I just finished Robert Kennedy’s ”The Services Shift”, a book on the globalization of services, with an emphasis on Information Technology.

Kennedy is a Professor at Michigan’s Ross School of Business. He also runs the William Davidson Institute — a fairly prominent think-tank that focuses on business and policy issues in developing countries.

This book is a goldmine:

• IT managers will find very detailed and clear information on what, when, where and how to offshore
• Outsourcing vendors will find relevant and not-so-well-known information on industry trends.

But hold on, there is more. Because the book goes far beyond the technicalities of services offshoring, literally everybody would benefit tremendously from reading its sections 1, 2, 6, and 7.

In fact, if you think the book is of no concern to you, consider one mind-blowing statistics shown in it: in the USA, services represent a staggering 83% of the country’s GDP.

The author managed to stay away from politics and partisanship. The book carries nothing like Lou Dobbs’ low-level propaganda or Thomas Friedman’s provocative views.

Kennedy sticks to the facts, and demonstrates brilliantly why the globalization of services is an unstoppable trend, at least for any foreseeable future.

Consider “The Services Shift” a wake up call. A new economy has emerged, and it is a global one. Liking or disliking this global order we have created is everyone’s prerogative, ignoring it is just not possible anymore, whatever our role in our society is.

The price to pay for the US to retain global leadership is to acknowledge this situation, accelerate innovation, create disruptive business models, and more importantly prepare our children to live in a world that will be changing at an always faster pace.

I will definitely elaborate on some parts of this book in future posts. In the meantime, do yourself a favor: read it!

Purchase the book on Amazon.com

Remi
www.vsisoft.com

Business | No Comments »

Many in the software industry are reluctant to outsource the design of their applications, and by design I mean the overall usability (look-and-feel, navigation, user experience, etc.).

I do not have a definite answer, but I have learned one thing: BEWARE! While it makes total sense to have the back-end of the application developed offshore (whether outsourced or not), it is critical to carefully double check, when not triple check what the real design capabilities of your potential offshore provider are, if you do not want to end up with applications that are just unusable !

SMBs usually call existing references before selecting an outsourcing provider. Make sure design capability is one of your “must ask” questions. The reference certainly knows whether your provider has decent design capabilities or not.

You do not necessarily have to write off a potential provider that does not have such experience, but if you choose to keep the design inshore and develop the back-end offshore, do not take for granted that the communication between the teams will go smoothly. In fact, it is unlikely to be the case, unless you spend a fair amount of time making sure communication flows.

According to the Korean Institute of Design Promotion, China has globally better design capabilities than other popular offshore destinations, like India or Brazil. That is another hint for picking a Chinese offshore partner.

The study is not specifically about software design, but I see no reason why their findings would not apply to software too.

Their latest report is available for download here.

Remi
www.vsisoft.com

Business, China | No Comments »

Market Wire recently posted an article presenting the IT outsourcing trends for 2009, according to the IAOP (International Association of Outsourcing Professionals) predictions.

While most points come at no surprise, I have a harder time agreeing with the first one: Outsourcing will stay closer to home.

“With available labor from layoffs in many industries and tightened risk profiles of companies, especially in the financial services industry, companies won’t have to go far offshore to find talent. Planned initiatives by Barack Obama and increased government spending on infrastructure projects could lead to more domestic outsourcing, particularly for construction, real estate and technology, IAOP predicts. Outsourcing destinations such as India and China will be challenged by the closer-to-home locations.”

There are 3 different reasons given here:

1. The massive lay-offs in the financial services are creating available qualified manpower, hence reducing the shortage of talents

2. The new Administration is likely to create incentive programs for keeping jobs inshore

3. Nearshore destinations (Mexico, Costa Rica, etc.) are to gain momentum on offshore destinations (China, India, Eastern Europe, etc.).

Let’s address these reasons from an IT industry’s perspective.

• First, it is obviously clear that lay-offs mean more people on the market. The real question is though: do these people have the technical expertise most hiring companies are looking for? The shortage observed in the USA is mostly for developers with in-depth experience in advanced techniques, like RoR, Lamp, WEB 2.0 platforms, multi-media, etc. I am not too sure how much of this required knowledge a developer coming from a large financial institution possesses.

• Second, I am an avid supporter of president elect Obama, and I obviously agree that it makes sense to keep jobs inshore when possible; but I have to go back again to my point regarding the shortage of talents. A company, especially a SMB, can only hire a person if she/he already possesses the profile they are looking for. The new Administration might come with strong incentives to hire local resources, but I doubt SMBs have the luxury of hire people who do not already have the required technical experience, especially this year.

• And finally, I do not even understand the debate nearshore vs. offshore. China and India have become popular destinations not only because they are less expensive than the USA, but mostly because it is easier to find talents there. Bear in mind that the US produce 70,000 engineering graduates per year, when India graduates 450,000 and China 600,000.

From our company’s standpoint, we offer resources located in both China and Mexico, so my opinion is not dictated by corporate interest. We actually tap into our nearshore resources when our clients need to communicate many times a day with their remote team. Other than that, China seems a much better choice, thanks to the number of talents and the variety of profiles available.

Let me hammer this again: if we want to reverse the nearshore/offshore process in the IT industry, there is only one thing we can do: change our education system.

Education is among the major challenges of the New Administration. However I am now confident that many of the much needed changes can finally take place. “no child left behind” must become a reality, not only low-level propaganda from the soon previous Administration.

Yes we can, indeed!

Read the full Market Wire article here

Remi
www.vsisoft.com

Business | 3 Comments »

That’s it. The dark years of the Bush Administration are getting to an end. In January, we will finally have a driver in the driver’s seat!

First and foremost, it is good news for US small businesses. What we need is a wealthy economy, not an economy geared exclusively towards the wealthy. President-elect Obama’s vision goes beyond tax cuts to stimulate the economy, and that is good.

Regarding the impact on outsourcing, it is important to differentiate between the various industries. As NASSCOM rightfully noted, “when Obama was referring to outsourcing in context of migration of jobs, he was mostly referring to the manufacturing sector. Information Technology is different, since there is a shortage of talents in the USA. By providing US companies with much needed resources at affordable cost, offshore destinations can contribute to the growth of US economy.”

Yes, we can!

Business, China | 7 Comments »

I usually use this blog to promote IT outsourcing to SMBs.

While outsourcing makes total sense indeed, the decision to outsource should never be made lightly, as it can yield to a very unpleasant experience. My observation though is that the various failures result from the same few causes, which I listed below as the 10 reasons not to outsource:

1. You never outsourced before and are considering outsourcing a strategic project. If that is the case, start first with a 3 to 4 month long pilot project; it will enable you to learn a lot

2. You believe that when it comes to outsourcing, “the bigger the supplier, the better”. In fact, too big a discrepancy between suppliers and their clients is one of the major reasons why outsourcing projects fail

3. You believe that offshore resources are not as capable as US ones. If you feel like that, your supplier will certainly sense it, and it is bad enough to likely to result in failure

4. Your in-house team has poor project supervision capabilities. Without strict project supervision, chances are that the development team will run loose, and the distance is not going to help. What you should do in this case is first hire a project manager (or subcontract one in your area)

5. Your decision to outsource is only dictated by cost-cutting reasons. I view this one as possibly the most likely cause for failure. Companies in this situation tend to choose the contender who provided with the lowest price offer. If you have got a low price, be sure you will get what you are paying for

6. Sending a problem away does not make it disappear, especially in today’s flat world. I love this comment I read a while ago in CIO magazine. “If you are outsourcing a problem, it will still be a problem”

7. There is no clear consensus in-house on the features to implement. If you are in this case, I suggest the following approach:

   • Write down the 5 major benefits you want to get from your application. They will be the ultimate measure of each deliverable

   • Take your original estimate and multiply it by 2

   • Choose a supplier who has a proven capability to use highly iterative (Agile like) development techniques

   • Make sure you have an interface to the offshore team located in the USA and fluent in English

   • Establish a daily communication line (should be part of Agile), and make sure your supplier has enough command of the English language to make the daily standup meetings profitable

8. There is no shortage of talents in your area. Why go offshore? Hire or subcontract locally

9. You are not willing to do your homework on the potential supplier and their country of origin. Take India for instance: the country has poor infrastructure, and their industry is plagued by an insane attrition rate. If these factors are critical for your success, then avoid Indian suppliers; if there are of little relevance in your case, then you can safely consider Indian suppliers as potential providers

10. You cannot communicate your company’s uniqueness. Your organization is unique, and you want the solutions developed for you to be unique too. The problem is that in order to reduce their risks and optimize their profit, some suppliers, especially large ones, will push for reusing existing building blocks, templates or look-and-feel, resulting in an application with little “personality”. One person in your organization should be in charge of making sure your corporate personality (uniqueness) is built in the solution, in other word “what you want is what you get”.

There is no project too big or too small to be outsourced, and no organization too small to successfully outsource some IT developments.

Contrary to a common opinion, outsourcing does not require a lot of extra efforts.

A successful outsourcing operation requires common sense, very good project management and excellent communication skills. With hundreds of thousands of skilled engineers available around the planet, technical resources are NOT an issue.

Remi
www.outsourcing-vsc.com

Business | 10 Comments »

SMBs do not necessarily have trivial software needs; some have even very sophisticated and/or diverse ones. It is not uncommon for SMBs to have needs that encompass JAVA and .NET developments, together with technical support for enterprise applications like SAP or NAV, and requests on advanced technologies like Flex or Ruby on Rails.

In fact, chances are the talents are available somewhere someplace. It might be in Bangalore, Shanghai, Sao Paulo or Cape Town.

The difficulty is to get them together. While industry leaders like IBM, TCS or Infosys have access to a wide pool of talents, they are just not interested in SMBs, leaving most of them with little alternative other than looking for the partners themselves, a time-consuming task that generally yields to mixed results at best.

The truth is that the vast majority of SMBs are not equipped to spend time and energy selecting their offshore outsourcing vendors. In addition offshore companies have different business practices, which in most cases are not really up to par with our business standards here in the USA.

My observation is that SMBs should not be the ones looking around for the various outsourcing providers. It should be the task of US outsourcing companies to establish a network of qualified and reliable offshore partners.

A few (not enough!) US outsourcing companies have already engaged into this avenue. SMBs should absolutely work with them; a US-based outsourcing company that provides with:

• Services agreements, ruled by US laws, which cover their various needs

• A local presence, at both business and technical levels, which enables to deal locally, removing cultural differences, language barriers and significant time difference.

And last, all the relations between the US outsourcing vendor and its offshore partners should be totally transparent to the customer.

Remi
www.outsourcing-vsc.com

Business | 4 Comments »

Could a falling dollar and pricey oil make manufacturing goods in the USA an economically viable solution again?

Not too sure, says Pete Engardio in the June 30 issue of Business Week.

The main reason it that it would cost too much to revitalize some heavy industries. James Turk, CEMCO’s CFO notes, “American foundries now can compete head-to-head on cost, but there are not many foundries, welders, machinists, and quality-control engineers. What we had 10 years ago is gone.”

Some industries are lost, and won’t come back, no matter how low the dollar goes. It would just require too much up-front investment to recreate the conditions for success. In addition, China’s productivity is climbing quite rapidly, a factor that compensate partially for local increasing wages and soaring shipping costs.

In fact, operating a high-cost manufacturing plant takes much more than just building the plant. An entire surrounding infrastructure, human, material and financial is required.

China has patiently built its own for the past 30 years.

One interviewee suggests applying to the USA some of the same formulas that worked wonders for China.

While certainly an excellent suggestion, I am no too sure about the feasibility and the potential results in the USA, a country with different cultural, political and economical backgrounds.

Einstein once said: “We cannot solve problems by using the same kind of thinking we used when we created them.”

We just need to follow his advice and look at the situation with a creative mind. If the industry has already gone offshore, what can we do in the USA to create jobs? And if the industry has not gone offshore yet, what can we do to make it flourish home?

I will close with an example. A friend of mine has been looking for a US supplier of computer monitors. His company has special requirements that prevent them to use just any basic monitor. They have been looking for months at possible US suppliers, just unsuccessfully. It seems like they are all gone. How many companies have been in a similar situation? I bet thousands, more than enough for a local industry to flourish.

Read the Business Week article online.

Remi
www.outsourcing-vsc.com

Business, China | 13 Comments »

Technology Partners International Inc. (ATPI), a TX-based consulting firm, estimated that close to $100 billion worth of large outsourcing contracts are due for renewal by 2008.

According to ATPI, US companies are about to spread mega-deals from large single contracts over multiple, smaller providers, a blow to all large outsourcing firms.

While the IT outsourcing / BPO market will continue to grow at an average 8% in 2008, according to the Gartner Group, the year might mark the end of the current “one-size-fits-all” outsourcing model.

Far too often, leading providers have applied the brute force approach to outsourcing: “throwing people at a problem”, especially by tapping into their cheaper pool of talents (India, China, etc.). This model has reached its limits and has finally started to fade away.

New customer/relationship models are emerging, centered on flexibility. Says Julie Giera from Forrester Research, “customers want an outsourcing offering for IT and Business Process Outsourcing that evolves, or “flexes”, as their needs change over time.”

Market leaders might be slow to embrace this new model; an opportunity of a lifetime for smaller size providers to make it to the next step.

Remi
www.outsourcing-vsc.com

Business | No Comments »