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Thursday, July 05, 2007

Outsourcing & Offshoring: The Smart & Mature Way

With outsourcing as a given way of life, we are seeing that the offshoring phenomenon for tech work is seeing an unprecedented growth and shows propensity for more aggressive volume growth. Writing on IBM's progress on this path, the NYTimes article highlights that

the idea is to build networks for producing and delivering technology services much like the global manufacturing networks that have evolved over the last couple of decades. Look inside a computer or automobile and the parts come from all over the world. High-end technology services projects increasingly will follow that formula, combining skills from across the globe and delivered on-site or remotely over the Internet.

As I see it, clearly distributed model of development/support is working well. Ranging from lower complexity, shorter duration, utility-type projects to more strategic ones, outsourcing to countries like India (as long as internal company controls are in place) has proven to be a cost saver and in many ways a performance accelerator. It takes some time for companies to get the rhythm right and once a critical mass is reached things are in general zipping ahead. The issues of improved productivity and enhanced quality wrapped around more robust tools to manage and administer these distributed development efforts. In this evolution, it may also make sense to keep some residual work addressed closer home and this is an integral part of the sourcing framework. A customer-imposed changing of the vendor guard forcing some old school Big 6 leaders to be replaced by a newly ruling set of global industry influencers means that the industry is in the cusp of a major change and with offshoring bringing some cases, the order of fifty percent saving, through well thought out mechanisms, this space will see lot more action for sometime to come. Over a period of time the volumes of residual work onshore may also come under constant review for being offshored. The dynamism and competitiveness in this industry would mean that all stakeholders benefit uniformly.

As I wrote recently, the key thing would be to see the level of innovation and differentiable IP’s that service firms can showcase – this needs to be tied to increased productivity and reduced cost for customers. Ultimately, service players that have invested in emerging areas well ahead and in right measures, stayed close to customers, and focused on efficient execution are well positioned to capitalize on the market as it improves. Companies that will succeed in the services market going forward will be those that embrace the evolution of the software environment, collaborate closely with partners and customers, possess a strong understanding of industry-specific business processes, and have a mature and seamless global delivery capability – all these are achievable only by making right quantum of focused investments in the right direction at the right time.

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