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Question: Recently we have had a triple whammy of people leaving, our workforce being scaled back, and our projects being redefined to fit into a changed economy. I’m pleased I’ve finally been promoted to a leadership role in what we are producing, but I’m concerned that I don’t really know how to present these changes and get buy-in from this new team. Due to project redirection, we’ve also added a few new employees to the team. How can I get them all to work together and show upper management that I was a good choice?
Back in 2004, the Department of Commerce was tasked to conduct a six-month assessment of the extent and implications of workforce globalization in knowledge based industries. It selected three industries--the information technology (IT) services and software industry, the semiconductor industry, and the pharmaceutical industry--representing the innovative and competitive strengths of the United States.
The $335,000, 336-page report was not released when it was completed in June 2004 due to fears within Bush administration that it would negatively impact the president’s the re-election campaign. The manufacturing and technology industry submitted a Freedom of Information Act request to obtain it and was given a 12-page document in September of 2005, and got the full report in July 2006.
The reworked, 12-page document and the full report present an interesting analysis of offshore outsourcing. The shorter version says “it was not possible to accurately determine the actual number of workers or jobs moving from one country to another based on available employment, trade, and industry data.” On the other hand, the full version says that the impact of offshore outsourcing on the U.S. competitiveness “appears to be negligible,” even though it also mentions that there is growing pressure on corporate America from customers, consultants and financial markets to offshore IT work.
Juxtaposed to the government’s report, the 2006 Global IT Outsourcing Study by DiamondCluster International, Inc., paints a different picture. Based on a survey of 153 buyers and 188 providers of outsourcing services, Diamond Cluster says that the IT outsourcing landscape is changing in surprising ways.
Outsourcing Trends Continue Upward…Slowly According to the survey, 9 percent of buyers of onshore services and 8 percent of offshore buyers plan to decrease their levels of outsourcing in 2006, whereas close to 50 percent of buyers plan to increase onshore services and over 60 percent plan to increase offshore services. However, DiamondCluster adds that the boom years of outsourcing are over and a closer look at the data should give pause to the providers.
Even though the amount of outsourcing is expected to rise, the news appears to be better for the IT staff at American companies. In 2004, 86 percent of buyers were planning to increase the level of offshore outsourcing. This number fell to 70 percent in 2005, and 64 percent in 2006. The reasons for the decrease in outsourcing include outsourcing the wrong activity, the inability to realize the benefits and the difficulty in outsourcing.
Shifting Concerns and Potential Risks The biggest potential risk mentioned by the buyers in 2006 is the geopolitical conditions followed by the employee backlash, which was the biggest concern in 2005. Customer reaction, negative publicity and legislation make up the top five concerns. The severance cost, which was the second biggest concern in 2005, dropped to No. 6.
Providers, on the other hand, are most concerned with competitor criticism, which was the 10th biggest concern in 2005. The top-five potential risks mentioned by providers include legislation, employee backlash, customer reaction and severance costs.
Troubling Signs for Onshore Providers The data reveals some troubling signs for the onshore providers. Less than 33 percent of buyers of onshore services say that all of their expectations are met, compared to 47 percent of buyers of offshore services. The pre-mature termination of contracts is also on the rise. 21 percent of buyers had pre-maturely terminated their contracts in 2004. This number rose to 47 percent in 2006.
More troubling signs exist here as well for onshore providers as compared to offshore providers: 42 percent of onshore contracts were terminated, whereas 28 percent of offshore contracts were terminated. The report does not state whether the terminated work was brought in house or contracted out to some other provider.
Increased Dispersion of Providers India is still tops as the biggest provider of outsourcing services with 75 percent of buyers in the survey having a provider in that country. It is also expected to remain the leader for at least the next three to five years. India’s current and three-to-five year growth rates are still higher than others.
However, China and Eastern Europe are poised to increase their share of outsourcing. Canada is also expected to gain as more U.S. buyers believe that the higher cost of outsourcing to Canada is offset by its proximity, language and culture. The number of Chinese providers is expected to grow by 43 percent, and more than half of Indian offshore providers are expected to capture a share of the rapidly increasing Chinese economy.
There is no doubt that the outsourcing services continue to grow. The market is maturing and the growth has slowed down.Nevertheless, the evolution of outsourcing services is still going on. Even though 79 percent of buyers in the DiamondCluster survey say that they are generally satisfied with their IT outsourcing decision, many aspects of outsourcing can still be improved.
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