What to Expect in 2015 – Revealing Trends in Outsourcing

Business Man with Crystal BallHow is outsourcing going to change in 2015? Outsourcing industry is a large ship that won’t turn on a dime, yet various forces have been reshaping the industry for quite some time and results are becoming more obvious every day. Certain trends ought to be followed as the landscape changes to accommodate new demands from individual consumers and businesses alike.

The strongest forces that shape the outsourcing industry include technology advancements such as raise of AI, cloud technologies and advanced robotics and automation. Another group of trend setters is related to political changes in the world, increasing standards of living among IT population of common supplies of labor in that sector – India, China and Eastern Europe.

Re-shoring, rural sourcing and near-shoring will grow

Regional providers are taking the stage, as the re-shoring trend is emerging strongly. While global outsourcing still maintains its position, local and nascent players will increase their reputation and take larger chunk of the market utilizing near-shore advantage in addition to cost effectiveness and productivity.

More tools, processes and systems will move to the cloud

More intelligent apps, software and agents will be implemented in the cloud, to make everyone’s job easier. Clients and providers will meet on this common ground in 2015. Labor will be seen more and more as a service, following in the footsteps of this trend. Cloud offering of services akin to Amazon’s Mechanical Turk is going to pick up pace as well. Continue reading

Microsoft and Plurk outsourcing debacle

If your goals are not achievable you can use them as targets. Sounds like a strange proposition? Well, look at Microsoft – everyone and their brother love to use it as a target of hate, criticism, etc. It’s human nature – to consider success of others as own failure. Fortunately, Microsoft never ceases to offer opportunities for harsh and well deserved criticism.

This time it’s quite amazing: as Plurk, a startup in micro-blogging sense, pointed in their blog “Imitation may be the sincerest form of flattery, but blatant theft of code, design, and UI elements is just not cool, especially when the infringing party is the biggest software company in the world. Yes, we’re talking about Microsoft.”

As it turned our recently launched Microsoft service Juku borrowed much more than inspiration from Plurk, it used very much everything including source code.

Initially Microsoft seemed uncertain about what happened yet shortly after the news hit the blogosphere suspended Juku and issued apologies to Plurk. “Because questions have been raised about the code base comprising the service, MSN China will be suspending access to the Juku beta feature temporarily while we investigate the matter fully.” see more here.

Stuff happens, even with the best of us. No reason to beat the dead horse here. What is interesting and particular important for the topic of my blog is that the code theft appears to be linked to Microsoft outsourcing practices, see Microsoft Statement Regarding MSN China Joint Venture’s Juku Feature “The vendor has now acknowledged that a portion of the code they provided was indeed copied.”

I am sure that we’ll never know exactly what exactly happen. In my opinion the chances are that Microsoft outsourcing partner did something that we call R&D – rob and duplicate, and under pressures of budget / timelines / etc. did not even make efforts to cover its tracks. The theft most likely happen at a very low level of the food chain – maybe just a few developers removed from the MS headquarters by 100s of layers of corporate hierarchy, maybe a product manager making a misleading request “make it like Plurk”, it might have been simple translation error … never the less the giant company is now have to accept responsibility for the mistake that in its relative size to the company decision volume would be equivalent to a drop of water in a sea. I would not even attempt to put a price tag on this debacle… well someone in MS will have to.

Anyway, there is an important lesson here: do you know what your vendor is doing? Do you know whether code came from? Was there any lines borrowed from a competitor, innocent bystander, or open source? That issue is relevant to all your employees (something borrowed from a prior employer?), yet by far is much more serious when it comes to outsourcing.

I came across it on multiple occasions – from code to “research” produced by consultants. In many cases finding plagiarism was not difficult, I am sure that in many cases I missed it as well, especially if the contributor was smart enough to remove comments, or paraphrase.

As you can see from MS example that issue is of very serious of nature and should be of grave concern. Make sure that you educate your team and include plagiarism analysis in your code review process, at least on an occasional audit basis.

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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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.

Gartner’s Top 30

Selecting offshore destination just got easier – Gartner has its new list now. While I am often skeptical about info you can get from Gartner reports, in particular in its application to small to medium sized businesses, I believe in its value as long as it’s taken with a grain of salt. “Determining the country or countries that are best placed to host offshore IT operations is a daunting task for many organizations, according to Gartner, Inc. This year, Gartner has assessed the suitability of 72 countries as offshore locations, and has announced its ‘Top 30’*. The analysis showed that the dynamic nature of the market has seen a number of countries position themselves as credible alternatives to the BRIC countries (Brazil, Russia, India and China)…

In 2008, Gartner’s top 30 locations for offshore services, by region, were:

  • Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Panama
  • Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Thailand and Vietnam
  • Europe, the Middle East and Africa (EMEA): the Czech Republic, Egypt, Hungary, Ireland, Israel, Morocco, Poland, Romania, Russia, Slovakia, South Africa, Spain and Ukraine

Although only seven countries from the Americas appeared in the final list of 30, these countries are becoming an attractive proposition for the largest buying market for offshore services – the US.

See more on Gartner Identifies Top 30 Countries for Offshore Services in 2008.
Also see good insight in NetworkWorld reaction By John Ribeiro India’s competitors catching up as outsourcing hotspots.

Mumbai terrorist attacks

Never during my visits to Mumbai I had a chance to stay in Taj Mahal; it was always booked solid. I am sure I won’t be staying in that symbol of luxury any time soon. As a matter of fact, I am not sure it will be as high in demand as it was for some time now. Terror atrocities are not new to India, as but till now they were mainly off the radar for many of US execs. Last couple days will change the landscape for a long time. As a matter of fact for many IT execs of my generation the word “Kashmir” has stronger association with Led Zeppelin than with ongoing unrest and terror. Of course there will be changes in hotel security and city security altogether, there will be strong government actions, and so on. Of course people will eventually forget victims and the horror inflicted on the city by well organized militias, yet traveling to Mumbai won’t be the same for a long time. The difference with emotional impact of slams and extreme destitution you see on the way from airport to a beautiful downtown and physical clear and present danger is huge. Today National Outsourcing Association (NoA) tells us not to travel to India unless we have to or at least think twice even though Nasscom said the country’s software and services companies remain fully operational. Tomorrow safety of your resources stationed in India or your business travel might become an ongoing concern. I have seen companies bow out of outsourcing engagements on less violent news.

IT Outsourcing ’09 Predictions

Hip hip hooray, the crystal ball is unveiled, and early predictions for offhshoring are out – IT Offshore Outsourcing: Early Predictions for 2009. Looks like there will be more business coming to the offshore vendors despite all the economic turmoil. I bet the jury is still out, as a matter of fact, the survey of 230 CIOs must have taken some time to process and summarize. The figures we are seeing today (DOW at 7500) are based on the data which probably goes back at least a few months (when DOW was let’s say at 12000).

My predictions are on a negative side, nowadays more than before, I expect notable deflation of offshoring business that will hit hard small suppliers in particular. I am sure we’ll see a wave of unpaid invoices, team buy-backs, and price wars.

Finding local employees may become easier as well, and that’s has been one of strong offshore drivers. Especially considering that things are getting quite gloom  and doom even in the IT employment heaven: California’s unemployment rate jumped to 8.2 percent in October, the highest rate in 14 years, just as a state fund that pays unemployment benefits was about to run out of money…