Session 1 and 2 Introduction and Offshoring

*Management of IT ServicesRangan Mohan

*Overall Course ContentsBusiness Model and Delivery Issues for Onsite / Offshore OutsourcingBusiness Analysis and Development for IT / BPO EnterprisesProject Estimation and Management for IT Projects.

*Business Model and Delivery Issues

Business Model and Delivery Issues for Onsite / Offshore OutsourcingSession 1: Introduction to the IT / BPO IndustrySession 2: The Onsite Offshore Delivery Model and recent developmentsSession 3: Transition of Projects and ProcessesSession 4: Execution, Communication and Collaboration in Offshore ProjectsSession 5: Quality and Security Issues in Onsite / Offshore OutsourcingSession 6: Recruitment and Management of Staff in IT EnterprisesSession 7: Measures, metrics and efficiency management in IT Enterprises

*AgendaIntroduction and StatisticsClassification of the IndustryFactors impacting the IndustryCompetitive landscapePeople, Technology and ProcessesBusiness Models, Pricing and ContractsTrends Picking the WinnersConclusion

*Introduction and Statistics

*Introduction Current StatisticsWorldwide spend on Technology products and related services US$ 3.1 Trillion in 2011 growth of 3.3%Hardware, Software, Products, IT and BPO US$ 1.7 Trillion growth of 5.3% - 63% Software and balance HardwareIndian IT Industry US$ 100 Billion in 2012Indian IT Indian software and BPO US$ 88 B in 2011, exports US$ 69 Billion. Exports to grow by 18% in 2012.1BPO Exports at US$ 14 Billion in 2012, Domestic BPO US$ 2.5 Billion 60% to USA, 41% from BFSI, 20% from Telecom. Horizontal offerings such as CIS, F&A and HR is 70% of market and about 25% is vertical specific.2

1 Source Nasscom Strategy Report 2009

2 Nasscom Everest Study

* IT Outsourcing the Addressable Market1 Figures in US$ BillionSource McKenzie Quarterly 2006 No. 2

AreaAddressable Market1% OutsourcedHardware / Software Maintenance, Network administration and Help Desk Services70 852Application Development and Maintenance30 36 31System Integration39 - 365Consulting3 410Research and Development14 - 1730Total147 - 14811

* BPO the Addressable Market1 Figures in US$ BillionSource McKenzie Quarterly 2006 No. 2

AreaAddressable Market1% OutsourcedRetail Banking35 406Insurance25 359Travel and Hospitality10 123Auto and Manufacturing10 129Telecom8 109Pharma4 58F&A, HR, Horizontals10 159Others20 259Total122- 1548

*Market Performance Offshore IT ServicesSource: neoITExternal Environment0.51.24691640

Total Market Size ($ B)200217.6200529.9200851.8

*Market Performance Offshore BPOSource: neoITExternal Environment247571016

Total Market Size ($ B)20028.1200519.8200842.2201260

*1990s19982000IT OutsourcingThis involves offshoring of IT services, offshore software development and supportBusiness Process OutsourcingThis involves offshoring of low-end (contact center kind of) workKnowledge Process OutsourcingThis involves advanced analytical and technical skillsas well as some decision makingRevenues (India) for 2011 - 2012:IT Outsourcing = USD 50 BillionBPO = USD 16 BillionKPO = USD 2.5 BillionIndia well positioned to leverage the KPO opportunity

*Classification of the Industry

*IT and BPO ServicesStarted with IT ServicesInitially Body ShoppingThen Offshore Body Shopping.Then Projects OffshoreNow Products / complete outsourcingBPO a later developmentVoice and Data based BPOFront and Back Office based BPOEvolution of KPO Domain, Tools and People

*Factors impacting the Industry

*Factors affecting the BusinessShortage of quality manpower.High attrition rates.Fear of a demand slowdown.Emergence of other countries as alternative locations.Erosion of margins due cost pressures and/or the factors stated above.Quality investors on board.Presence across diversified geographies is helping the company. Mix of onshore, near shore and multiple offshore delivery facilities is a key differentiator. Identification of focus area and ability to attain maturity of service offerings.

*Factors affecting the BusinessDeclining demand due to a slowdown in the primary markets of the U.S. and Europe is paramount. Malaise in the Financial sector also leading to a pessimistic view. Other factors like shortage of quality manpower, attrition rates, wage hike due to cost pressures, base effect, etc. have come up in the discussions.

*Competitive Landscape

*Global Competition landscapeExternal Environment

*Competitor LandscapeAdvantagesMacroeconomic ImputsSouth AfricaUnderstands the US culture, large scale technical training: software skills; voice work; low attrition; excellent telecom infrastructure High understanding of the US; high end skills; has a good brand equity in US and excellent regulatory framework & quality standards; Large English speaking population; favorable time zone

Mature BPO industry; Competitive pricing; near-shore capabilities culture - similar to the US; good infrastructure; Time zone similar to Europe; easy accessibility to Europe and its English speaking population 25% cost saving, good for niche work

30% cheaper than the US; proximity to the US; huge investments in IT and telecomBrazil / MexicoPhilippinesIrelandAustraliaCanadaLimitationssmall talent pool large ramp ups are an issue; no disaster recovery or multi-location facilitiesHigh manpower costs (compared to India); lack of a large human resource pool

High manpower costs (compared to India); lack of a large human resource pool

High manpower costs (compared to India); lack of a large human resource poolHigh manpower costs (compared to India); lack of a large human resource poolSkill shortage

Skill levels are very low (good only for low-end jobs); proficiency in English is poor; scalability

*Indias leadership position in based on a number of factorsSecond largest English speaking workforce in the world (30 million) The largest higher education system in the world, outside the US, with 250 universities and 12,000 colleges and research Institutes.Approx. 500,000+ people employed in the BPO sector, 900,000+ in ITAbundance of Skilled ManpowerThe Indian outsourcing industry has grown rapidly, reflecting the increasing confidence of global corporations 300+ BPO service providers in India todayLower Costs & Higher Productivity / QualityTelecom costs have reduced drastically over the last few years Bandwidth availability has improved significantlyImprovements in Telecom InfrastructureInvestment friendly Government policies such as tax concessions, infrastructure benefits and telecom deregulationFavorable Government PoliciesMature Offshore IndustryTime zone difference with Europe, US and the Asia Pacific region enables companies to create effectively a 24 hour support operation thus reducing delivery lead timesStrategic LocationProductivity and quality levels are higher in Indian outsourcing operations due to a more educated profile of employees who view IT / BPO as a long-term careerManpower costs in India are significantly lower than those in developed markets

*Key Success factorsKnowledge TransferTeam build-upTrainingKnowledge retentionConcurrency ControlVisibility across sitesConfiguration managementQuality ManagementDefine processImplement-Review-ImproveCMM / COPC /eSCMProductivityIdentify factorsDefine metricsMonitor and improveOffshore FacilityCommunication linkReplicate customers environmentSecurityProject ControlProject managementSeamless communicationPeople managementCustomize metrics that measure whats important to the client end to endEnsure a competitive process and high-level price validationInvolve the service provider and client project executives in the transaction structuring process

*50 locations in India categorized on a typical four stage development pathLocation ClassificationNotes:(1) National Capital Region (NCR) includes Delhi, Noida, Gurgaon and Faridabad(2) Ahmedabad includes Gandhinagar(3) Chandigarh includes Mohali and PanchkulaIncreasing Location Attractiveness

LeadersChallengersFollowersAspirantsBangaloreChennaiHyderabadKolkataMumbaiNCR(1)PuneAhmedabad(2)BhubaneshwarChandigarh(3)CoimbatoreIndoreJaipurKochiLucknowMaduraiMangaloreNagpurThiruvananthapuramTiruchirappalliVadodaraVisakhapatnamAurangabadBhopalGoaGwaliorHubli-DharwadKanpurMysoreNashikPondicherrySalemSuratVijayawadaAllahabadDehradunDurgapurGangtokGuwahatiLudhianaPatnaRaipurRanchiShimlaSiliguriSrinagarVaranasi

*Leader locations will attract players, they need to resolve infrastructural issues & continue attracting and retaining the best talent.Requirements for industry growth in the medium to long termAddress key infrastructure and living environment issues Expanding business centres beyond the current areas - Create radial infrastructure / satellite locations around the core leader Decongest traffic - improved local connectivityEnhance power, hotel and airline capacityDevelop long-term positioning and promote locatione.g., Mumbai can leverage its strength in capital markets and banking to position as the dominant finance oriented BPO hub Create clusters of learning and innovation by ensuring integration across sectors and stakeholdersE.g., Bengaluru focused on Knowledge economy (IT, BPO, Bio-technology)Develop a conducive application-oriented education system fostering innovationProvide research on relevant areas for development of BPO industrySupport development of R&D infrastructure and ecosystem through educational institutesManage increasing labor costs & high attritionCareer growth plans, work-life balance, alternate compensation structures etc.Continue development of talent, up-gradation of social & living environment to support economic growth continuous monitoring on relevant indicators PrioritySustainabilityPrimary requirements to promote immediate industry growthFOCUS DEVELOPMENT INITIATIVES123456

*People, Technology and Services

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Myths

Outsourcing means hiring workers from another country to take jobs away from our workers on a permanent basis.Only big businesses can afford to outsource. Small companies would not gain any benefits from this practice.Outsourcing is bad for America. The McKenzie report wherein of every US$ 1 outsourced, 67 cents is saved, 33 cents goes to the outsourcer out of which 8 cents comes back to America,

*Steps in the Outsourcing ProcessEvaluate your Business Processes.Identify outsourcing opportunities in Processes.Select Vendors/ Suppliers / Partners.Negotiate successful contracts.Establish successful working relationships with vendors.Manage a multiple vendor relationship.Turnaround a failing vendor relationship or replace a vendor when required.Govern Vendor relationships on a day to day basis.Implement and track Service Level Agreements (SLAs).Anticipate and avoid problems or solve them when they arise.Ensure success.

*Major Benefits of OutsourcingIncrease Sales OpportunitiesImprove corporate image and public relations.Prevent missed opportunities.Reduce annual costs almost immediately.Enable business to focus on core competencies.Reduce or eliminate customer complaints.Increase customer loyalty.Lower costs of projects and events.Beat competition.Make time and resources available.

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Transformational Outsourcing Vs Traditional Outsourcing.

Business Focus vs Operational Focus.Creating Value Vs Cutting Costs.Assisting in managing uncertainty rather then enhancing control.Aligns with changing Business Processes rather then existing business processes.Based on a new set of network of vendors rather then superior IT specialists.Looks at business costs and re-engineering to further enhance cost reduction.

*Tactical Outsourcing Vs Strategic Outsourcing.Tactical is namelyGenerate immediate cost savingsEliminate the need for future investments.Realize a cash infusion from the sale of assets.Relieve the burden of staffing.

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Reasons for Outsourcing

Outsourcing allows companies to focus on core competencies.Outsourcing allows companies greater efficiencies without having to invest in Technology or People.Outsourcing allows companies to become more profitable.Outsourcing leads to better service levels and implementation of service levels as internal departments tend to be less amenable to service levels.Outsourcing helps companies maintain competitive edge.

*Trends Picking the Winners

*Trends going aheadTime to go LeanTighter attrition managementBroader management spansIncreased utilization, tighter forecasting and schedulingTransport and telecommunication costsEliminate all unnecessary expenses.Focus on newer marketsWestern EuropeAustraliaJapanDomestic market driven

*Trends going forward Contd.Greater focus on the mid market opportunityCost arbitrage to Value AdditionNewer opportunities, newer servicesSale of captivesConsolidation the Gartner reportCloud sourcing and on demand outsourcingEnd to end services business processing integrated to other servicesIncreased governance in Outsourcing ContractsFinancialSecurityBusiness ContinuityPrior experience

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Trends driving outsourcing

Drift from domestic to global economy.Drift from manpower to Technopower.Shift from company led to customer driven market forces.Shift from Industrial economy to knowledge economyTransformation of employer / employee relationshipNew relationships and governance concerning vendors and customers.

*Role of Future BPO PlayersThird Party ProvidersGlobal Leaders large, integrated, full service multicountry providersBPO specialist Domain driven transformational services in a select verticalDiversified BPO Player undifferentiated services for opportunistic verticals and horizontalsSegment Specialists end to end services for one or two domainsCaptive BPO ProvidersGlobal Centers of Excellence Deep domain and high end work for parentInnovation Incubators driving innovation and using cutting edge tools and technologiesLow cost aggregators cost competitive delivery units to parent

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********Multi site operations offer many benefits like reduced development time and efficient use of resources due to time zone differences. At the same time multi site development throws up many challenges like knowledge transfer, offshore facilities, concurrency control, quality management, project management and productivity management.Wipro understands these challenges and has robust processes in place to overcome these challenges to reap the true benefits offered by multi site development.*Saurine

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