globalization trends and futures in business and it …russoft.org/downloads/o16064-08.pdf ·...
Post on 12-Mar-2018
217 Views
Preview:
TRANSCRIPT
Globalization Trends and Futures in Business and IT Services
Globalization Trends and Futures in Business and IT Services
Stan LepeakVice PresidentProfessional Services StrategiesStan.lepeak@metagroup.com
2© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Business and Technology Scenario
To Date, Offshore Has Meant ADM*
Offshore footprint is expanding from ADM to:
Application managementEnterprise application configurationBusiness process outsourcing
Blur: Domestic service providers and pure-play offshore vendorsVarious misperceptions still remain around offshore cost savings and maturityGeopolitical risks and anti-offshore rhetoric continues to growThe “onshore” vs. “offshore” debate with give way to global services provisioning
10%-30%8%Swimmers
40%-50%4%Deep Divers
5%33%Testing the Waters
0%55%Watching/Wondering
% of IT Offshore
%F1000Status
*Application Development and Maintenance (a fancy name for code
factories)
The Russian business and IT services market has the
potential to become a key front in the global services marketplace, but it faces
challenges
The Russian business and IT services market has the
potential to become a key front in the global services marketplace, but it faces
challenges
3© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Shore Enough: Worldwide Sites Abound
Also: South Dakota, Arkansas, Arizona, Romania, Russia, Morocco …India still has 85% of this market
OffshoreNearshoreBest ShoreYour ShoreAny Shore
Neighbor Shore$60$30$20,000$9,000Singapore
$40$20$9,000$5,000Philippines
$25$15$7,000$3,000China
$35$20$12,000$7,000Mexico
$40$20$9,000$5,000India
$80$40$40,000$20,000Canada
$80$40$36,000$23,000Ireland
$25$15$6,000$3,000Vietnam
$40$20$9,000$5,000Russia
Hourly Rate (ADM)Programmer Pay $
“Elsewhere” ADM Costs/Rates
4© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Market Perspectives on Russia
Strengths
Worker qualityEducation systemEducation levelsEngineering expertiseCostLabor poolMotivation
Challenges
Legal, business and investment environmentsLanguageUniversity channelMarketing, brand and awarenessSize of local providersInfrastructureGovernment support
Real and perceived economic transparency as well as active direct
government support are key to growing on
business and IT services industry
Real and perceived economic transparency as well as active direct
government support are key to growing on
business and IT services industry
5© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Defining Real Costs is Critical to Determining Real Offshore Benefits
Onshore Hourly Rate $75.00 2080OffShore Hourly Rate $25.00
Resource Cost 1st Yr 2nd Yr 3rd YrOutsourced ADM Headcount 100 100 100Onshore Mix of vendor staff 20% 20 20 20Offshore Mix of vendor staff 80% 80 80 80Onshore Utilization 80% 1,664 1,664 1,664Offshore Utilization 90% 1,872 1,872 1,872Contracted Service Months 12 12 12Onshore Cost 40% $2,496,000 $2,496,000 $2,496,000Offshore Cost 60% $3,744,000 $3,744,000 $3,744,000Total Resource Cost $6,240,000 $6,240,000 $6,240,000
Transition CostsProcurement $100,000Transition Time (Months) 2Resource Cost $1,040,000Severance -80 staff incl Cobra $2,300,000 @ $60K annualTotal Transition Costs $3,440,000
Associated CostsTravel 2% $49,920 $49,920 $49,920VPN Network $6,000 $6,000 $6,000Software Image $20,000 $20,000 $20,000Total Associated Costs $75,920 $75,920 $75,920
Variable (Hidden Costs)Software costs 2.00% $124,800 5% $312,000Turnover 1.00% $62,400 3% $187,200Communications 1.50% $93,600 3% $187,200Process Change 3.00% $187,200 5% $312,000Vendor Governance 5.00% $312,000 10% $624,000Variable (Hidden Costs) 12.50% $780,000 26.00% $1,622,400
Annual Hour Cap
Best Worst
Best Worst Best WorstOn/offshore $10,535,920 $11,378,320 $7,095,920 $7,938,320Standard $8,450,000 $8,450,000 $8,450,000 $8,450,000
-$2,085,920 -$2,928,320 $1,354,080 $511,680
Total OngoingTotal 1st Year
In-house staff costsSalary $65,000Benefits $13,000 20%Infrastructure $6,500 10%
Total $84,500Hourly equivalent $45 1872Total Cost $8,450,000
Development centers must operate with process — at least CMM Level 3Average ratio of on-site/ offshore spend is 20/80, but ratio determines savingsTravel, communications, vendor governance, and transition costs often surprise IT organization (ITO)
6© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Offshore BPO ScenarioOutsourcing ContinuumOffshore goes upscale
BPOApplication managementR&DADMEmbedded technology systemsEnterprise application implementations
But many BPO challengesBusiness process knowledgeVertical industry knowledgeGlobal delivery modelsGlobal resource modelsGeopolitical angstPure-play channel immaturity
Transformational
Full Process
Co
mp
lexit
y/
Ris
kC
om
ple
xit
y/
Ris
k
Shared/Co-Managed
Bu
sin
ess
Pro
cess
Ou
tso
urc
ing
Bu
sin
ess
Pro
cess
Ou
tso
urc
ing
IT Outsourcing
Divestiture/Vertical
Disintegration
Functional
Full-process offshore BPO is still largely immature and risky
7© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Provider Globalization
Service providers must become global, not multi-national, to support G2000 client needsInfrastructure to support must be equally “global”Capability to define
Where to develop resources centersWhere to source client work & whyManaging sourcing locales over time
Partner vs. Build – it dependsCapabilities & resourcesCost of capital & opportunity costsCore competenciesEnsuring minimal service levelsRisk tolerance/aversion
Services Globalization
• Global resource management models• Global service delivery processes & methodologies• Global operating processes
• IBM & Daksh• Citigroup & e-Serve• Wipro & AMS’ utilities• CGI & AMS
Inorganic Growth
The onshore/offshore approach will give way global services provisioning
8© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Geopolitical ScenarioGeopolitical (e.g., Iraq war, terrorism) and related (e.g., SARS) events are impacting offshore costs and risksJob losses are moving from lower-skilled blue-collar to higher-skilled white-collar jobsIt’s an election year in the U.S.Sell-side and related advocates are largely mute
A Company That Will Go to the Ends of the Earth for Its People
Will Find It Can Hire Them for About 10% the Cost of Americans
9© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Economic Evolution
1700 1800 1900 2000
Industrial Revolution Begins
1811Luddite Riots
1942: 32% US Workforce in Mfg.
1975: 1st PCUS Population 5.2M,90% in Agriculture 1945: Western
India Vegetable Products Formed
US Population 282M,<2% in Agriculture,13% Manufacturing
US GDP/Person: $1,400(1996 $)
1947: 1st Computer “Bug”
1837: Charles Babbage’s Analytical Engine
Ford River RougeCoal In, Cars Out
India GDP: $2,600Russia GDP: $8,350
US GDP: $36,400
1900: 20% Women in Workforce
US GDP: $4,100
10© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Compliance Implications on Outsourcing
Outsourcing the Joy of SOX?
Sarbanes-Oxley (SOX), Basel II, various privacy acts, etc. impact business and IT outsourcingBusiness and IT services providers are becoming effectively regulatedGlobal sourcing will respond to regulatory inconsistenciesSOX issues
Does not differentiate between insourced and outsourced processesSAS 70 audits not good enough? Regulator clarification late: 2H04
Short-term hindrance, long-term driver for outsourcing
Key IssuesVisibility?
Transparency?SAS 70?
Adequate documentation?
Auditor role?Client role?
Outsourcer role?
Compliance mandate create serious challenges and increases risk levels for offshore outsourcing
11© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Doing Offshore Right Organizations must understand what should and should not go offshore:
Consider IP risks, data access/ privacy laws, compliance regulations, other legal issues
Organizations must enable adequate processes for:
Supplier vetting and selectionSupplier relationship managementMultiprocess managementGovernance
Organizations must determine how to adequately manage:
Distributed/outsourced global business processesGeopolitical risk
Vetting and Selection
RelationshipProcesses
Governance
TechnicalProcesses
ContractProcesses
PerformanceProcesses
Supplier RelationshipManagement
12© 2004 META Group, Inc., Stamford, CT-USA, +1 (203) 973-6700, metagroup.com
Learning to Love or at Least Live With Offshore
Summary
Offshore realitiesOffshore outsourcing is part of a natural, ongoing economic evolutionViewed holistically, offshore’s overall benefits are unassailable
The offshore market is maturing rapidly but is still immatureThe future is global services provisioningBusiness process and vertical industry expertise will grow in importance
Offshore options and processes must be well understoodAs users mature in their offshore capabilities, they become more viable as well as challenging clienteleAlignment of maturity levels fosters success
Russia offers solid opportunities as a growing offshore market
But more concerted efforts to foster and promote capabilities are required
top related