2015 KPMG study on outsourcing for technology-related services

Articles covering outsourcing topics by analysts such as Gartner and consulting firms like Accenture often stay at such high level that their practical application requires engaging these firms. Once in a while these articles could be very informative and helpful The latest KPMG study is worth taking look at. That study covering outsourcing for technology-related services shows some radical changes and interesting trends in the marketplace, to which both companies and service providers will need to adapt.

2015 study by KPMG covers over 2,100 contracts across 23 countries with an annual contract value of US$12 billion+. It provides insights into service provider performance as well as extensive insight on IT services market trends, and provides predictions on the future state of the IT services market and projected buying patterns.   The study highlights the following key findings:

  • A shift from cost reduction being the biggest challenge for IT functions to one in which IT services are increasingly viewed as an enabler for improved business service delivery and transformation.
  • Greater focus on enabling innovation via IT outsourcing, especially via enabling greater organizational agility and accelerating the pace of investment into technologies such as cloud
  • The above being said, cloud adoption remains sluggish, with the majority of clients spending less than 10 percent of their IT spend on cloud. Data location, security or privacy are the biggest barriers to cloud adoption.
  • Governance and management of IT services and outsourcing efforts remain a major problem with mixed satisfaction from service integration and management

To access the study materials click here to download the management summary. (The full report is only available to those organizations that have participated in the survey). You can also find an infographic summarizing the key findings from the report by clicking here.

“Outsource it!” is now in beta

A couple days ago my first full size book went into beta and is now available at the publisher website – http://pragprog.com/book/nkout/outsource-it. I feel very happy and relieved that the book is finally out, writing it was far more challenging than I’ve ever anticipated. At the same time I feel happy and proud, proud to be one of the authors of the pragmatic bookshelf, the group of technology writers that earned respect across very broad and demanding technical audience.

It will take a little while before the book hits the shelves of Amazon and other bookstores, but you don’t have to wait and get your e-copy of it today. While the book is in beta your comments and suggestions would be taken quite seriously and could result in changes and additions to the content, hopefully making the book even better. I am not sure how long the beta would take but hopefully much less than it took me to get here –

Roughly two and a half years ago I came up what seemed a great idea at the time – compile my blog material into an easy to read eBook. In a couple months I produced the first volume that was dedicated to making decisions on whether and how to outsource. In a short order I received substantial feedback that made it apparent that just recompiling the blog and doing surface level clean up won’t add too much value, and probably was not worth the effort. Continue reading

Trip to blogosphere

Outsourcing is a very broad topic with plenty of controversial topics, inevitably there plenty of people who have something to say about it. Chances are if you are interested in this subject you run across articles and posts by Outsourcing Institute or Horses for Sources. A couple years ago I put a few references in my blogroll and started a blogosphere directory. Thanks to the law of reciprocity that generated a few back-links and traffic to my blog. Over time the blogroll become stale pointing the blogs that become dormant or completely disappeared. I did not notice it till just recently, as I was doing some cleanup of the blog.

Similar to my freelancing directory the blog roll needed to be refreshed. In addition to cleaning it up I decided to create an outsourcing blog “directory” as well. And with no hesitation I went on blog hunting with a help of my fearless VA Yesha, looking for blogs that cover outsourcing. Very soon we had a list with more than 100 entries, unfortunately, many of them covered topics that I am not too familiar with and/or not too interested in such as Law Process Outsourcing or blogs solely focused on BPO. So we went back pruning the list getting it to less than 50 entries. Some of the blogs that got the ax were fairly active in outsourcing blogosphere, and I may include rejected entries in the list later on after I get a chance to check a few posts and see whether they are worth considering. Of course what’s one man trash is another man’s treasure, so “worth considering” is a very subjective term. Plus in any blog the posts are typically hit-or-miss, and even loosely related sources can put some interesting article once in a while. Well, I cannot create full directory, even with help of a couple dozen of Vas, that’s why we have omnipotent Google.

Anyway, please see the list sorted by URL of the blog on this page. To make the list a bit more helpful I added PR and Alexa ratings in the same manner as in my freelancing marketplace directory and created two additional versions of the list, one sorted Alexa Global and another by Alexa US. As usual, feel free to comment and suggest new entries. I am planning to update the list in ~12 months from now.

Bidding Sites and Building Frustration

A couple weeks ago I put an RFP out for a very specific set of SEO activities on one of bidding sites. This SEO project was for my darling app – WWHOW!.  Since WWHOW! is based on user generated content it offers serious SEO challenges. Having spent a few months fighting those I knew fairly well what I was looking for and did not make a secret out of my expectations. To no surprise my straightforward SEO request generated a lot of responses primarily from India-based providers. I just finished going through all responses I received to date and it looks like I will have to go through bid-response process again, maybe I have to try a new bidding site, maybe change my request format, content, layout… Frankly, I doubt that changing much on my side will affect the dynamics of the campaign and quality of responses. I might need to change the target development community…

The fact that I received not a single proposal that I could remotely go with was quite irritating. One of the reasons I was annoyed by it is its effect on my “buyer’s reputation”. In some way majority of established bidding sites penalize buyers for not accepting proposals. Some of them will even cut buyers off if they do not meet some criteria, e.g. certain percentage of project acceptance. It appears that they will cut you off independently from the reasons you do not accept the proposals. It happened to me on www.eLance.com a little while ago and since despite multiple attempts I could not reach the customer service I ended up moving to another bidding site.

Continue reading

Spam Attack

A few weeks ago we went through upgrade of anti-spam software we use in-house. The Bayesian filter database got corrupted during the upgrade or possibly before it and for some reasons we could not restore it from backups. After much ado we decided to start anew. Software upgrade was quite impressive and new filters reduced the volume of spam dramatically, the majority of the users did not even noticed the little problem we had. It was not the case for me, all knowledge previous version of the software gained about my spam designation was lost and many of my service providers came back.

Today I receive a couple dozens of emails a day which come from valuable IT service providers that somehow got hold of my email address. Apparently they use smart email campaign software that bypasses very solid guards that on daily basis filter out a few hundreds of Canadian pharmacy offerings, lottery winning notifications and love letters from Russian girls. Continue reading

Launching Common Sense Management

I spent a bit of time cleaning up the Site Map and while doing that I noticed that some of the posts have only loose relevance to outsourcing. I put them in a new category – Common Sense Management (CSM). CSM is not a widely used or a popular term. I started using it awhile ago to describe management and leadership style I apply in my day job – running technology teams building software products and services.

CSM is built on top of traditional techniques as well as new methodologies that at some point were considered controversial and now are widely accepted. “Common Sense” in CSM term doesn’t mean “agreed by many” or “widespread knowledge”. CSM stands for application of simple straight-forward solutions to problems that managers face on a daily basis. The best illustration to the term of Common Sense I have ever heard of was a story about “space pen”. Supposedly many years ago NASA spent millions of dollars developing a pen that would write well in the space. Weightless ink presented a serious technical challenge which was successfully addressed by “space pen”… Russian cosmonauts used a Common Sense solution to the problem – pencils…

CSM is a huge topic – it covers multiple aspects of leading and managing people, teams, projects, engagements, and so on. So I decided to start a new blog Common Sense Management – Tips, Tricks and Traps of Technology Leadership. CSM applies to leading all kind of teams and engagements, not only technology, yet with my experience and knowledge limited to that domain I’ll do better staying focused on the technology field.

My first post in the new blog was to some degree a repetition – I wrote about 10 Golden Rules of Bargaining, the post is a bit different from Offshore Negotiations and Rules of Haggling – it is a using Presentation 2.0 style and if you are interested in the topic is probably worth checking out.

I am not sure how frequently I will update my new blog and how it will affect my postings in this blog. Since I only write while commuting the total volume is limited by my abilities and length of BART ride. Well, as they say in France – Vivra verra…

Is Blog Format a Misfit for PO?

I was chatting with a good friend of mine who happened to be one of my readers as well. Being a good friend he did not sugar coat his thoughts and opinions, as they say “friends stub you in front”. And, as it typically goes, when we were done fighting we only strengthen our positions and views. So, no adjustment or reviews are coming to the 100+ posts I wrote so far. Also as it goes in frank discussions between friends a few interesting topics came up, a few questions that needed mulling over. One of them was quite intriguing for me: “is blog format a misfit for what I am trying to accomplish in pragmatic outsourcing?”

For all intents and purposes PO is a collection of my thoughts, experiences, ideas, etc. directly or loosely related to IT outsourcing. I write the blog as if I am writing a book on IT outsourcing one random chapter at a time. When I look at the table of content it looks like I’ve got a plenty of material for a decent size book already. That approach has a few serious shortcomings though. The main is chronological nature of blog is counterintuitive for technical writing and even more so for reading. Those who elect to subscribe to my blog most likely find the info disorganized, sometimes repetitive, etc. Those who stumble upon my blog looking for offshore advice find info often incomplete. And so on.

Another blog format related challenge comes from expectations of constant updates. That as I move along closing more and more topic becomes more and more complex. Things, unless you consider current news approach are not terribly dynamic. For example, I wrote about India vs. China from IT outsourcing standpoint; that post is soon to be a year old. Some economy trends changed, political and industry events changed some of the elements and tweaked the balance. Of course things changed. Yet how much, is that worth placing an update to that post, revise views and positions, nope, I am afraid the changes no matter how significant did not affect foundations and views presented in that post, chances are it will be a long while before rewriting or updating the post is warranted.

I am not running out of topics yet, there is a lot to cover, and I am not planning to switch the format or type of content. I would appreciate your thoughts on that question though…

And one more thing worth mentioning: Kirill Abgarian, one of my readers and supporters, suggested that I should put my knowledge in a book about Pragmatic Outsourcing. I got quite excited about that idea; while time-wise and skill-wise I could not possibly do it, but considering an offshore ghost writer support and an ebook format that appeared to be very doable. I shopped around what it would take, swaged some purchase dynamics and came to a sad conclusion that I would need to have at least couple thousands subscribers before I could cover the expense of writing and publishing the book. That’s considerably more than I have at the moment, so no ebook for now… but maybe some time in a future…

Slowing Down, no Intentions to Stop

This month has been exceptionally busy for me and I had almost no time to put against anything but my day job, unsurprisingly so my blogging debt started to grow at a pretty good pace. There were a plenty of articles published in the blogs I follow, many industry news worth discussion knocked on the doors daily, and despite serious slowing down in the rate of posts I saw a notable increase in traffic.

When it comes to blogging I face a few serious challenges, first of course being ESL. As a matter of fact ESL has been a huge mental obstacle to overcome, it took a lot of internal and external pushing before I could step over the fact that I won’t be able write to even my own standards of quality needless to say to the benchmarks established in technical blogosphere by top notch professionals.

Other ones were concerns so typical for a techie:

  • I can talk at rate of 100 words a minute with occasional gusts of 250, but when I put my thoughts on paper the productivity drops 100 fold.
  • Talking towards invisible audience and literally no feedback and total absence of control over that audience really freaks me out.
  • Concerns about spilling the beans in so many aspects of our work and educating vendors and competitors.
  • Copyright / IP concerns. Many of the items I cover related to projects I’ve done as work for hire – how far can I push that envelope without compromising my integrity – which is by far one of the most important aspect of our professional image
  • Position concerns – what if I change my opinion tomorrow? Image concerns, and many many others…

Of course like anyone else I also have to deal with shortage hours in a day, occasional writer’s blocks and gazillion of other challenges any blogger deals with.

When I realized how much time blogging is going to take from my day and how unproductive I was my visceral reaction was to follow my management approach: do what you do the best – delegate the rest. And I decided to hire a ghost writer. In theory it appeared like a great idea – I just tell a ghost writer what I think about a particular topic and s/he will write it up… In theory there is no difference between theory and practice, in practice there is. My fabulous idea did not work out, not for the lack of offers though:

I put a project request on several freelancing sites (see those plus more on my list of places to find freelancers). I got more offers that I could look at in just a few days. The price varied from $2 to $50 an hour. Many of writers who replied to my post did not even red the post, some did not understand it. The remaining minority either asked for rates I could not possibly afford or after a brief discussion with me bailed out. After I went though ~100 bids there were a couple still standing, and they only made me realize that time-wise I won’t see any savings and the only thing I could benefit by using a ghost writer would be grammar, SEO, and other important yet secondary aspects.

So I ended up in square one with a notebook in my laps blogging away while BARTing. The last couple months brought more and more to my plate. Isn’t it strange that poor economy, slower business and a fewer opportunities do not mean less work? So even my office commute doesn’t offer much time for pragmatic outsourcing. But I have no intentions to stop, at least yet. There is still so much to cover…

Japanese Car Invasion vs. Offshore Outsourcing

In the early 1950s a small number of Americans began purchasing foreign cars after military personnel brought home unique vehicles at the end of their tours overseas. At roughly the same time the Japanese, in need of cash to re-build their country after World War II, went from exporting cheap household products and novelty items to heavy machinery and automobiles, both much more profitable.

In the mid-fifties, the Japanese Ministry of International Trade (MITI) and Industry provided strong incentives to manufacturers to produce a “people’s car”. In the mid-sixties, in order to increase Japan’s competitiveness in the world car market, MITI engineered a number of mergers of car manufacturers. In many ways, the modern Japanese motor vehicle industry was the creation of the Japanese Ministry of International Trade and Industry (MITI). Nissan acquired the Prince Motor Company and Toyota merged with Hino and Daihatsu. The results were spectacular – in 1962, Japan was the sixth largest vehicle manufacturer in the world and by 1967 it was the second largest.

Initially Americans, who had become used to the poor quality, but cheap, Japanese products, did not take Japanese cars seriously. But Toyota, Honda and other Japanese companies worked hard to change the perception and the `products; top level engineering design combined with new techniques and mythologies such as TQM and Lean Manufacturing produced less expensive and higher quality vehicles. To a growing number of Americans Japanese cars started making a lot of sense.

In meanwhile with the oil embargo of 1973, along with the strict pollution controls and safety regulations imposed by the U.S. Government, American manufacturers turned to cost savings resorting to building poor quality, poorly engineered automobiles. While American automotive industry was entering a self-inflicted death spiral Japanese engineers and workers continuing producing better and better cars. Inevitably Japan surpassed the US to become the largest manufacturer in 1980. And, then in less than two decades “For the first time since the early 1930s, General Motors cannot call itself the world’s largest automaker. Its sales fell behind Toyota in 2008, a year when G.M. celebrated its 100th anniversary and narrowly avoided a bankruptcy filing amid a significant downturn in the economy.

If you call the USA your home chances are you know that many factors played in that half a century long story of failure – inflated comp. packages of the industry execs, the unions, the cost of healthcare – just to name a few. It doesn’t make it any easier though to see the companies that produced Mustang, Corvette, Caravan and many other trendsetting and groundbreaking automobiles crumble to pieces.

Another very similar story started unraveling in front of our eyes in the early 90s. This time it affected many industries in a horizontal fashion. This time invasion initially came from several countries with India leading the pack. The invasion was going on multiple fronts and affected other countries beside US. It is called many names with Business Process Outsourcing (BPO) being the most popular. BPO covers many aspects of business with Information Technology being one of the prime targets.

In large degree India was perfectly positioned for a blitzkrieg: a great multitude of factors were there to ensure that invasion is fast, massive and irreversible: English, sheer numbers of qualified resources, cultural proximity, ease of migration, huge difference in the standards of living, and so on. Y2K craze presented a perfect opportunity for dramatic expansion… Considering the pace of the invasion and the circumstances it is amazing that the US IT industry is still around. Fortunately for many of us a few things went wrong and we still have our IT jobs… Some of those (mis)fortunate events had their roots in India some in the consumer countries, some are still going on at the same pace, some increased in influence, some faded away. Let me mention just few the most notable ones:

  • As with almost any gold rush activity “take money and run” (TM&R) attitude prevails. Many outsourcing businesses are proud of being profitable from the day one. Funny enough, that is one of strong indications of exactly the attitude. Being profitable from the day one typically means no substantial initial investment and/or exorbitant margins – both being clear symptoms of TM&R. TM&R attitude inevitably lowers customer loyalty and creates negative drumbeat; it is one of major reasons behind “bad name” of outsourcing.
  • Historically many offshore shops were created by “intermediaries” people with strong connections in say India and business connections in the States. I’ve seen many of those companies in mid 90s doing exceptionally well, some of them even made it to the top of lists such as INC 500. Underneath the marketing collateral they were just labor brokers connecting “human resources” with hungry resource consumers. The brokers were naturally interested only in “putting buns in the seats” and that was another contributor to the offshoring “bad name”.
  • Surging demand on the IT services created a tremendous opportunity for entrepreneurial minds of all sorts. All kinds of entrepreneurs went after huge profits whether they had skills or not… What happened in the offshoring industry during mid 90s makes me think of backyard steel furnaces of The Great Leap Forward. Every one and their brother were opening outsourcing outfits. To no surprise the results were akin to slabs of pig iron. And who was there to tell the difference between pig iron and carbon steel?
  • Ranking IT services is far from a trivial task for many reasons. One of the fundamental problems is that low quality of IT service could be hidden for years before it is recognized, think for example about billions of lines of code that had to be rewritten to deal with Y2K issues, many of them were written in 70s and 80s… Another inherit problem is “fox guarding the henhouse” so typical for large IT implementations. One more, very significant, is obscurity of IT issues for many business users; that one alone creates unlimited safe heaven for mediocrity and makes objective ranking exceptionally difficult if not impossible.
  • Fueled by great demand and lack of selectivity in the market offshore offering was gaining volume fast and by all means possible. Inevitably the quality of goods sold was dropping at similar rate. Lowering the bar affected the entire industry, even the most exclusive educational centers and other time-proven benchmarks of quality stopped working. For example not long time ago I had to fire a consultant for incompetence; it’s not such an unusual nowadays. Yet in this case it was, my team was stunned with the degree of his incompetence which was especially surprising considering that he had a masters degree from IIT.
  • As they say if you take a barrel of honey and mix it with a gallon of garbage you have a barrel of garbage. Despite large number of high quality of resources the overall quality of offshoring team was far from impressive and inevitably the quality of the services rendered by those teams was far from perfect. While many vendors recognized the problem and stared putting processes in place to ensure meeting reasonable expectations the “bad name” was building up. Producing redundant inefficient code was now attributed not to individual programs but to Indian developers as whole. New clichés were firmly established in the industry.
  • IT offshoring was there to fill in a burning need so despite the mediocre quality of the product the demand for it was not going down. Offshoring issues and challenges were bounced around mainly deep in the trenches and kitchens. The decision makers, movers and shakers were on a purchasing spree sometimes going offshore against any sense, outsourcing for the sake of outsourcing or just with no rhyme or reason. Call it a user error but nevertheless it contributed to offshoring large scale failures and “bad name” in a huge degree and cost buyers and their countries enormous amount of resources in out of pocket expenses, erosion of work force, and loss of knowledge pool…

All these (mis)fortunate events generally result in decrease in quality of services and productivity of resources with one common denominator – cost. However the difference in standards of living and thus average wages continues to be dramatic allowing offshore vendors still successfully compete in the market. However it is much more balanced competition than the one that delivered mortal blow to the US automotive industry. Engaging IT resources from allover the world in order to address needs of local organizations continues to be one of many powerful tools in hands of VPEs, CIOs and other IT execs. It is highly unlikely for offshore resources to displace or ruin local IT industry. Yet empty houses of Detroit should ring as rude reminders of fragility rather than invincibility of the IT industry as well.

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Offshore Millionaire

I am very much surprised with Slumdog Millionaire taking Oscar’s Gold. As far as I am concerned it’s very much a mediocre tearjerker with a few very good scenes, plenty of mediocre ones and few ones on a border line of plagiarism. If you are at all interested in what slums are rent the City of God… well I am not the Academy member and that was not the point I wanted to make. What I wanted to say is that the movie in many ways insinuates that slums are India’s past, and those who survived can work in call centers, speak perfect English and offer crest smile of Hollywood proportion. You would be hard pressed to find something further from the truth. On one of my recent trips to India I got a dubious pleasure of observing slums through the cab window for about two hours while getting to downtown from the airport. I was out there right after the monsoon season so it was not just stinking piles of garbage they were steaming stinking piles and per my driver and guide those were far from the worst parts. Doing business in 3rd world countries is not for the faint of heart. For some Americans the sheer sight of slums and widespread destitution could be too much to handle, so be careful who you send for onsite visits…

25 Random Things that Can Hurt You

Opening disclaimer – this post has zero relevance to offshore outsourcing, so proceed at your own risk ;) I put it here as this site gives me a chance to reach out to the audience I respect and hopefully stop some of people you know from hurting themselves…

A couple days ago a friend of mine tagged me with Facebook’s “25 Random Things About Me” chain letter; a day or so later another one of those tags hit my email. Naturally the topic came up in one of random office conversations, as it turned out I was far not the only one asked to write a few things just ‘cause our friends want to learn about us… The idea to write this post came up after David, one of my engineering directors, mentioned that responding to the tag can really hurt you.

“Just random 25 things!?” you might ask. Yes, very much so, and let me point out just a couple most obvious ways it could happen:

  • Identity theft or identity fraud. That is a common crime that can have substantial financial and emotional consequences. Having been the victim of one I can point out a few immediate consequences – ruined credit score, calls from collection agencies asking me for the money I never owed, police reports, back and force with credit agencies…
  • On-line fraud and direct theft, with money disappearing from your bank, investment account, IRA or 401k fund… Chances are that if you are reading this post you are using on-line banking and can imagine what could happen that if someone can get hold of your ID and password.
  • Well, if someone with bad intentions gets hold of your ID and password they can raise all kinds of havoc in your life even if steeling money is not their cup of tea – think about being locked out of your email, Facebook profile, strange post showing up in your blogs…

What is the connection between 25 random things and identity theft or loss of your password? It is much more straight forward than you might think.

Not too many people put their SSN or mother’s maiden name in the Facebook essays.. yet here are examples of random things I found in my friends notes and in public blogs:

  • I was born in town called Mars but that doesn’t make me Martian
  • I have no creativity – I called my first dog Spot
  • If I could I would move to Barcelona for the rest of my life

Doesn’t those remind you of password retrieval questions? “What city you were born in?”, “What was your first pet’s name?”, “What is your favorite city?”

Thank you for sharing that you snort when you laugh and even more so for giving me enough information to get into your bank account!

Another door which publishing private information opens to a malicious intent is related to the current methods of authentication. Before you establish your account with some secure systems they must authenticate you or identify that “you are who you say you are”. There is a method of doing that which is considered an acceptable standard in the healthcare and financial industries. It is based on asking you a number of random questions that apparently only you would know answers to – “What color was your 1993 Chevrolet Lumina?”, “What year did you graduate from the medical school?”, and so on. If you answer right say to 5 out 7 questions the system deems you as a match and grants you the access permission.

Thank you Dr. B. Raggar for giving me enough information to spoof you (pretend to be you) and sign up for electronic prescription system! Now I can finally get myself enough of a painkiller without begging for it.

Thank you, my dear friend Liz Wiener! Of course I would never hurt you! We had such a great time when we met once in Sugar Bawl… Plus knowing a few private things about you helped only slightly. Yet now with VPN access into the brokerage you work at should give me a few insights for my treading activities.

Please keep in mind – identity theft is usually a crime of opportunity, so you may be victimized simply because your information is available. And even if you are paranoid it doesn’t mean nobody is following you… especially if you are on Tweeter.

Closing disclaimer – my company specializes in software and services for the HealthCare industry, so most of us deal with issues of privacy and security on ongoing basis, most of us much more than we care to. I authored over 50 security policies and went through number of audits and scans. I am very sensitive to this topic and I might sound boring. Yet, this is serious. Please be careful which what you put out there. Avoid posting personal data in any public forums; attackers may be able to piece together information from a variety of sources over time, in case if you are still in doubt please take a look Guidelines for Publishing Information Online for authoritative opinion …

And please spread the word!

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Kicking off a Body Language Discussion

I have been planning on putting together a few posts on body language for quite some time now. This topic is exceptionally important in any business / environment. The knowledge and understanding of body language is essential to any kind of communications, and when it comes to negotiations, conflict resolution, dealing with difficult people it is absolutely critical. There are many books and studies written on this topic, there are some simple common sense techniques, there are more advanced and powerful ones. In general reading and using body language is not a trivial task and the complexity of it goes up tenfold when you find yourself working with people from different cultures. But did anyone say that offshore was easy?

Anyway, I am not yet ready to cover this topic – still doing some research and compiling my notes and materials I gathered over years. The reason I decided to mention it today is not to put a stake in the ground, it somewhat a comical one. A few minutes ago I saw a picture of Illinois Gov. Rod Blagojevich on yahoo news. The body language in the picture stroke me as a classical stance of well trained used car salesman – “Would I ever lie to you!?” So I could not resist the temptation to put it here and ask you for ideas of a caption for the picture.

APTOPIX Illinois Governor Impeachment

Satyam Chairman Admits Huge Fraud

Satyam Chief Admits Huge Fraud … wow, you do not see those thing so often, and you wish you never did. I guess that puts Satyam’s chairman, Ramalinga Raju in the big league side by side with Madoff. I have done a lot of business with Satyam and am quite saddened by the news. Actually, Satyam has been under close scrutiny for quite some time now, especially after reports that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the accusation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons… Those deals were in fact a last-gasp attempt to fill a hole in its finances, falsely inflated for years by its founder and chairman. Inevitably stocks plunged closing at 39.95 or 78% down reminding everyone about Enron.

I still have a few friends working in the company and hope that these events do not affect them too harshly. The IT job market is far from perfect and who knows what is going to happen with gazillions of contracts Satyam had in the USA. Cisco already announced that “The recent unfortunate developments unfolding at Satyam are not expected to have any material impact for Cisco. At this point, we would not like to comment further and have full confidence in the government and regulatory authorities to address this matter as appropriate.” But what does it really mean in terms of the work which has been outsourced to Satyam; will all the contractors stay? Will they move on in a manner Arthur Andersen auditors ended up in KPMG? Or outsourcing altogether takes a huge hit?

It’s difficult to make any predictions now. I am afraid that this event will have profound and lasting negative impact on outsourcing in general as well as the entire Indian economy.

Is there any silver lining? Well, I am sure that there will be a lot of new business flowing to other top tire vendors across the world. Some smaller providers might get a chance to gain new business and get their hands on good employees in the feeding frenzy that’s likely to follow. And many companies on the buyer side will rethink their outsourcing policies and probably use this opportunity to renegotiate the contracts.

Outsourcing in the Light of Bribe Payers Index

Have someone offered you some funny smelling incentive package to close an offshoring deal? You may not be alone…  I just run across an interesting article, not specific to offshore outsourcing but very relevant though. Bribe Paying Export Countries by Daniel Workman talks about some unusual stats – “The 2008 Bribe Payers Index ranks the likelihood of importers receiving illegal monetary incentives from leading export countries.”  Here are the highlights

Countries Most Likely To Offer Payola

Final results from the 2008 Transparency International survey rank export companies from Russia, China, Mexico and India as most likely to bribe.

1. Russia … 5.9 (33% more likely to bribe than Canada or Belgium)
2. China …6.5 (26.1% more likely)
3. Mexico … 6.6 (25% more likely)
4. India … 6.8 (22.5% more likely)
5. Brazil … 7.4 (15.9% more likely)

Countries Least Likely To Grant Illegal Incentives

The BPI survey ranked Canada and Belgium as home to exporting firms perceived as more ethical and therefore apt to avoid illegal payoffs.

1. Canada … 8.8
2. Belgium … 8.8
3. Switzerland … 8.7 (1.1% more likely to bribe than Canada or Belgium)
4. Netherlands … 8.7 (1.1% more likely)
5. United Kingdom … 8.6 (2.3% more likely)

See more figures and supporting material in the original article TI Report: Emerging economic giants show high levels of corporate bribery overseas.

Outsourcing L10N, G11N and i18n

Just read an interesting article somewhat related to offshore on China success stories; while widely promotional and hardly unbiased that site offers great insight which could prove invaluable to those planning to outsource to China. The article Mind The Gap – Localization in China is about localization (L10N using common development lingo) and in particular soft and political aspects of it. “Localization is the process of adapting software for a specific region or language by adding locate-specific components and translating text, and it is further revised and expressed as “A process of planning and implementing products and services so that they can be adapted to specific local languages and cultures”. Yes, L10N means both linguistic accuracy and cultural fitness, the latter is even more important.

I believe that localization, in particular in web world, is one of the areas which could be easily outsourced. It is also one of the rare areas in s/w development which is almost always better off to be outsourced. However, far not anyone who claims to have experience in localization makes a good partner. There are multiple aspects of localization which require skills, knowledge and expertise besides just knowing language and culture.

Some things are fairly obvious – your localization partner need to understand technology and its impact on multiple dimensions of localization. Some are less obvious, for example, consider simple fact – Russian words take approximately twice as much characters than English, that will have it’s impact on the size of the labels and inevitably on screen layout, which ripples into serious impact on usability.

If you are new to L10N, G11N and i18n or even if you dealt with it to some degree you may find the presentation put by good friend and long time colleague Doug Kunz quite interesting…

Outsourcing Trends for ‘09

As I mentioned earlier in ‘08 – the Year of Predictions it’s difficult to not to yield the temptation of making predictions. First, in the uncertainty of today’s economy almost every one is looking for those; second, all of us with strong opinions on the outsourcing have some predictions at least in our minds; and third, personally I am very curious whether I can get any close to what ’09 will eventually show…

Being new to the fortune telling market I have been considering cold reading techniques, the art of creative vagueness, and audacity of stating the obvious. Those all seem like winning strategies and after some considerations I decided to use them all and present my predictions in a form of Outsourcing Trends for ’09, so here we go:

1. India will remain the leading outsourcing destination. How about that? Well, let me add at least something meaningful to this “discovery”. When it comes to India I expect:

  • a notable decrease in the rate of growth, I’d say mid teens to low twenties;
  • minor decrease in a market share;
  • consolidation with many casualties in the low end of the market;
  • improvements in quality of resources and general metrics of the services such as turnover ratio for top providers;
  • we will see a few megadeals mostly from the top tier vendors.

2. China will continue to straggle to grow its IT outsourcing offering:

  • there won’t be substantial growth in IT outsourcing, the figures at best reaching high single digits;
  • there will be some reshuffle of the top tier with some of the current leaders substantially giving up their position; my bet on the biggest loser is Freeborders;
  • the outsourcing for Japan will grow stronger, US business will grow at a lower rate.

3. Russia, Ukraine and Byelorussia will continue loosing their edge:

  • there won’t be any considerable growth in IT outsourcing, the figures will be in low single digits;
  • there will be no reshuffle of the top / second tier; a few of the current leaders will be responsible for the most of the growth figures; companies below second tier won’t show growth and many cease to exist; the big guys will get bigger and stronger, my bets are on Luxoft and ePAM.
  • the outsourcing for Europe will be responsible for majority of the growth, US business will grow at a very low rate.

4. Brazil, Argentina, Mexico will show some positive signs:

  • the growth figures in IT outsourcing will be in a mid to high teens;
  • formation of tier one will create a few prominent names with some companies really pushing for leadership position, in Argentina my bets are on Globant;
  • emerging leaders in LA market will build ODC in smaller or less developed in terms of outsourcing countries;

5. Supply of IT resources will increase across the world:

  • there won’t be any considerable growth in IT outsourcing in gross volume sense, the figures will be in low to mid single digits;
  • the new outsourcing players such as Egypt, Morocco, Nigeria won’t make any ripples or bring anything substantial to the market just a few 100K of additional resources that will play in the low end of the market;
  • while overall number of IT resources will go up, the rate of growth will go down, with less interest in the IT arena across the world;

6. IT outsourcing volume from US, UK, Germany, Japan, and other large IT consumers will grow at very low pace:

  • there won’t be any considerable growth in IT outsourcing in gross volume sense, the figures will be in low to mid single digits;
  • there will be however increase in percentage of work outsourced across the industry;
  • geographical pie chart won’t change dramatically yet it will show more aggressive outsourcing to new destinations and nearshore.

7. ’09 will be a buyer’s market:

  • Closing new deals, renewing existing and retain current customers will become increasingly more challenging; companies that do not invest in “farmers” and solid account management will pay for that dearly.
  • The price wars and cost pressure will affect everyone; boutique shops with typical sales pitch “we do not compete on price” or “we are not the most inexpensive but we have excellent people” will need to adjust their message or get ready to face dwindling revenue stream.
  • Vendors catering to small companies need to be ready for a wild ride, especially in the first couple quarters of ’09 – many contracts will broken, payments delayed, AR will grow and cash flow degenerate; even “good clients” will develop hearing problems and it will take much longer for US mail to deliver checks.

8. Rates on average will fall slightly or stay the same:

  • the disparity in rates among offshore destinations will narrow: rates from Asia will grow while Latin America and Eastern Europe rates will fall;
  • the average ratio of US “full time” rate to Offshore rate will slide notably;
  • the gap between freelance rates across the world will continue to narrow.

9. One of the most interesting trends with some tangible events will come from top tier vendors going outside of their native land:

  • The trend will be led by Indian outsourcers building ODCs in Asia (other than India) and Latin America. I would expect top destinations being China, Philippines, Brazil, Chile, and Mexico in no particular order.
  • There will be some moves in opposite direction, e.g. China companies opening centers in India. The volume of those would be rather small.
  • We’ll see some promising cross country hiring, in particular in sales and executive roles; this activities are likely for many vendors even outside of top echelon.

10. Engagement structure, contracting approaches and model usage will generally remain the same with a few emerging trends:

  • We will see more large corporations with substantial offshore engagements buying those engagements from the vendors. Some companies will execute of their BOT strategy, some will approach vendors with “offers they can’t refuse”, some, especially smaller companies won’t be too generous and would cut the relationships without giving much warning.
  • The new contracts will become more complex and will aim for accounting for currency exchange volatility, political instability, changes in standards of living, etc.
  • We will see more usage of Disposable Outsourcing Model mainly driven by readers of this blog.

Well, that is a lot of trends, and some are neither sufficiently vague nor 100% obvious. We’ll see how well the world of outsourcing performs on a challenging task of meeting my expectations. The trick is of course will be in measuring the performance versus my objectives… Some of the stats should be available in late ’09 / early ’10, some would be very difficult to find, I guess I will run some polls or try other bullet proof methods of gathering BI…

’08 – the Year of Predictions

End of year is usually also the busiest time of the year… unless it’s 2008. Moving deals across the finish line, inking contracts, pushing code into production to meet contractual obligations and milestones, writing employee performance reviews … there are fewer of those this year. Well, many of us are still extremely busy, it’s what we are busy with is a bit different. Some update their resumes, some dive head first into networking, some pull out dusty crystal balls to become fortunetellers. I would say this year could be called the year of predictions, at least it feels like everyone either making those or looking for them, even though we all know the value of predictions we just can’t yield the temptation. And it’s no surprise that when I am looking in my immediate neighborhood in the blogosphere I see some great posts in one or another way linked to predictions:

Phil Fersht offers an interesting high level forecast of trends in his Horses outsourcing predictions for 2009 with some interesting thoughts with very clear messages – Survival of the fittest. Let’s not beat around the bush here… we’re in for a very tough economy, budgets are being cut across the board and companies won’t be increasing their spending on IT and business operations.

James Wheeler in his The Dao of Outsourcing tells about how Chinese software services revenue predictions fall short.  Here is just one of his observations – ‘02 Gartner prediction of the software services revenues for 2006 from China with 0.6 probability – $27.1 billion, reality – $12 billion…

Dean Stevens does something completely unusual – ranking his last year predictions. He got 46 out of 100 which he is not impressed with “Not so good, hunh? I both underestimated the severity of the global slowdown, and overestimated the progress that Chinese vendors would make this year. Sigh…” Well, as far as I am concerned that’s amazing considering the rollercoaster we’ve seen.

Jamie Liddell offers a great sentiment on value of predictions in his The Perils of PrognosticationWho could have foreseen only a year ago that by the turn of 2009 we would be living in a world where the US president-elect was an African-American with the middle name “Hussein”; where several western governments – including that bastion of economic liberalism, the United States – had effectively nationalised major financial institutions; where oil prices would stand at the end of the year at effectively one-third of what they were halfway through it; and where Oprah had finally turned her back on dieting for good?

Well, whether it’s a right thing to do or not I guess I will jump on the bandwagon of predictions and do my best as well, in a separate post though.   And I will be happy if I can get close to 50% by the end of ’09.

Still looking for ’09 Predictions?

Well, what could be a clearer confirmation of outsourcing trends than a mega deal signed just before the end of the year? Infosys just signed a multi-million dollar, five-year outsourcing deal with pharmaceutical giant AstraZeneca. A brief article in InformationAge says “The deal will be seen as both an endorsement of the Indian IT industry’s viability in a downturn and a confirmation of the UK IT sector’s worst fears. The deal forms part of an operational transformation initiative that will begin in the UK, and that will see the Indian IT outsourcer provide application management services for many of AstraZeneca’s key business departments.” Well said “UK IT sector’s worst fears”… Outsourcing is here to stay; it will continue increase its market share and compete with domestic IT providers exacerbating the problems brought in onto IT sector by the economic downturn.

Mumbai Sad Nomination

An interesting and very important aspect of selecting an outsourcing destination is the location safety.  And it is quite different from what it used to be just a few years ago.  The recent terror in Mumbai brought a lot of attention to the subject and put Mumbai in the top ten riskiest places.    Here is a how the list looks today:

The Most Dangerous Ten

1. Jerusalem (Israel)
2. Mumbai (India)
3. Rio de Janeiro/ Sao Paulo (Brazil)
4. Manila/Cebu/Makati (Philippines)
5. Delhi/ Noida/ Gurgaon (India)
6. Kingston (Jamaica)
7. Kuala Lumpur (Malaysia)
8. Johannesburg (South Africa)
9. Bangkok (Thailand)
10. Bogota (Colombia)

The Safest Ten

1. Singapore
2. Dublin (Ireland)
3. Santiago (Chile)
4. Krakow/Warsaw (Poland)
5. Toronto (Canada)
6. Prague/Brno (Czech Republic)
7. Budapest (Hungary)
8. Monterrey (Mexico)
9. Beijing (China)
10. Cairo (Egypt)

See more in Mumbai named second most dangerous outsourcing location by Matthew Scott

1 out 4 IT jobs moving offshore

Large companies are accelerating their use of offshore outsourcing, and as many as a quarter of IT jobs at Global 1,000 firms may be moved offshore by 2010, according to The Hackett Group, a Miami-based consulting firm whose clients include many multinational corporations.  See  Survey: One in four IT jobs moving offshore from www.computerworld.com And the chances are they are correct. Increase if offshoring combined with unemployment rate highest in 26 years paints a very scary picture. What does it mean for IT professional in this country? Does it really mean “R.I.P. Good Times”? Probably not, it just means that times have changed and it’s time to change. First and most important it to recognize that offshore outsourcing is here to stay, as long as there is substantial difference between compensation rates for IT skills around the world there will be compelling reasons to move the jobs top the regions with lower rates.

Of course with world getting flat one day that place could be closer to you home than you have thought… A good friend of mine just came back from her trip to Hong Kong / Beijing / Shanghai. While she was deeply impressed with all new constructions and Olympic architecture she was really astonished with price raise across the board. Cost of living in cities such as Moscow, Kiev or St. Petersburg is astounding. Real estate prices in Bangalore challenge many US cities. A few months ago while walking on Rambla in Barcelona I just had to take a picture of great deal on flip-flops – and that’s before the dollar surged against Euro (so the discounted price below is ~$270).

prices

Take another look at the price above and think about Spain which according to Gartenr is one of top 30 outsourcing destinations… The changes in prices are dramatic and they are just a reflection of changing standards of living, of changing and reshaping a distribution of wealth. Changes in cost of living inevitably find their way in offshore rates and eventually in IT execs minds.  And that means profound changes in the IT Outsourcing landscape.