Strategic CIO // Enterprise Agility
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8/4/2014
09:06 AM
Shane O'Neill
Shane O'Neill
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4 IT Outsourcing Trends To Watch

How cloud is competing head-to-head with outsourcing more, and other developments to keep an eye on.

Thanksgiving through Christmas, and the outsourcer priced its services based on that goal. "The service provider got a million dollar bonus by reaching that 100% uptime goal. It was written in the contract," says Herbert. 

While that's a classic win-win, such outcome-based contracts are still a minority of deals because specific business outcomes are hard to predict, which makes both outsourcers and clients wary. Herbert estimates that 20% to 25% of outsourcing deals have some portion that's based on outcomes. However, she adds, some smaller deals are fully outcome-based.

[GM CIO's five core principles underpin the automaker's "IT transformation" plan. Read GM's Randy Mott: What I Believe...]

"There are still inhibitors to outcome-based pricing, but it's the best way to align provider goals and client goals." 

3. Indian providers are stepping up
In IT infrastructure deals, India-based outsourcing providers are competing more vigorously than in previous years and beating out US-based providers more often, says Rutchik.

Indian providers like Wipro, HCL, and Infosys "were traditionally on the outside, used by necessity," says Rutchik, but they can compete now with IBM, CSC, and Hewlett-Packard -- and drive prices down accordingly – by using technologies that allow remote management of data center monitoring, servers, and patching. 

These capabilities add more appeal to the existing appeal of lower wages, younger skilled workers, and a bigger population in India.

4. But don't rule out "domestic sourcing"
There are drawbacks to offshoring – political uncertainty abroad, language and cultural barriers, rising wages, difficulty of securing H-1B and L1 visas, time zone differences -- that have led to more interest in outsourcing to small, lower-cost rural, urban, and semi-urban areas in the US and Canada... what's known as "domestic sourcing."

Simply having your outsourcer in your time zone is appealing, but there are also cultural benefits.

"If Walmart is outsourcing a business process to a service provider in Kansas, they don't have to train them on how Walmart operates," Herbert says. "I've been to labs in India where they have to explain what a Walmart is and why people go there."

On paper, offshoring or nearshoring offer lower hourly rates, but a company may pay more when the costs of visas and travel are factored in. Another offshoring gotcha: lots of junior talent.

"It's typical in India to have big outsourcing teams where most workers have two years experience," says Herbert. "With domestic sourcing, you'll have higher pay rates, but you'll have a smaller, more experienced team doing the job."

The nature of pay-as-you-go makes the cost calculation seem easy. It's not -- but it is more critical than ever. Get the new Cloud ROI issue of InformationWeek Tech Digest today (free registration required).

Shane O'Neill is Managing Editor for InformationWeek. Prior to joining InformationWeek, he served in various roles at CIO.com, most notably as assistant managing editor and senior writer covering Microsoft. He has also been an editor and writer at eWeek and TechTarget. ... View Full Bio
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Brian.Dean
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Brian.Dean,
User Rank: Ninja
8/5/2014 | 3:23:50 AM
Re: Onshoring
If the in-house management of the support function is retained post outsourcing then they should be able to provide a good estimate about the advantages and disadvantages that outsourcing provided. A business needs to specializes, if a business needs to manufacture a pen each time writing needs to take place -- the business will not progress. 

Off shoring creates an added layer of complexity, because global wages are not flat at the moment and it can become difficult to assess for example, if a company is overpaying or underpaying.
Lorna Garey
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Lorna Garey,
User Rank: Author
8/4/2014 | 3:40:50 PM
Re: Onshoring
People talk a lot now about cloud ROI and doing apples-to-apples pricing comparisons. However, many IT shops never even got their arns around that process for conventional outsourcing, preferring to pretend that the hundreds of hours spent by high-priced US engineers writing requirements docs and then error-checking buggy code would have been sunk costs no matter where the work was done. 

Smart companies will learn from past mistakes when considering cloud.
Somedude8
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Somedude8,
User Rank: Ninja
8/4/2014 | 12:41:13 PM
Re: Onshoring
I work freelance/contract, and have seen a signifcant increase in demand for US-based, senior level talent from US-based companies in the last year or so. Enough so that rates are up significantly, and full time gigs are posted on freelance sites regularly.

What I am seeing is just one narrow perspective, one person's personal experience. But discussions with peers indicate that its not just me seeing this.
Ajr@m
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Ajr@m,
User Rank: Apprentice
8/4/2014 | 11:32:57 AM
Outsourcing methods
IT outsourcing definitely offers flexibility, outsourcing today has matured to an extent and can provide far more than what it could 10 years ago technology and market competition have helped in this regard but then again choosing right model and solution is critical to ensure an efficient and successful engagement, I work with McGladrey there's a whitepaper on our website about this very topic that will interest readers of this article Three essential IT outsourcing methods every business should know - http://mcgladrey.com/content/mcgladrey/en_US/what-we-do/services/technology/infrastructure/managed-services-it-vision/three-essential-it-outsourcing-methods-every-business-should-know.html
Ajr@m
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Ajr@m,
User Rank: Apprentice
8/4/2014 | 11:13:13 AM
Re: Onshoring
I think Capital one recently moved their server management inhouse and are managing with a much smaller but efficient team, costs will definitely be higher when compared to even an offshore center.
Laurianne
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Laurianne,
User Rank: Author
8/4/2014 | 10:50:51 AM
Onshoring
"With domestic sourcing, you'll have higher pay rates, but you'll have a smaller, more experienced team doing the job." Important factor. Anyone care to share on your experience here?
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