Strategic CIO // Executive Insights & Innovation
Commentary
11/1/2007
04:42 PM
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Analyzing 10 Years Of Offshore Outsourcing

Can you believe it's been a whole decade since CIOs began offshore outsourcing? Small bits of development work went overseas before then, but the practice didn't really pick up until CIOs found themselves short-handed on Y2K code fixes. From that point on, it exploded.

Can you believe it's been a whole decade since CIOs began offshore outsourcing? Small bits of development work went overseas before then, but the practice didn't really pick up until CIOs found themselves short-handed on Y2K code fixes. From that point on, it exploded.Happy with the work done on Y2K code in India and elsewhere, many CIOs again looked offshore when the economy tanked and they were forced to cut IT budgets. That hit the U.S. IT workforce hard, and IT unemployment shot up above 5.5% in 2003. (But the good news is it didn't kill the U.S. IT job. IT employment rose 6% from a year ago to reach 3.68 million employed this year, more than any other this decade, according to the most-recent Bureau of Labor Statistics employment survey. IT unemployment was just 2%.)

Offshore outsourcing will continue its march, and in a big way, but CIOs don't call it that anymore. Now it's "globalization," and despite my own earlier suspicions, this word really does mean more than a nice way to say dirt-cheap software coding. It has a lot to do with companies themselves becoming more global in all aspects of their business. At InformationWeek.com on Saturday, and in our Nov. 5 print magazine, you'll be able to read my comprehensive analysis of 10 years of offshore outsourcing that resulted from some 20 interviews with CIOs, analysts, CEOs of outsourcing firms, and others. You'll be surprised by some of the findings.

For CIOs, this means that management of offshore outsourcing -- er, globalization -- will increasingly fall in their hands. Ron Kifer, CIO at Applied Materials, tells me the company's "enterprise managed services" practice was created within his organization. "Enterprise managed services under the CIO is becoming more typical," Kifer says. At Applied Materials, each of the business units decides what it wants to outsource, and Kifer's organization maintains the vendor relationships. It makes more sense for IT to handle those relationships than any other department, Kifer notes, given the skills and components inherent to IT, even if it is business-process outsourcing stuff. Having IT handle it all helps a company consolidate vendors where it can, too, to achieve economies of scale. "When we can aggregate $300 million to $400 million across three or four activities within the company, we can be very significant to those providers and influence the direction they take, and have them develop additional capabilities to our advantage," he notes.

Kifer adds that centralizing all sorts of offshore efforts within IT helps the CIO job, too. CIOs welcome the ability to lead anything that brings ROI back to the company and expands their role on the executive team, he notes. Yet not everyone in the business may like the idea. "The challenge you'll get is the fear or concern that IT will attempt to make decisions," about what to outsource or whom to outsource to, that take precedent over a business unit manager's views, he notes.

Do you think CIOs should add "Chief Global Vendor Management Officer" to their titles? And do you have the skills for it? Does your staff have the skills? Would love to hear your thoughts on this, and again, check back on our site starting Saturday to read lots of good stuff on the state of offshore outsourcing.

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