Posts Tagged ‘USA’

Obama’s New IT Project Initiative – A Step In The Right Direction

January 8th, 2014

The Wall Street Journal on Saturday had a front page article on the White House initiative to create a new agency to manage large IT projects and increase federal hiring of key IT specialists from industry.  The White House has stated this is in response to the failure of the rollout.outsourcing36

As someone who has provided IT services to the government (cybersecurity, software development, project managers) for over 12 years, I think this is a step in the right direction, but it misses some of the key reasons for the failure of the site and some of the blind spots in the current IT procurement process.

The problems noted by the White House are by no means new.  Dr. Marv Langston, former Department of Defense Chief Information Officer (CIO) noted these and other problems with the federal process for acquiring IT systems in his blog, here.

Congressman Darrell Issa (R CA-49), the Chairman of the House Oversight and Government Reform Committee, sponsored bill HR 1232, the  Federal Information Technology Acquisition Reform Act, with similar goals, reform the way in which the federal government procures information technology systems.

The problems the White House has noted in the Wall Street Journal Article without doubt exist.   These include the lack of internal expertise within some federal agencies to manage large IT projects, the extended hiring process to hire federal workers, and lack of a single concentrated government entity that manages IT projects.  In addition, the following issues compound the problem:

A contract selection process based upon the military industrial complex vs. innovation and fixed prices.  As a defense contractor, I find the term “military industrial complex” most often used by former (or current) hippies who believe that if the U.S. eliminated their military all the other world powers would follow our example and we’d join arms across the world and sing “Cumbaya”.  In this context, I use the term to describe an acquisition process which has been developed with huge influence from behemoth defense contractors with the aim of steering the huge bulk of federal money right back to…you guessed it!  To even bid on federal government work requires an infrastructure that would make most small business owners cringe, and the cost of dealing with the federal government compliance requirements drives up the price of services and goods well over what would normally be a market rate.

The prevalent use of “cost plus” contracts. Cost Plus contracts are used by the government to procure services or products that are too difficult to properly scope.  The government agrees to cover all of the contractor’s costs, and the contractor agrees to take a much lower profit (sometimes below 5%) in order to get the work.  Unfortunately, the use of these contracts has become more prevalent for several reasons.  First, is there is very little scoping requirement on the part of the government, they just pay the legitimate costs of the contractor.  Second, the idea of limiting contractors’ profit, or “fee” appeals to a large number of federal employees who chafe at the idea of contractors making “too much money.”  Unfortunately, the net effect of these contracts is apparent to any high school economics student: contractors continue to inflate their costs and the taxpayer pays far more than they should for the final product.  In addition, the contracts become viewed as a jobs program for contract employees (many of whom are retired federal or military personnel) rather than an efficient means of procuring services using taxpayer money.  I have seen hundreds and hundreds of IT contracts that are scoped not by the deliverables, but by the number of people that will be employed on the contract.  Can you imagine Microsoft outsourcing a large software project by stating that they needed “25 software developers for a five year period”?

Delegation to local officials who based awards upon local preferences vs the actual company’s capability.  “All government work is local.”  I have heard this quote many times over the years, and it is true.  Whatever state or region is assigned a specific acquisition project, the locally based federal officials are likely to give some sort of preference, overt or subtle, to local contractors or those with a strong local presence.  This is not a symptom of corruption necessarily, but it is human nature to trust those whom one knows.  Unfortunately, this can lead to skewed acquisitions that may exclude highly qualified companies that can’t afford to have an office in Littletown, Middle America.
A procurement process that is often delayed by months or years.   Many federal procurements take 18-24 months.  Even with those large timeframes procurements can often be delayed another 12-18 months beyond the due date, with an end result of a system that was scoped 3-4 years prior finally being awarded.  With technology cycles being what they are, the original procurement sometimes may not even be require any longer, or might have been supplanted by another technology.

A broken Small Business Innovation Research (SBIR) process .  This federal program started as a great idea, setting aside small (100K-$1M) research projects for small companies with easier an acquisition process to generate innovative ideas from something other than the typical huge defense behemoths.  Unfortunately, however, the program suffers from very low conversion rates from successful research projects to programs, partially because of the need for better integration with programs that it is supposed to benefit.  As stated, these programs might have been in procurement and in development for close to, or over, a decade and even if a SBIR program comes up with an innovation that could be useful, the ability to change the program to incorporate that innovation is highly limited, if not impossible without re-procuring the entire system.

Before trying to invent a new solution to something people familiar with the problem have been aware of for years, the White House should look carefully at Issa’s HR  1232 bill, it likely addresses most of the issues that cropped up with the ACA Healthcare exchanges.  It would have been good if someone from the White House had looked at it earlier, before attempting such a massive IT project without any assurances that it would simply “go” using the same old broken procurement systems.


Wipro’s Premji Says Co’s Best Days Yet To Come, Thanks To U.S.

July 26th, 2013

The executive in charge of Wipro WIT +0.86% Ltd, one of India’s biggest IT firms, said his companies best days are still ahead of it. And the U.S. economy is at least partially to thank for it.Chairman of Wipro Limited, Azim Premji l

Azim Premji, a Forbes ranked billionaire , said his company is poised for double-digit growth in the coming years thanks to the U.S. market, the Economic Times of India reported on Thursday from Bangalore.

Premji sang the U.S. economies praises in the companies annual general meeting, noting that the America market was better now than what is was at the start of the year. Outside of the U.S., the Middle East was the only other bright spot, home to rich frontier markets in the Gulf.

The double digit growth comment suggests that Premji is happy with the company’s first quarter earnings.

They will report earnings on Friday. The market also seems willing to believe Premji’s Wipro will meet its earnings target, with share prices rising by 0.7% in mid afternoon trade on the NYSE. Shares are down over 6% year-to-date, the worst performer out of India’s three largest Bangalore based IT outsourcing firms.

Insider Monkey reported today that hedgies were gobbling up Wipro shares ahead of tomorrow’s numbers. They said that seven of the hedge funds they track were long Wipro now, a change of 17% from one quarter earlier. The stock is up nearly 5% in the last five days, but nothing unusual as Tata Consultancy and Infosys are also tracking the same way.

With hedge fund positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly, according to the guys at Insider Monkey.

Arrowstreet Capital, managed by Peter Rathjens Bruce Clarke and John Campbell, built up the largest position in Wipro by the end of the quarter. Arrowstreet had $4.1 million invested in the company, according to Insider Monkey. Steven Cohen’s beleaguered SAC Capital Advisors also initiated a $400,000 position during the quarter. Insider Monkey reported that Bruce Kovner‘s Caxton Associates LP and Israel Englander‘s Millennium Management were also building their positions in Wipro.

Wipro still looks expensive. It’s trading at 28 times trailing 12 month (ttm) earnings while Infosys is trading at 16.5 times ttm and Tata Consultancy (NSE:TCS) is trading at 24.2 times, even after beating earnings estimates this month.

Wipro’s fiscal year ended on March 31, 2013.

Premji and Premji’s foundations and trusts are the biggest shareholders in Wipro. As of the end of March, he owned 93.4 million shares worth currently $768.72 million. Premji is India’s third richest man and the 91st richest man in the world, according to our calculations here at Forbes.

World wide, IT Services spending is expected to grow 4.2% in 2013 and 4.6% in 2014, according to India IT research firm Nasscom. The growth is fueled both by use of IT to reduce cost structure as well as increased adoption of cloud, SEO analytics and social media.

India continues to be the global sourcing leader. Global sourcing accounts for only a little over 10% of global technology spending and this highlights India’s growth potential in the context of the large and untapped market opportunity, Wipro said in its recent Annual Report.


US visa bill: Senators, IT industry tussle continues

May 16th, 2013

Senate supporters of a broad US immigration bill struggled to satisfy technology companies that want greater leeway to hire high-skilled foreign workers.

Democratic Senator Charles Schumer of New York took the lead in trying to broker a compromise on a visa program for skilled workers known as H-1B that has divided business groups and organized labor. The two sides are at odds over requirements that companies first seek Americans for any job openings and a prohibition on displacing US workers.

The tech industry and labor both wield a great deal of clout in the debate over a sweeping Senate bill that would step up border enforcement, give 11 million illegal immigrants a chance for citizenship and revamp visa programs for high- and low-skilled workers. The AFL-CIO labor organization says the recruitment and displacement requirements in the bill are merely efforts to protect American workers, while the tech industry argues the provisions are burdensome and in some cases unworkable.

Pushing on behalf of the tech companies is Republican Senator Orrin Hatch of Utah, who has not yet said whether he will back the broad immigration bill but says changes to accommodate tech firms could be crucial to his decision.

Hatch has introduced several tech-related amendments to the bill written by the bipartisan “Gang of Eight” senators. The amendments are strongly supported by Silicon Valley and business groups such as the Chamber of Commerce, but opposed by the AFL-CIO. The labor organization has a powerful ally in Senator Dick Durbin, an Illinois Democrat, who strongly opposes giving companies more leeway to hire foreign workers.

Schumer is working to settle the issue before a meeting of the Senate Judiciary Committee scheduled for Thursday, according to congressional aides and lobbyists. Schumer, Durbin and Hatch all sit on the Judiciary Committee, and Schumer and Durbin are members of the Gang of Eight.

Hatch’s support seen critical

The Group of Eight senators, who have pledged to work together to preserve a consensus on the immigration bill, met on Tuesday night. The H-1B visa program was one of the issues discussed, according to congressional aides. The group has been urging both sides to reach a deal on the visa program and considers Hatch’s support to be important for the bill’s chances in the full Senate and in the House because of the message it would send to other Republicans.

“I think the rest of the group understands that Hatch’s support is critical,” one congressional aide said. “We need all the support we can get. Senator Hatch has said that if we can address the H-1B issues in the bill, that he can support the legislation.”

A system known as “E-Verify” that allows US employers to check the legal status of workers is also proving to be a divisive issue in the discussion of the immigration bill.

Under the Senate bill, use of the system would be mandatory for all employers within five years. But businesses and many civil liberties groups worry about an error rate in which roughly one out of every 400 searches turns up incorrect information. That sometimes happens because of errors in typing names into the system or because of issues such as confusion over name changes for people recently married.

In an amendment backed by a broad array of interest groups, Democratic Senator Al Franken of Minnesota has proposed delaying the full implementation of the verification mandate for companies with 14 or fewer employees unless the Department of Homeland Security, which oversees E-Verify, can certify the system meets a certain accuracy rate.

The amendment is backed by groups including the American Civil Liberties Union, several immigrant advocacy groups and some small-business organizations. But it is strongly opposed by the National Restaurant Association, which says exempting some businesses but not others would make for unfair competition.

“It’s a deal-killer. If you start creating exemptions, how are people going to see that you are serious about enforcement?” said Angelo Amador, vice president of labor and workforce policy for the National Restaurant Association, which represents some 980,000 food-service establishments.

But Chris Calabrese, legislative counsel for the ACLU, said the amendment would keep pressure on the Department of Homeland Security to try to ensure E-Verify is as accurate as possible. “I think what this does, which is so important, is it keeps the focus on accuracy, in a real and meaningful way so that there will be an actual consequence if the system is not accurate,” Calabrese said.


India on US healthcare radar for offshore services: Omega India chief

December 18th, 2012

India has been a prime beneficiary in offshore services and is now on the radar of US healthcare industry for the same, said Gopi Natrajan, co-founder, president and CEO, Omega Healthcare.offshore

There has certainly been a growing dependence by the US healthcare industry in the area of offshore services provided by Indian companies, in the last three to four years. All the apprehensions, that were around, were about India and its workforces’ ability to handle the complex US healthcare processes along with the confidentiality requirements. “Now these problems are viewed as issues of the past. What we are witnessing is the offshore healthcare Knowledge Process Outsourcing (KPO) / Business Process Outsourcing (BPO) segment growth anywhere between 30 to 35 per cent a year,” said the Omega Healthcare India chief in an email interaction with Pharmabiz.

The entire healthcare KPO/BPO market today in India is valued over $300 million and probably the sector employs anywhere between 20,000 to 25,000 people.

In the US, the healthcare industry is the single largest industry of the US GDP and is about $2 trillion in size.

The outsourced market in the healthcare segment is estimated to be around $8 billion. A good portion of this will always remain in the US, but it is quite  safe to state that the market is severely under penetrated and offers great potential and growth for the right companies in India. Some of the other notable companies in this space are Dell/Perot, e4e, GeBBs Healthcare, and Ajuba Healthcare, he pointed out.

“Despite the growth potential, the biggest challenge in my opinion is getting qualified resources to do the complex work that is coming our way.  Educational institutions continue to churn out a lot of graduates but the quality of the students graduating and their knowledge level seems a lot to be desired. Therefore, in India English speaking skills must improve a lot but colleges do not seem to focus on this aspect of human resources development,” he said.

The other big challenge is the Government’s unfriendly business policies and tax changes which will inhibit the growth of the companies and ability to scale. While in the case of other countries, with tax friendly policies and laws, could over the years be more attractive and will start attracting businesses which will pose a serious problem for India, stated Natrajan.


India needs to lobby better on outsourcing: Jagdish Bhagwati

November 22nd, 2012

Noted economist Jagdish Bhagwati on Wednesday said the country should take the anti-offshoring bogey in the US seriously and lobby hard to counter its effects.

“We would be foolish to continue pretending that `this (anti-outsourcing tirade) does not matter’, and it is simply a ‘political patter’. With jobs a continuing issue, any time politicians in the US condemn outsourcing, we lose brownie points,” he said. india-needs-to-lobby-better-on-outsourcing-jagdish-bhagwati

“There is little doubt that Obama and the Democrats in general have never ceased their refrain against outsourcing from the outset of the first Obama term. Of course, outsourcing means not China, but India,” the professor of economics and law at the Columbia University said, delivering the Exim Bank’s annual day lecture here this evening.

There has been a lot of posturing on outsourcing by President Obama during his re-election campaign, but now India must tell the US administration that post-victory, they should stop the rhetoric and work for the benefit of the sector, Bhagwati said. “There does not have to be confrontation…there is no excuse for him to keep spreading this poison,” Bhagwati added.

Stating that the US political system functions through articulation and lobbying, he said New Delhi and the Indian industry must do better lobbying. “We have to convey what we want and why because one of the things which I notice in America is that unless you say you want something, they don’t pay attention. “It’s a lobbying-led system.”

Bhagwati cited a conversation with a New York mayor, who complained that Indians were not vocal about their demands, unlike other communities. Indian policy efforts in US have met with some successes like the nuclear deal. But on many other issues including the outsourcing, they have not elicited results.

Bhagwati was unscathing in blaming the Indian diaspora, saying the community needed to go beyond their interest in mere “photo opportunities” and “darshan mentality” to achieve success in US.


Skill shortage will force US to live with offshoring: IT companies

November 9th, 2012

The Indian IT industry would have preferred not to have another four years of Barack Obama, having been at the receiving end of higher visa fees, lawsuits on misuse of visas and general anti-offshoring rhetoric during his first tenure. But some veterans said the Indian IT sector was “too big and too important” to the US to be affected much by whatever Obama now does.

IT industry body Nasscom’s president Som Mittal said Indian tech services firms help the US to become more efficient and competitive. “And they have a shortage of skills. There is now growing realization that we are part of the solution (to the US’s problems),” he said. He has some statistics to bear him out. In May this year, a group called the Partnership for A New American Economy, backed by US technology industry bigwigs, released a report that said that if the US did not adjust its immigration policies to make it easier for foreign born technology workers to reside in the country, it could fall behind the rest of the world in growth and innovation.index6

The argument was based on the finding that the demand by US companies for talent with degrees in STEM (science, technology , engineering and math) was rising three times faster than jobs in the rest of the economy , but these positions were “the hardest to fill because of the dearth of native-born Americans with these degrees” . The report said the US would face a shortage of 224,000 hi-tech workers by 2018.

Vineet Nayar, CEO of HCL Technologies , isn’t worried either. “We are increasingly being called upon by US corporations to drive revenue growth through technology innovations and even creating local jobs,” he said. Blake Chisam, who leads the professional practice at Washington-based immigration law firm Fragomen, echoes that sentiment. America, he says, is heavily focused on innovation and therefore it cannot afford to stop the entry of tech specialists and domain experts from India.

Krishnakumar Natarajan , MD of IT company Mindtree , also noted that protectionism in the US was no longer in conflict with the Indian IT industry, given that many Indian IT companies were establishing centres in the US. “Earlier, we were merely offshoring work to India . But given that we are now doing much more work that is core to the customer, we have to be closer to the customer,” he said.

However, Phaneesh Murthy , CEO of iGate, said Obama’s victory was “not the best news for India or the IT outsourcing industry” , given his record with visa regulation and pressure on American companies to insource (drawing outsourced jobs back inhouse ). Pari Natarajan, CEO of IT consulting firm Zinnov, noted that General Motors had begun insourcing IT work and believes that Indian IT companies are being too optimistic. “If US companies find that they can get offshored work done at similar rates in a tier-2 US city, they may start doing that (given the implicit pressure from the US government ),” he said.

May be GM is an exception, and may be Som Mittal is right when he says the problem for America is China, not India.


How the Presidential Election Will Impact IT Outsourcing

November 5th, 2012

The issue of offshore outsourcing and its impact on American jobs has been front and center throughout the 2012 U.S. presidential campaign. But as election day draws near, both President Barack Obama and former Massachusetts Governor Mitt Romney are singing more or less the same tune on the subject-offshoring is bad; job creation is good.

But what will be the actual impact of the presidential election on offshoring and outsourcing in general? Will a Romney administration set a different tone on the subject of offshore job creation if he takes office?
Would a second Obama term result in new taxes on offshoring or increased skilled worker visa requirements or restrictions? Will either candidate’s policies encourage domestic sourcing? And what’s to come for public sector outsourcing at a time when federal, state and local governments are under increasing cost pressures?
We looked at each of four key subjects–offshore outsourcing, domestic sourcing, skilled worker visas, and public sector outsourcing–to see what difference, if any, the man taking the oah of office next year might actually make.

1. Offshore IT Outsourcing
Obama has talked about ending tax breaks for companies that “ship jobs overseas” since his 2008 campaign, namely those parts of the tax code that enable enterprises to write off expenses incurred when moving business operations abroad. While that might affect companies that offshore IT services to themselves–setting up captive operations overseas–it would have no impact on those who outsource offshore to a third-party like IBM or Infosys.

Democrats have been pushing the issue of tax breaks for offshored work, but they’ve been pushing that since the 2004 election. They won’t do anything if they control Congress and the White House next year either. A Romney administration will likely tone down the rhetoric but deliver the same results.

Expect that kind of talk to continue if Obama is elected, says David Rutchik, partner with outsourcing consultancy Pace Harmon. Action, however, may be less likely.
“Offshoring under an Obama administration and Democratic Congress is likely to remain under some pressure, at least with respect to rhetoric,” Rutchik says. “The reality, though, is that offshoring is here to stay, and has been utilized significantly under the current Obama regime and will continue to be an important service delivery model for U.S. corporations to compete globally.”

“Democrats have been pushing the issue of tax breaks for offshored work, but they’ve been pushing that since the 2004 election,” says Norm Matloff, a professor of computer science at the University of California, Davis.

“Remember, Obama had a Democratic Congress in 2009, and they did nothing on this,” says Matloff. They won’t do anything if they control Congress and the White House next year either. It’s just a phony issue.”

A Romney administration will likely tone down the rhetoric, says Rutchik, but deliver the same results.

2. Public Sector IT Outsourcing
Public sector outsourcing is bound to increase regardless of who lives at 1600 Pennsylvania Avenue. According to a September, 2012 survey of public sector finance executives conducting by outsourcing analyst firm HfS Research, lowering costs and improving efficiency are their two most important objectives.
“Governments–whether state, federal or local–need more levers to reduce costs, and guaranteeing government salaries and corresponding increases, combined with the relative difficulty in enacting labor force reductions, are not the answer,” says Pace Harmon’s Rutchik.

Both shared services and outsourcing can be part of the short- and long-term solution for reducing the costs of back-office functions while maintaining front-line services, says Phil Searle, research fellow for shared services strategies for HfS Research.

“A Romney administration may be more open about doing this as it’s consistent with their messages of smaller government,” says Rutchik. “And they are more likely to look at outsourcing than increasing government payrolls.”

3. Domestic IT Sourcing
Sourcing IT services closer to home will continue to increase, regardless of politics.

“Based on the current economic climate, the value equation has shifted toward encouraging domestic sourcing in a very natural manner,” says Paul Pinto, managing partner with outsourcing consultancy Sylvan Advisory. “India experiencing double-digit growth in salaries and attrition coupled with the U.S. experiencing double-digit decreases in the same key indicators [means that] buyers of services are now able to capture a similar degree of value by electing to use domestic providers.” Offshore outsourcing pioneers, including GE and GM have recently announced plans to bring thousands of previously offshore roles stateside.

Incentives, like those that currently exist at some state and local levels–as much as $5,000 per full-time domestic employee used for a period of up ten years in some states–could encourage even more domestic sourcing. Pinto found that a client setting up a 212-person sourcing deal benefitted from $5 million in government incentives over the five-year contract, tilting the scales in favor of sourcing the work in the U.S.

“Should President Obama be re-elected, we envision the existing incentives to continue, thereby encouraging metered growth in domestic sourcing, while continuing to allow outsourcing to play a meaningful role,” Pinto says. But Romney’s more recent fair trade stances could indicate a desire to encourage domestic sourcing as well, says Pinto.

4. H-1Bs: Skilled Worker Visas
The skilled worker visas used to bring foreign IT professionals to work temporarily at U.S. sites is usually a hot election year topic, in large part because many critics of the programs say they result in lost American jobs. But those visa programs didn’t merit a mention in the presidential debates. “I think it’s no accident that H-1B didn’t come up during the campaign,” says Dr. Matloff, a leading critic of the visa program. “Both parties are equally culpable.”

Romney has promised to “raise visa caps for highly skilled foreign workers” if elected, presumably a reference to the annual cap on H-1Bs set at 65,000 for the 2013 period. That cap, however, is controlled by Congress.

Obama has said he wants to make it easier for students with advanced degrees to stay and work in the U.S. And both candidates seem to agree that skilled foreign professionals are essential to American innovation.

“A Romney administration and Republican congress is more likely to ease the restrictions [on temporary skilled work visas], which would actually enable more onshore outsourcing as suppliers can bring in lower cost, higher skilled resources to provide onshore support,” says Pace Harmon’s Rutchik.
In recent years, Congress has raised fees on the H-1B visas, and increased scrutiny to prevent fraud or misuse has led to delays in processing applications.
Before either man takes the oath of office in January, Congress could vote on one of the “staple a green card” bills currently in committee during its lame-duck sessions, which would award green cards to diplomas of those earning certain accredited degrees in science, technology, engineering and math.


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