IT Outsourcing Prepared by  Travis Reed  Karen Murakani  Kevin Whitaker  Jon Powell  Jennifer Ayuyu

What Are We Going To Talk About  What is Outsourcing  What Types of Jobs Are Outsourced  Why Companies Are Outsourcing  How Big IT Outsourcing Is  What Trends Can Be Observed  Is IT Outsourcing Growing  How Does This Effect Us

What is Outsourcing  The practice of subcontracting manufacturing work to outside and especially foreign or nonunion companies (Merriam-Webster)  Specifically it involves transferring a significant amount of management control to the supplier.  Involves a two way information exchange and trust.

What Is Not Outsourcing Vendor Relationships  Buying products or services from another company – external auditing vs. internal auditing by outside companies Offshoring  Relocation of a business practice to another country – transfer of management

What IT Jobs Are Outsourced?  Support for product development and IT systems  Application Development  Product Development  Test Outsourcing  Build, Operate, Transfer

Outsourcing  Annually over 100,000 “white-collar” jobs are moved offshore (Ghate).  Compared to the invention of the assembly line, revolutionized the industry

Why Companies Are Outsourcing  Improved Product Quality – expert engineering and scientific research  Increased Revenue as a result of lower costs  For every dollar spend in outsourcing the United States reaps $1.12 to $1.14 in benefits (Drenzer).  Capitalize on governmental tax incentives or governmental assistance.  Flexible intellectual property laws concerning joint research.

Why Companies Outsource cont…  Low Costs of Research and Development  The conducive culture to creating new business enterprises  Few regulatory or research restrictions  Ease of export from site to world wide countries  Establishment was a legal requirement for local access to local markets

How Big Is IT Outsourcing  $70 billion in reported global IT outsourcing Revenue in 2002 (CNET News).  Expected to grow 7.7% annually over the next five years – nearly $100 billion in 2007 (IDC research company).  73% of North American Companies outsource at least some of their IT operations

Trends In Outsourcing  IT Outsourcing Revenues Declining  Multi-sourcing – contracting multiple specialized contractors vs. one large all encompassing contract.  Omitting capital equipment purchases in contracts – established companies  New lower cost countries are being utilized, which in turn makes the market look stagnant. In Truth, IT services are being outsourced to bigger, more specialized, established sources, with their own internal staff and capabilities.

IT Outsourcing Growing  Microsoft announced plans to invest $1.7 billion in India over the next four years. The only thing that limits us in India, is the speed at which we can recruit." – Bill Gates  Intel announced an investment of $1 billion over the next 5 years in India.  Cisco Systems joined with a pledge of $1.1 billion in India.  The big three IT services providers in India, Tata Consultancy Services (TCS), Infosys and Wipro, and each recruiting 1,000 new employees each month.

IT Outsourcing Growing cont..  India had $17.2 billion in revenue year ending in March 2005, and projected to be in excess of $60 billion in 2010.

Why is it Growing?  India has the largest pool of employable people- -those with the necessary language and technical skills. On this measure, India, which produces 2.5m graduates a year, 250,000 of whom are engineers, has 28% of the global available workforce.  With American lawyers costing $300 an hour or more, Indian firms can cut bills by 75%.

DuPont Case Study  Multinational company that operates in agriculture & Nutrition, coatings and color, electronics, safety, textiles, etc…  At year end 2004, billion in revenue with 55, 000 employees world wide.  1997 they signed a 10 year, 4 billion dollar IT outsourcing contract with CSC and Accenture  By 2002, 80% of its IT spending(480 million) and 75%(3000) of its IT staff transferred to alliance partners.

DuPont cont…  They retained IT leadership control and the ability to source world wide.  By 2001  Reduced its IT fixed costs from 90% to 50%  There was a noticeably quicker injection of skills and technology  Increased service speeds

DuPont lessons learned  So much dependence on IT Outsourcing that:  Some of DuPont It managers left out of critical IT decisions  Absence of competent managers at DuPont to fill IT management positions, lost IT control and direction  Short fall reduced from 30 people in 1999 to 2 people in 2004  Made IT personal develop career goals and paths to take to achieve those goals.

How Does This Affect Us?  IT jobs moving offshore  Differences in culture – software norms and rules  Language differences – An Indian firm creating your in-house software  Higher quality, more effective services  Allow us to focus on larger, more cost intensive tasks  Higher Revenues lead to higher salaries.

Things To Remember  Outsourcing – involves an exchange of a significant amount of management responsibility  IT Services are now being outsourced to bigger, more specialized, established sources.  India has 28% of the properly educated global work force  For every dollar spent in outsourcing, the U.S. reaps $1.12 to $1.14 in benefits  Annually over 100,000 “white collar” jobs are moved offshore

Sources  Ghate, Onkar. To Outsource or to Stagnate. Capitalism Magazine; July 26, 2004  Drezner, Daniel. The Outsourcing Bogeyman. Foreign Affairs, May/June 2004  Cooney, Michael. Cost not only factor in Offshoring work. NetworkWorld.com, February 27, 2006  Diamond Cluster. Spring 2005 Global IT Outsourcing Study  Gilbert, Alorie. Big Blue still biggest in IT outsourcing. CNET News.com, October 1, 2003  Willcocks, Leslie P.; Feeny, David. Information Systems Management, Winter2006, Vol. 23 Issue 1, p49-56, 8p; (AN )