Posts Tagged ‘Offshoring’

India to become Capgemini’s default offshoring location soon

September 29th, 2014

Cap Gemini SA, the Paris-based consulting and software services firm, is trying to save costs by farming out more work to its centres in India and hiring freshers from colleges. Outsourcing30

Capgemini, which has software development centres in more than 10locations outside France, including smaller ones in Poland, Morocco and Vietnam, wants to make India the default offshore location, said Aruna Jayanthi, chief executive of Capgemini India Pvt. Ltd, in an interview last week.

Most of Capgemini’s key clients, who operate out of France, Germany, New Zealand and the Nordic regions, have begun offshoring more work to low-cost countries as technology budgets remain little changed and companies seek to cut costs, adding pressure on the French company to accelerate its plans to boost its operation in India.

Capgemini’s bigger rivals International Business Machines Corp. (IBM) and Accenture Plc. already have a massive presence in India. Capgemini has “a very low-margin business compared to its global peers like IBM and Accenture” which could be the reason for increasing its India offshoring, coupled with the fact that most of Capgemini’s clients are also going in for more offshoring today, said Sudin Apte, founder and research director with tech research firm, Offshore Insights.

In the last six-seven years, Capgemini’s offshore presence in India has grown from 10-12% to 45% today, and it has a very strong consulting practice, which is what will help it compete with peers such as Cognizant Technology Solutions Corp. and Infosys Ltd for the India business.

Capgemini, however, cannot be compared with IBM or Accenture, according to Apte. “Firstly, Accenture, which is considerably smaller than IBM, is still three times larger in terms of revenue compared to Capgemini. Secondly, both IBM and Accenture have 72-75% of their total resources in global delivery markets, while for Capgemini this number is about 54-55%.”

The 139,000 strong Capgemini had more than 50,000 employees in India. In comparison, IBM is estimated to employ about 150,000 people in India and Accenture, 100,000. Accenture entered India in 1987, IBM re-entered the country in 1992 while Capgemini started operations here in 2000.

By 2016, Capgemini, however, expects the number to account for half of its global workforce. Moreover, the company that has traditionally hired experienced professionals will also add freshers, said Jayanthi.

The company posted an 18% revenue growth in India on a total revenue of €5.1 billion in the June quarter, said Jayanthi.

About 85% of the work done out of India is divided between infrastructure management, application development and management, and consulting services while the remaining 15% comes from business process outsourcing (BPO).

“Our engineering services delivery that is being driven out of India will offer ‘digital engineering’ solutions to clients globally, with two-thirds of the business opportunity expected to come from the US in the next 12-18 months,” said Girish Wardadkar, global leader-engineering services, Capgemini.

Investing in the engineering space also allows Capgemini to offer a suite of services in addition to its traditional IT services, infrastructure managed services, BPO and consulting.

Capgemini, she added, with its six innovation labs in India will help drive 50% of the digital transformation required by clients out of India in areas like the Internet of Things, cloud, virtualization of the traditional application, development and management services.

Sanchit Vir Gogia, chief analyst and chief executive of Greyhound Research, acknowledged that Capgemini is building its capability in the engineering vertical but added that the company may face “tough competition from established Indian software services companies such as HCL Technologies Ltd, Infosys and Tech Mahindra Ltd, that already have a strong engineering practice”. “The company may also need to reduce its pricing by 25-30% to compete with Indian peers going forward,” said Gogia.


Offshoring, outsourcing and start-up salaries: The CIO’s hiring headaches revealed

September 9th, 2014

Tech chiefs on finding – and if needed making – staff with the right skills.outsourcing40
Even in an industry which is so apparently obsessed with feeds and speeds, getting the right staff with the right skills is still the key to success – and a tracking them down remains a big problem for IT.

Because the market for tech jobs is so varied it’s hard to generalise, but finding workers with the necessary abilities is a perennial problem, which might even be getting worse.

For example, in the UK tech salaries appear to be on the rise – and in the medium term the combination of an ageing workforce and a decline in the number of computer science graduates may mean that supply of staff continues to be constrained. Workers with in-demand skills around cloud, data science and web development are also able to command higher salaries.

And when asked ‘Are you able to find staff with the right types of IT skills needed for your organisation’ the majority of the CIO Jury members who responded said that hiring staff with the right skills was continues to be tough – even if the reasons they cite vary by industry and geography.

For some, the skills needed by IT staff have changed, making it harder to find the right balance. “Tech today is really about understanding/managing the interaction between people and technology,” said Jerry Justice, IT director at SS&G Financial Services. This means IT staff still need the aptitude for technology and people skills on top.

Similarly Chuck Elliott, CTO at Concord University said soft skills had to valued in addition to the hard ones: “Today’s IT staff must be capable of abstract reasoning, systems thinking, collaboration, relationship building, and experimentation.”

He added: “Skilled database administration and programming skills seem to be harder to find. As an older IT pro myself I would advise the more seasoned veterans to ensure they are keeping up with new and emerging technologies and that takes some serious effort.”

While the search for well-rounded individuals is common across many industries, some tech chiefs blamed the shortage of skills on some very IT specific issues, such as the rise of outsourcing.

For some time it has been argued that the tech industry trend to outsource and offshore IT jobs has made it much harder for college leavers to find new jobs (this then makes turns into a downward job spiral as companies can’t find local staff so have to outsource and offshore even more).

Derrick Wood, group CIO at Wood Group said the IT outsource model has not only limited and damaged career opportunities, it has also had a cultural impact on the positioning of IT with business leaders, “especially where IT reports in to CFO office and [is] perceived as an overhead cost which needs to be driven down to a commodity level.”

Wood said this means fewer school leaver or graduates will be attracted by a career in company IT, leading to a skills shortages not only in the technical areas, but in the softer skills around business systems analysis and project management.

Gavin Megnauth, group CIO at Impellam made a similar point: that even as demand for IT staff increases, since the financial downturn many organisations have halted their graduate and IT apprenticeship schemes and looked to lower cost offshore models to find skills.

But all this may have done is store up problems for the future. “The disruption of new emerging technologies over the past two years has left us with a skills shortage locally and the cost creep of offshoring over the past few years does now present us with issues,” he said.

Some tech chiefs point to the lure of tech start-ups: Brian Wells, associate CIO at Penn Medicine said “Finding software developers willing to work in the non-startup healthcare industry is a definite challenge.”

Similarly, John Gracyalny, VP of IT at SafeAmerica Credit Union said “Everybody here, even the dogs and cats, speak code. But I am fighting against Valley and San Francisco salaries – I’ve heard the average salary at Google is in the $120K range, and HR is convinced that I can get a senior java programmer for $60-70K. Not bloody likely.”

Others, like Florentin Albu, CIO at the Food and Agriculture Organisation of the United Nations point to a particular set of skills that are in demand. He said some types of skills can be found relatively easily – for example operations and infrastructure, application and app development on mainstream platforms and project management.

But he added: “I see a shortage of skills in areas that can at this moment bring strategic value to the business. I would consider in very much demand at present big data specialists, GIS experts, versed information managers and high end information security professionals, to name but a few.”

And when skills are hard to find, CIOs advocate a do-it-yourself approach – to train staff up. ” We are truly in a time of “Do more with the same”. The way we are addressing this is re-purposing (or retraining) existing folks to the new environment,” said Rocky Goforth, director of IT operations and infrastructure at Thoratec.

Tim Stiles, CIO at the Bremerton Housing Authority said: “We now recruit aptitude and attitude then train, train, train. Usually the outcome is perfect cultural fit and long term loyalty.”


IT Outsourcing Provider Infosys Gets Facelift With New CEO

June 24th, 2014

Last week’s announcement that SAP executive Vishal Sikka would be taking the top spot at Infosys may be an indication that the Indian outsourcing provider is capable of making fundamental changes in an attempt to regain its prominence in the offshore IT services industry. After all, Sikka will be the first non-founding CEO in the company’s history.Outsourcing_9a

“Something needed to change — and fast,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research. “He is new blood. He has youth on his side. He gives them the immediate facelift they were craving.”(Disclosure: SAP is a client of Stephanie Overby.)

In recent days, the Bangalore-based company also announced a dozen new executive appointments.

But it will take more than a few new faces to transform Infosys. While these executive appointments are important, says Thomas Reuner, principal analyst within Ovum’s IT services practice, what’s required is a complex orchestration of changes in a very competitive environment.

IT outsourcing, IT outsourcing, IT offshoring, Indian outsourcing, Infosys

Founded in 1981, Infosys became the face of India’s booming post-Y2K IT outsourcing industry. New York Times columnist Thomas L. Friedman credited Infosys co-founder and former CEO Nandan Nilekani with inspiring his 2005 business best seller, The World is Flat.

But in recent years, Infosys has struggled to keep pace with its Indian and western rivals. “Despite a pretty decent financial performance in the market over the last 18 months — though lagging its major Indian counterparts — it was still abundantly clear that Infosys was struggling to break from its legacy past and make the changes necessary to rebuild company morale, reinforce strategic direction, and reinvigorate the whole company culture,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research.

“The firm was getting squeezed and executives continued to leave the firm at a frequent clip — some voluntarily, but most forced out,” Fersht says. Infosys had come to be considered an old school offshore outsourcing provider by some.

New Infosys CEO, Vishal Sikka, Has His Work Cut Out For Him

Sikka is well-connected and well-liked by CIOs, say observers. But he will have his work cut out for him, most immediately in improving the deal pipeline at Infosys. “His first task is to fix the sales engine,” says Reuner.

Infosys has been overly dependent on smaller projects rather than large outsourcing relationships. “If you depend on discretionary spending, you’re in trouble when you encounter economic headwinds,” Reuner says. “They need a healthy percentage of their income to be predictable. We haven’t seen them win many large deals of late.”

Infosys also needs to further strengthen its platforms strategy, according to observers. “You only need to look at the acquisitions made by the likes of Accenture and IBM over the last couple of years to realize that cloud-based platforms that underpin analytical, consultative value-add services are the long-term future of services.” Infosys’ recent investment in its end-to-end Edge platforms were a step in the right direction. But “they’ve been struggling to execute on that,” says Reuner. Sikka’s technology product background could help.

Software executives, however, can struggle to make the transition to services. Consider Leo Apotheker’s short stint at hardware and services firm HP. “While we laud the bold approach Infosys is making by putting a technology products innovator at the helm, the firm is still primarily a services business with a services culture,” says Fersht.

“However which way we look at this, services is about people first. The CEO needs to understand what make millennials tick, how to develop training programs, how to keep wages low and morale high, how to develop succession plans and ‘up and out’ models that work, how to inject analytical and creative thinking into its staff.” Sikka must make the company’s front-line employees happier and stabilize the organization, agrees Reuner.

At the same time, Infosys needs to embrace increased automation. “This is more of a threat to current IT services and BPO delivery models, where advances in robotic automation software are enabling clients to reduce their already offshored services by a further 20 to 30 percent by replicating manually operated processes in robotic software solutions,” says Fersht.

“As robotics become more mainstream, because of client requirements, those providers with strong ability to replace labor with robotic process automation are going to be at an advantage.” Last year, Infosys struck a revenue-sharing partnership with robotic automation provider IPSoft, an indication that it recognizes that need to accelerate its automation option, says Reuner.

Time Will Tell if New CEO Will be Capable of Transformational Change

Sikka doesn’t take over until August. So it’s too soon to say whether the new CEO will be capable of making such transformational change. “Stabilizing the company is one thing,” says Reuner. “Catching up with peers who put in stellar results quarter after quarter is another. Even if you fix the internal problems, you still have the competitive pressure.”

While co-founder N R Narayana Murthy has officially stepped down, he could remain involved in decisions behind the scenes, which could thwart turnaround efforts, adds Renuer. “I don’t see him just playing golf.”

“Sikka needs to balance the realities of the present world with the one we’re moving into. Infosys isn’t IBM; isn’t at the sheer size and scale that it can throw all its eggs into the cloud basket and take its eye off the ball with its existing business. Infosys needs to keep one foot firmly planted in the reality of today’s business, while also developing for the future,” says Fersht.

“Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve,” says Fersht. “Coming up with the big vision is one thing. Executing on it is another.”


Why ‘Nearshoring’ Is Replacing ‘Outsourcing’

June 5th, 2014

I do think that manufacturing has a chance to stage a comeback in the U.S.. The cost discrepancies that made the economics of outsourcing manufacturing to far-flung places have changed dramatically. In the case of China, for instance, rising inflation and wage expectations have decreased the cost advantages the country’s manufacturers enjoyed over U.S. firms and some estimate that by as soon as 2015, the U.S. could be in a cost parity situation with Chinese manufacturers.Outsourcing18

As U.S. firms are becoming increasingly concerned about protecting their intellectual property, “nearshoring”—or bringing production closer to the point of use—becomes attractive as the risk of having important intellectual capital stolen is decreased. Having the capability to manufacture close to where customers are located can also increase customer responsiveness and decrease turnaround times, making the supply chain more predictable.

Being physically close to customers is also very positive for innovation. We’re also seeing a rethink of some of the taken for granted assumptions that led to so much manufacturing outsourcing, for instance, the assumption that a leaner supply chain is always a better one.

Natural disasters such as the Tsunami in Japan can knock out a supply chain that is insufficiently diversified, making redundancy in the system and the capability to manufacture in a number of places more attractive. And as we see advances in automation and digitization, personnel cost as a fraction of total value created can be decreased, again making the economics of offshoring less compelling.

Of course, challenges remain. Companies would have to rebuild their supply chains and identify people with the right skills to handle increasingly sophisticated automated operations. U. S. Tax policy makes firm reluctant to repatriate profits earned elsewhere, making it more difficult to find the resources to invest in manufacturing operations.


Offshoring more strategic than cost-cutting alone: Sundaram

May 29th, 2014

Most companies using business process outsourcing (BPO) are motivated by the opportunities to expand their client offering and not simply cost-cutting, according to India-based Sundaram Business Services. Outsourcing13

In a white paper published on Sundaram’s website, the outsourcing company, reported that an independent survey of directors of companies using BPO services ranked access to scale and faster processing, as having a higher impact on their businesses than lower cost.

Global Head of Business Development at Sundaram Business Services, Harish Rao, said the perception that offshoring roles was a tool for cost savings for accountancy firms was a “misconception”.

“More professional services firms see BPO as a multi-dimensional business asset and are using it strategically to help drive growth,” he said.

“The idea of BPO as merely a cost-cutting mechanism is fast becoming out-dated.”

Data from the company’s whitepaper cited Accenture’s 2012 Research Report Achieving high performance in BPO, which suggested that high performing businesses tended to be less motivated by cost when considering BPO.

The Accenture report found that two-thirds of high-performance businesses focused on the potential value of business benefits beyond cost alone, when considering adopting BPO.

“Pick up a newspaper or business magazine and the concept of BPO, offshoring or outsourcing is overwhelmingly described as a strategy geared towards cost cutting,” the company said. “But in professional services the reality is often different, and BPO has more strategic aims.

“Professional services firms have other motivations beyond cost for engaging BPO, such as managing a seasonal or fluctuating workload, accessing the security and efficiency benefits of scale and accessing a ready available pool of talent.

“The ability to offshore accounting tasks, while re-orienting staff toward higher value goals aimed at increasing revenues, is where BPO is most powerful.

“This has overwhelmingly been the case in Sundaram Business Services’ experience of SMSF processing, where more accountants and superannuation administrators are outsourcing processing work in order to concentrate on their core business.”


Why offshoring is hotter than ever

May 29th, 2014

While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.Outsourcing12

Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely – whether by an outsourcing provider or their own offshore shared service center.  And – as we’ve lamented on this site since the days when ACS was a market leader and people still used Yahoo! – enterprises are just obsessed with driving out cost – and then figuring our things like “transformation of processes” at some future point in time.

However, the difference today is that most of the perceived “risk” of moving offshore has gone and enterprises are simply doing it as part of their day to day operations.  The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:

The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing.  While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services – a similar trend to IT infrastructure.  Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring – almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations.  We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.

The Bottom-line:  The story today is about managing integrated services across global operations

1) The game has switched to integrated global operations management.  It was barely 2-3 years’ ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost.  What’s clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly).  They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves.  What’s more, many organizations are clearly not very impressed with the quality of their providers’ resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we’re seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called “Integrated Business Services”.  We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.

2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS.  While it’s not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today.  Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.

Net-net, offshoring provides a very durable BandAid for many organizations, and we’re still yet to witness a slowdown in the amount of offshoring that is taking place – in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher.  Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.

3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise.  Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan.  Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa.   As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.


Robots Are Starting to Make Offshoring Less Attractive

May 13th, 2014

The hype around robots taking jobs is reaching a crescendo, in response to an insightful new book The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, as well as an Oxford Martin School study: ‘The Future of Employment: How susceptible are jobs to computerization?‘ The former states outsourcing38that digital technology and robotics are advancing at such a pace that: “Professions of all kinds — from lawyers to truck drivers — will be forever upended. Companies will be forced to transform or die.” The latter claims that up to 47 percent of American jobs are susceptible to robots and automation within the next seven to 10 years.

Despite the doom and gloom, advances in robotics and associated technology are having a positive impact on local manufacturing and services and both sustaining and creating jobs. In developed economies, they have even sparked a trend toward the return of jobs from overseas, or “botsourcing.” This new wave of bringing production back home through robotics automation may be the single biggest disruptive threat to India’s $118 billion information technology industry. The more processes can be automated, the less it makes sense to outsource activities to countries where labor is less expensive.

The threat is being taken seriously elsewhere in Asia as well. Foxconn, the world’s largest contract electronics manufacturer best known for manufacturing the iPhone, has recently announced it will spend $40 million at a new factory in Pennsylvania, using advanced robots and creating 500 jobs.

Thanks to one of the most advanced robotic manufacturing facilities in the world, Tesla Motors builds its electric cars entirely in the US.

In each of these cases, the combination of advances in robotics and automation and rising wages in developing countries has upended the promise of cost reductions through outsourcing. Sutherland Global Services, an outsourcing company in Rochester, NY, says it can reduce costs for its clients between 20 and 40 percent by shifting IT work to a developing economy, but it can reduce costs by up to 70 percent if it uses automation software coupled with its U.S.-based employees to complete tasks involving high volumes of structured data.

Nobel Prize-winning economist Paul Krugman writes in his book The Age of Diminishing Expectations: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

The same is true of business: profits increase (or decrease) in proportion to the output per worker. Shifting work to places where labor is cheaper is one way to improve this in the short term. But over time technology is a far more reliable path to increased productivity.

In March 2012, Amazon announced the $775 million cash acquisition of Kiva Systems, a warehouse automation robotics company. By October 2013, Amazon CEO Jeff Bezos noted that they had “deployed 1,382 Kiva robots in three Fulfillment Centers.”  Yet Amazon continues to significantly grow its number of employees in these fulfillment centers, adding 20,000 full-time employees in the U.S. last year. This year, when the company announced that it was hiring an additional 2,500 full time U.S. fulfillment staff, it emphasized that the jobs had a 30 percent pay premium over traditional retail jobs. Technology done well doesn’t just replace workers, but makes them more productive.

For managers, the trend toward botsourcing will require a shift in thinking. Rather than moving operations to wherever work costs the least, consider which pieces can be automated, and how best to combine human and robotic expertise.


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