. They simply may be getting too big. "Meeting service levels becomes a challenge as you get bigger," says Atul Vashistha, CEO of outsourcing advisory firm NeoIT. Part of the problem for the big vendors is finding enough qualified staffers to meet service obligations, Vashistha says.

About a quarter of IT services spending among survey respondents went offshore to low-cost locations such as India, or near shore to Canada and Mexico. Some outsourcing business went to far-flung operations of U.S. companies. Accenture, for instance, provides Dynegy with application-development services in India. Moffitt likes the cost savings, but he concedes that the time and cultural differences present management challenges. "It does increase complexity," he says.Offshore providers hardly represent a panacea. The three Indian companies in our survey-Infosys Technologies, Tata Consultancy Services, and Wipro Technologies-all ranked in the lower half of the results. Offshore service providers are generally perceived as offering the best price because they can draw upon an inexpensive labor pool, but only Tata received a notably high score (7.0) for value. Outsourcing isn't always done at the expense of IT jobs. Nearly a third of the organizations surveyed increased IT jobs in the past year, even though they outsourced some work. Many businesses farm out technology work because their own staffs are working at full capacity. Ceridian Canada hasn't reduced its IT head count since striking its deal with IBM. Rather, the company turned to the service provider as a means to launch quickly a new project with skills it lacked in-house. "We wanted to get to market quickly because we knew a competitor was coming out with something similar," Clement says.

Outsourcers Meeting Expectations - By far the largest number of survey respondents, 47%, pointed to operational expertise as one of the most important reasons to partner with an outsourcer. More people cited expertise over cost savings (35%), which could reflect a general upswing in the economy. In 2002, cost savings was the reason respondents most frequently cited for outsourcing. The shift means businesses may be thinking more strategically about IT. That a good outsourcing partner can deliver revenue-generating business enhancements, and not just cost savings, may partly explain why outsourcing spending is rising. In 2002, 51% of businesses InformationWeek surveyed spent $1 million or more on outsourcing, and only 20% allotted more than $10 million. Now, nearly 60% earmark $1 million or more, and 25% spend more than $10 million.

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