IT Outsourcing India

The federal IT outsourcing market is expected to increase at a compound annual growth rate of 5.9 percent, from $13.3 billion in FY 2006 to $17.7 billion by FY 2011, according to a report released by INPUT, the authority on government business. The report emphasizes a continued shift within the federal market away from a government- owned, government-operated model toward a contractor-owned, contractor- operated approach. This shift is fueled by the impending federal IT workforce shortage, war in Iraq, and federal contract spending slowdown, already in motion before the passage of recent Continuing Resolutions.

“Increasingly, as agencies outsource more core activities, they may not necessarily want to compete business as an A-76 competition when they can multi-source to procure needed services at a much faster rate,” said Dr. Trina Dinavo, senior federal market analyst at INPUT. The Office of Management and Budget’s Lines of Business initiative and lengthy competitive sourcing competitions will cause agencies to seek more viable cost-effective and efficient alternatives through outsourcing. “In addition, as the new Congress questions the current competitive sourcing cost savings formula, agencies will choose the path of least resistance as a matter of expediency,” added Dinavo.

According to the report, perhaps the most important factor leading towards a greater reliance on outsourcing in the future is the fact that a significant portion of the federal technology-related workforce is entering retirement age. The level of federal IT skill in the out years is not very promising to meet the federal IT demands of the future. As baby boomers choose retirement, federal agencies will outsource more and more mission-critical functions if the talent needed to perform these tasks can be done more efficiently and effectively by contract personnel in the private sector.

“By the end of the forecasting period, agencies will have switched to a wholesale preference for smaller outsourcing contracts or multi-sourcing contract arrangements. This could be viewed as a total about-face when considering the recent trend in favor of the outsourcing mega-deal,” said Dinavo. To obtain the IT talent required and to minimize the costs of acquiring new technologies in relatively short time frames, the report maintains that spending in the areas of business process outsourcing and application services will contribute the greatest growth to the federal outsourcing market over the forecast period.

Source : www.offshoringtimes.com

Some 89% of the customer organizations surveyed by KPMG say they plan to maintain or increase their current level of outsourcing. So why do many of the other survey findings paint such an unflattering picture of these relationships?

KPMG International last week released the results of a survey it conducted on global outsourcing, prompting various pundits to conclude that the industry and customer relationships are stronger than ever.

Among the high points: 42% of customers surveyed think their outsourcing contracts have “definitely improved” their financial performance; 47% think their service providers brought to their business experience that they previously didn’t have; and 62% take exception to the conventional wisdom that “as many as half of sourcing deals fail.” Perhaps the most positive finding: 89% of the customer organizations surveyed say they plan to maintain or increase their current level of outsourcing.

On the whole, KPMG’s 34-page “Strategic Evolution” report is balanced, especially for a vested global services interest such as itself. KPMG surveyed C-level and other execs at 650 organizations in 32 countries, 80% of them involved in IT outsourcing and most of the rest involved in business process outsourcing.

A critical eye, however, finds a dark side to many of the trends presented in the report and parroted by the punditry as positive. Let’s start with KPMG’s attempt to debunk the myth that half of outsourcing deals fail. While 62% of customer respondents to the survey consider this statement a “gross or mostly an oversimplification,” 25% say it’s “not an oversimplification but not entirely appropriate” and 13% say it’s “mostly or an entirely appropriate view.” It’s hardly a ringing endorsement when 38% of outsourcing customers think that, to some degree, up to half of these contracts flop.

Meantime, if 47% of customers think their service providers impart experience that they previously didn’t have, then it stands to reason that the other 53% think their outsourcers impart little to no such experience. From my conversations with various IT executives, this is their No. 1 concern with outsourcing: Suppliers, for all their technical smarts, just don’t understand the businesses of their customers.

It’s the main reason Sprint Nextel’s Richard LeFave nixed a long-term outsourcing contract with IBM–pulling back “full application ownership, including full life cycle management, architecture, system analysis, and design”–when he took over as CIO of the merged telecom company last year. And it’s why Jamie Dimon did the same thing a little over a year ago when he became CEO of JPMorgan Chase. Dimon has said that the banking giant is as much a technology company as General Motors is a manufacturing company. No outsourcing supplier can know its core business better.

KPMG also found that 42% of the customer organizations it surveyed think their outsourcing contracts have definitely improved their financial performance, but only 27% think they have definitely improved their competitiveness. If outsourcing suppliers aren’t doing one or the other for their customers, they’re not doing much.

Part of the ambiguity with these responses goes to another survey finding: 72% of customers say they don’t have, or don’t share with their service providers, criteria for measuring the success or failure of their outsourcing engagements. “Success is ill-defined,” KPMG quotes the CEO of one manufacturer. “Measurement of business benefits is difficult, and there is a tendency not to measure.”

Clearly, customers are still finding their footing. Last year revealed a trend toward shorter, smaller, and more specialized outsourcing contracts, producing a record number of total deals, according to advisory firm TPI. However, the fourth quarter of 2006 was the worst fourth quarter in five years when it comes to the overall value of brand-new outsourcing deals. For the year, “total contract value” declined 8% compared with 2005, to $78 billion, TPI reports.

As much as $100 billion of outsourcing contracts are due for renewal this year. We’ll see how strong these relationships really are.

Source : www.offshoringtimes.com