A couple thoughts inline. Thanks, Brian Desmond [email protected]
c - 312.731.3132 From: Andrew S. Baker [mailto:[email protected]] Sent: Wednesday, October 14, 2009 9:49 AM To: NT System Admin Issues Subject: Re: Outsourcing Discussion Congrats, Sherry. :) Let me attempt to provide you with some answers regarding different outsourcing arrangements that I have seen or experienced. Please note that some of these perceptions or observations do not bear out entirely as planned in implementations, because many organizations simply outsource their existing chaos, in which case both parties lose. What is the economic justification given for outsourcing? There are several economic justifications that can be given for outsourcing. * Flat monthly costs vs variable costs * Elimination of costs pertaining to training on new systems or technologies * Reduction or elimination of costs related to non-core processes * Cost of staff, including people redundancy If an organization has not kept up on technologies relevant to their industry, they will often find it more expensive to train existing staff and get them up to speed on the new technologies before they can implement them. Also, they may have escalating costs related to functions such as a 24x7 help desk, where they would pay a lot less by outsourcing to someone who can obtain far greater economies of scale. DataCenter hosting is one form of outsourcing that is deemed very acceptable to all parties concerned, and addresses economies of scale for power, bandwidth, cooling and space. And for staff, in many cases. Where is the outsourcing taking place? (Obviously, I'm focusing on the IT field, specifically technical support) There are many destinations for outsourcing. From the US perspective, there are on-shore options, near-shore options (Mexico, Canada), and off-shore (Eastern Europe, India, China). [[Brian Desmond]] Canada costs are pretty close to US. I would consider them onshore. I always called Eastern Europe near shore but that's debatable. India is still the superpower in this category, but China and Eastern Europe are looking to gain that status in the near-term. Various South American countries are also vying for recognition here, even Costa Rica, which is not really known for low staffing costs. [[Brian Desmond]] Costa Rica is actually well established here. The problem in Costa Rica is simple. They have exhausted their talent pool. Pretty much every qualified guy is working for someone down there. Hiring takes forever and finding qualified candidates is like pulling teeth. In India I can post a job req and have 100 resumes within 24 hours. Panama is IMO the next big near shore thing. If you look at Help Desk / Call Center support, the first cost benefit is realized by not having to pay for each individual call center staffer (and, hopefully, their backup). Also, infrastructure costs associated with the call center, such as power, additional phone system or phone lines (or phone system features), bandwidth, can be minimized. Costs associated with training will go up, depending on what is turned over to the outsourcer, but usually, these costs are seen as less than ongoing in-house staff training. [[Brian Desmond]] It's usually the outsourcer's job to be current on N and N-1 or similar depending on how the contracts are written. Good luck with getting decent support on N though in many places. What types of jobs are these workers performing? The following job functions are prevalent in outsourcing models: * Call Center / Help Desk * Desktop Support (onsite or remote assistance) * Systems & Networking Support (onsite or remote assistance) * Application Development (remote) [[Brian Desmond]] Most of the big companies are actually happy to fly in app dev people from an offshore location and bill them to you at a very low rate. * Network Security (local equipment, with remote monitoring/management) * Systems Hosting (remote) * Application Hosting (remote) Desktop and Systems Support tends to be near-shore more often than not, particularly in smaller deals. In larger deals, all of it can be very remote, with some local Desktop Support presence, usually from existing staff that have been turned over to the outsourcer. [[Brian Desmond]] Not always near shored with small deals in my experience. With small deals you still need to have enough guys to cover 24x7 potentially and to get that number you may need to go offshore just to get enough savings to justify the deal. Some companies can do shared delivery which helps here, but, getting some guy fractionally allocated to 3 deals to work right is challenging. What is the benefit to the business? To foreign workers? The benefit to the business is cost stabilization. Deterministic costs are the holy grail of every finance department. And it gives more flexibility for ongoing pricing. There are less laws associated with altering a vendor service contract than with terminating staff or messing around with employee benefits. This is true even in "at will" employment scenarios. If done well, outsourcing can add new capabilities to an organization that could not afford to pay for enough existing staff to become proficient with that technology. And it allows an organization to pay for more staffing redundancy than if they staffed locally. They contract to obtain year round staffing at a particular level, and the vendor absorbs the costs of vacations, sickness, training and other time off. Another option is when you're dealing with obsolete technology, and can't find any employees that either know it or want to stick with it. That's a good reason to outsource the whole thing if you cannot get rid of the technology in question in a timely fashion. The benefits to foreign workers? That is less clear. For some, especially in India and China, it can represent an opportunity for income that exceeds the norm for their population. It can also give them skills needed to compete if they come to the US with H1-B visas (or the equivalent for Western Europe). Beyond that, I haven't seen any good material that suggests what the benefits for foreign workers in an off-shore model. [[Brian Desmond]] Depending on the company the pay isn't actually all THAT great relative to the local economy. Just one note, to reiterate an earlier point -- In many complex outsourcing arrangements, companies don't get the full ROI that they projected because of the following items that I will just highlight... * They underestimate what work is being accomplished by the existing staff, and contract for less than what they really need [[Brian Desmond]] Yes - gray spots galore in a typical transition * The outsourcer is not readily able to deal with the nuances of their particular business, and some agility is lost, or requires additional costs to remediate * They outsource extreme chaos, which results in the outsourcer failing to make the SLA or the outsourcer raising costs to compensate [[Brian Desmond]] Hard to raise the price, but, the costs internally (and SLA penalties) go up and the outsourcer's margin goes down and their interest in anything other than getting as close to breaking even as possible becomes the driving goal in their model. * They underestimate the level of staff turnover at the outsourcer, which can happen in the highly competitive Indian outsourcer industry * They underestimate language and time barriers which make coordination far more difficult * They experience more turnover than expected from their former in-house staff, and this undermines the initial knowledge transfer [[Brian Desmond]] One of the ways to manage this is to offer retention bonuses to anyone who stays on through the transition. Also when deals are negotiated there is often some number of guaranteed badge transfers in the deal so some percentage of the people will keep their job or at least be doing similar work for another company at the outsourcer. [[Brian Desmond]] One bullet I see missing is just a misunderstanding of culture. There are expectations in the American work ethic that simply don't apply in overseas locations. Trying to make these folks work "your" way is like shoving a square peg into a round hole. It won't happen. You have to learn to adapt. Many organizations have a lot of trouble with this. There are actually times where outsourcing works, and where it makes sense to consider or pursue, but all too often, greed and incompetence get in the way. ASB (My XeeSM Profile)<http://XeeSM.com/AndrewBaker> Providing Competitive Advantage through Effective IT Leadership On Tue, Oct 13, 2009 at 8:57 PM, Sherry Abercrombie <[email protected]<mailto:[email protected]>> wrote: Guys and gals, I've returned to college this fall after about 15 years to finally finish up a degree I started on about 25 years ago. One of my classes this semester is Macro Economics. Last night my professor gave us an essay question for a test next Monday that is potentially 50% or more of our test grade. The topic is on outsourcing and I wanted to toss this out for discussion, input, personal experiences etc etc. The questions I have to answer are: What is the economic justification given for outsourcing? Where is the outsourcing taking place? (Obviously, I'm focusing on the IT field, specifically technical support) What types of jobs are these workers performing? What is the benefit to the business? To foreign workers? I talked with my professor and told her what approach I wanted to take, from the end user perspective, and that I had experienced the tech support being outsourced. She liked that idea a lot. Obviously, I will be looking for other news articles to support my essay. What I'm looking for is thoughts, opinions, personal experiences from an end user perspective, has anyone here been outsourced? What was that like? I'm just taking an informal poll from a group of my peers that I know has had personal experience in some way with this subject. Try to keep it on topic, I did get Stu's OK before sending this, so a big Thanks Stu for the use of these lists to help with my exam. -- Sherry Abercrombie "Any sufficiently advanced technology is indistinguishable from magic." Arthur C. Clarke Sent from Haltom City, TX, United States ~ Finally, powerful endpoint security that ISN'T a resource hog! ~ ~ <http://www.sunbeltsoftware.com/Business/VIPRE-Enterprise/> ~
