Source: www.itp.net

Setting the tone for its May 2008 conference on global outsourcing trends, Gartner recently released a report on outsourcing in 2007, titled ‘Gartner on outsourcing 2007-2008′.

The report states that the global outsourcing market continues to grow at a steady pace and forecasts a healthy growth rate of 8.1% in 2008. However, organisations continue to struggle with multiple challenges.

“Although user organisations often have fundamentally sound procurement organisations to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives,” said Kurt Potter, research director at Gartner.

Because these organisations lack the building blocks for vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain.

In extreme cases, the lack of needed trust and control to optimise the outsourcing relationship results in deal failure. But, more organisations are focused less on outsourcing for cost savings than previously and more on using providers’ global delivery models to access the right skills at a reasonable price.

According to Gartner’s study, although outsourcing continues to grow, publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) contract values decreased overall by 50% in 2007.

Part of the explanation for this apparent discontinuity is that as the outsourcing market matures and becomes more commonplace, there is less publicity of deals. Companies are simply outsourcing more, but electing to use a multiprovider strategy and more deals are simply smaller in size, with many of these deals not large enough to report.

In 2008, we expect to see some early adopters of multisourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers,” said Potter.

Because of multisourcing complexities often associated with handoff points between competing providers and unclarified vendor management processes, some organisations will consider prime-contractor outsourcing models or the appointment of new vendor management roles in their retained organisations.

The report states that buyers are increasingly moving work to lower-cost, offshore delivery centres. Although cost remains a major driver for global delivery models (GDMs), more mature users are seeking ways to better support their business needs.

Indian providers gained traction in Europe in 2007, but faced strong competition from more established vendors with GDMs. Although spending on offshore services is three times higher in North America than in Western Europe, the gap is closing.

“Other countries will continue to emerge as challenges to India for a number of reasons,” said Ian Marriott, research vice president at Gartner. “Strong demand is putting a strain on the available Indian labour force, while staff attrition and cost increases remain high.

More sophisticated buyers are seeking a multi-country strategy to minimise risk and align nearshore and offshore delivery centres with their primary time zones. Although India’s offshore revenue will continue to grow, the country’s share of total offshore spending will decline slightly in 2008.

According to Gartner, the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond.

The trend toward software-as-a-service (SaaS) is gaining the most traction with major software vendors and large internet players, making announcements about new SaaS offerings and mass-customised software platforms. Firms need to realise that the utility delivery model is a viable alternative and they should seriously consider utilities in their sourcing strategies, the report states.

Source: advice.cio.com

No matter how much due diligence you attempt, making a decision on contracting with an onshore or offshore IT service provider is much like buying promises. To some extent you are going to have to trust in your selected partner to be committed to providing your company with the high quality services that they have promised. Your lawyers will surely not agree but offshore contracts are only worth the integrity of the company that you are contracting with. Dun & Bradstreet does not include this metric (integrity) in corporate profiles yet and it is not on a credit report either. One of my partners in Brazil would often tell me “Henry we are highly motivated for this opportunity”, but I did not fully understand the value of that statement until we got into the trenches together.

Here are a few of the promises you are accepting or questions you may have doubts about when signing that offshore IT staff augmentation or support contract:

1. Will I really get the hours I am paying for?
2. Is my intellectual property and information secure?
3. Am I really going to be provided with qualified professionals?
4. Will billing rates go up after I train the new team in my business?
5. Can I reach this vendor when I need immediate support?
6. Will this vendor work with me when the going gets rough?
7. Is this a stable country politically, socially, and economically?
8. Are currency exchange rates an issue?
9. Is this a safe country for business travel?
10. Is this vendor’s location in a safe part of town?
11. What is the cost of business travel to this location?
12. What is the cost for offshore professionals from there to travel to the U.S.?
13. Can professionals at this location get a U.S. passport and visa for U.S. visits?
14. Are U.S. contracts legally binding in this country?
15. How long does it take to get a visa and passport for team members to make training and onsite orientation trips to my location?
16. What will it cost for visas and passports for your offshore team?
17. Will the offshore team have someone full time who is experienced in managing offshore projects?
18. Is this a stable company, i.e. good credit and strong experienced management?
19. Does this vendor’s company have the interpersonal skills to work with my company?
20. Does this offshore vendor have executive management that speak English and will be responsive and share your since of urgency?
21. Are this vendor’s team management and executive management going to be available in your workday time zone on short notice when you need them?
22. Can this vendor grow with your companies needs?
23. Do they have commercial liability insurance, errors and omissions insurance?
24. Can they buy commercial liability insurance in their country?
25. Will they work in your workday time zone?
26. Does this company have a secure network infrastructure?
27. Is their network infrastructure professionally designed and firewall protected?
28. Is their facility physically secure?
29. Are extreme weather conditions a factor affecting travel, security, or work schedules in this country?
30. Does this location pose natural disaster risk to your business?
31. Is this vendor going to be flexible as your needs change?

No matter how much time on money you spend developing a clam tight contract with an offshore outsourcing provider you never want to have to consider international litigation or international arbitration for contract disputes. Unless your needs are well defined and static, which I have never seen, the requirements better be very general in that contract or they will need review and changes before the ink gets dry.

In any offshore project establishing good relationships are key to clear communications. I have been nurturing relationships with our offshore partner locations in Brazil and Panama for years. These business relationships in South and Central America have been proven dependable over the years. Integrity, trust, mutual cultural respect, and a shared since of urgency make these relationships a key benefit to every contract we enter.