Gaining Ground

India has had an edge in IT outsourcing--which it plans to keep. But it's facing new competition in the United States and abroad
Despite growing competition, training and process-control techniques employed by Indian companies will help them maintain an edge, says C.K. Prahalad, a professor at University of Michigan Business School. In order to overcome doubts about programming quality, Indian companies have relied on rigorous development methodologies--some are certified level 5, the highest level of Carnegie Mellon University's Capability Maturity Model. "In North America, you need 100 people to do the work that is accomplished by 60 people in an Indian shop," Prahalad contends.

Greg Tranter, CIO at Allmerica Financial Corp. Photo by Mark Ostow.

"Quality and work ethic are stronger" in India, says Tranter, CIO at Allmerica, but corporate politics are a concern.
That rings true with Greg Tranter, CIO at Allmerica Financial Corp. in Worcester, Mass. Before moving a number of operations to Indian facilities operated by the U.S. services company Keane Inc., Allmerica tested the outsourcing waters three years ago by relocating the development and maintenance of an annuity system to Keane's Halifax, Nova Scotia, operations. Rates for software development there fall somewhere between those in the United States and India. Allmerica has since moved the bulk of its outsourced operations to India, but cost wasn't the only compelling factor.

In India, "the quality and work ethic are stronger," Tranter says. Allmerica plans to outsource support and maintenance of the bulk of its IT systems, including its PeopleSoft Inc. environment, to Keane's support center in Hyderabad, India. Tranter says Keane ensures business continuity by maintaining backup sites and routinely sending code to servers in Worcester.

Project management remains a major concern when dealing with a company thousands of miles away, a reason many Indian firms are opening U.S. offices. "Rework is more expensive if you don't have access next door," says Jag Dalal, former CIO of Xerox Corp. and United Technologies Corp. and now a consultant to companies dealing with offshore outsourcers. Project-management requirements and the demands of distance cut into the savings offshore outsourcers advertise, Dalal says.

TRW Automotive's Drouin admits he probably gets billed more hours working with an offshore firm, since the distance and time difference create delays in communication. But those inefficiencies are more than offset by the rate savings. And the Web is solving some problems. For a recent project with Satyam aimed at developing software to give TRW visibility into its supply chain, TRW and Satyam workers here and overseas held meetings using Web collaboration software instead of by phone. "The project was very successful, and now we plan to broaden its scope," Drouin says.

Some tech execs are being cautious about how far they'll go, though. United Technologies CIO John Doucette plans to shift more outsourcing development work to India from the United States, to save about $20 million annually. But he says the $28 billion-a-year industrial and military contractor has to retain some in-house app development skills in order to effectively manage outsourced work. "If you've never painted a house, you wouldn't know the difference between a $1,000 job or a $6,000 job," he says.

And proponents face a delicate political issue when trying to farm out entire business processes overseas, even noncore tasks such as billing. Doing so would make sense for Allmerica, but corporate politics may inhibit offshore business-process outsourcing. "It was one thing to tell the business people you're outsourcing technology; it's a whole other thing to say you're sending their business processes to India," Tranter says. "There's a perception that you lose control. I don't think you do, but you do have to diligently manage the relationship."

Vivek Paul, the charismatic vice chairman and president of Wipro, has heard such concerns before, but insists the move to offshore business-process outsourcing is inevitable. "It was the same with application development: 'How could you do that?' they would say. The sound of air going over clenched teeth is natural, but eventually people get over it because it's the logical thing to do." Paul thinks offshore business-process outsourcing could redefine the role of the CIO, from head of IT operations to executive in charge of global delivery of business services. "We're creating an amazing opportunity for the CIO to step up to the plate," he says.

Indian firms have the ambition, talent, and resources to play a major role in business transformation. And they may be the most cost-effective facilitators--the question is for how long. --with John Soat

Illustration by Ken Orvidas
Photo of Drouin by Bob Stefko
Photo of Tranter by Mark Ostow