Canadian outsourcing will grow in 2010, says IDC

Outsourcing practices are expected to grow in 2010, according to a recent Web cast from IDC Canada, the Centre for Outsourcing Research and Education (CORE) and Prima Management Consulting on the impacts the recession has had on outsourcing in Canada.

According to IDC forecasts, the overall Canadian IT outsourcing market is expected to reach nearly $15 billion in 2010, which represents a growth of about 3.8 per cent from 2009, said Sebastien Ruest, vice-president of service and technology research at IDC Canada.

"With the chipping away of the traditional outsourcing model, alternative outsourcing models such as remote infrastructure management, cloud and utility computing are forecast to grow by 5.4 per cent in 2010," said Ruest.

IDC expects financial services firms will lead the way, market interest in business process outsourcing (BPO) to grow, further increases in global offshoring and challenging economic conditions ahead in 2010, he noted. The constraint of capital will continue to drive CIOs to conserve cash and avoid risk-taking by looking only one to two years down the road, he said.

Other 2010 trends highlighted by Ruest include cloud-delivered services increasingly being seen as a means to drive better value in IT and HST (harmonized sales tax) creating some hesitation in the outsourcing sector. BPO will see the largest gain and cut in spending this year, he said. Ruest also speculates high interest in outsourcing from the manufacturing industry.

The recession fueled the need to reduce operating costs, which increased outsourcing demand, and recent outsourcing activity shows strong signs that companies are building agile, cost-effective platforms to improve their competitiveness, he said. "In summary, 2009 was a strong year for outsourcing in Canada, which is creating a positive market for 2010," said Ruest.

Canada will expand its adoption of global outsourcing, but continue to lag behind the U.S., according to Frank Hart, president of Regina-based Prima Management Consulting. Hart also expects the number of RFIs and RFPs to increase in 2010 and sees BPO as "the next frontier" for global sourcing.

What's happening is a convergence of business models between traditional Tier 1 and India-based firms, said Hart. India-based firms are starting to win larger-scale Canadian ITO contracts and growing six times faster than traditional Tier 1 providers in ITO, he said.

Canadians are typically slow to adopt global outsourcing, Ruest pointed out. Canadian companies have comparatively less experience with global service delivery relative to U.S. business and seem more agnostic about global delivery location choices, he said.

But the Canadian preference for outsourcing to Western Tier 1 firms is expected to change and more Canadian businesses will begin to look at pure-play providers including India-based firms, said Ruest. Pure-play providers have tripled their share of the market to six per cent in the past four years, he noted.

The upcoming demand for new ICT employees, a result of retirements and industry growth, is driving the potential for global offshoring, according to Ron Babin, director and assistant professor at Ryerson University's Ted Rogers School of IT Management.

Canada will see a shortfall of 162,000 positions in the next five years, which is why outsourcing is very important, said Babin.


Source: The Industry Standard
 

How to Keep Your Outsourcing Provider Hungry for Your Application Development Business


Outsourcing More IT leaders are spreading their application development and maintenance work among several outsourcing vendors. Multisourcing, as the practice is called, increases competition, breadth of resources, availability and management overhead.

IT leaders are increasingly turning to multiple outsourcing vendors to obtain application development and maintenance services. They're finding that spreading their application development and maintenance work across, say, three vendors makes more sense than having a single provider perform all of the work.

Indeed, multisourcing, as the practice of using multiple vendors for one function is known, offers a number of benefits to the customer, says David Rutchik, partner with outsourcing consultancy Pace Harmon. For one, a portfolio approach to sourcing provides access to a wide, deep bench of resources that may not otherwise be available from a single provider. Moreover, it encourages competition among the vendors, which benefits the customer's bottom line. It also keeps the vendors honest and hungry for the customer's business.

"By avoiding minimum commitments of spend or services with any one vendor, each provider earns the business by providing ongoing, compelling value," Rutchik says. "This can be more important than any outsourcing contract provision."

Of course, using too many providers would spoil this outsourcing secret sauce: It would increase governance challenges and require the customer to smooth the ruffled feathers of vendors who might feel marginalized. That's why the typical multisourcing recipe includes ongoing relationships with a couple of Indian providers and one U.S.-based multinational supplier. The domestic provider can perform the work offshore or access a pool of U.S.-based resources if necessary, whether for customer comfort, ease of collaboration or security reasons, Rutchik explains. And with potential changes to the H-1B and L-1 visa programs looming, having an American provider in the mix may become even more important.

As for the two offshore providers, clients should opt for vendors of different sizes--one large firm and a Tier 2 or 3 vendor, advises Rutchik. The smaller provider should keep pricing competitive, may offer specialization in certain verticals, and offer more individual focus and attention.

The Mechanics of Multisourcing
Here's how a multi-sourcing agreement works. The client enters into agreements with the three providers upfront, establishing terms, service levels and pricing either for a specific project or projects in the future. However, these contracts should not guarantee future work to any provider.
 
Each time new development or maintenance needs arise, the client determines its requirements and issues a statement of work on which the vendors may bid. "As a best practice, a company should not award projects in a de facto manner," says Rutchik. "A competitive process ensures the right pricing, skill sets, et cetera are secured for the particular project.

Multisourcing requires more work upfront, admits Rutchik. And no one wants to put together statements of work for every little project. "However, the structure and attention on the front end—which does add incremental resources and effort from groups such as IT and sourcing—actually enables less overhead on the governance side because projects requirements are scoped and resourced more appropriately," Rutchik says.

Over time, the customer gets to know his group of select vendors—the quality of personnel, price points, risk, flexibility and quality—and can make better decisions about which provider is best equipped to perform each job.

The two-parts India-based provider, one-part U.S. supplier approach doesn't mean all the work is divided between the two countries alone. Some customers, hoping to mitigate political, currency or natural disaster risk in a specific location, will take advantage of support that the trio of providers can offer in other parts of the world. More often than not, however, the driver is something more concrete, such as the need for services to be performed in a certain time zone, available language skills or overall costs. Vietnam may be cheaper than India. Or the Latin American subsidiary can provide Spanish language skills.

"It is less about risk and more focused on support requirements," Rutchik says.


Source: CIO



IT Outsourcing: Why It Pays to Appraise Your Contract

You Most IT outsourcing contracts contain post-execution provisions that, if not reviewed annually, can drive up costs or drive down performance. We've got an 18-point checklist to keep your outsourcing costs and service under control this year.

Everyone knows a good outsourcing relationship needs to be actively managed. So does a good IT outsourcing contract.

Most contain what Marc Tanowitz, principal of outsourcing consultancy Pace Harmon, calls "active obligations"—provisions to be completed post contract-execution that require periodic review or that may vary over time. Many of them can have a significant impact on performance and cost if neglected.
[ Outsourcing Contracts: Clause Control ]

Even a seemingly healthy IT outsourcing arrangement can benefit from an annual check-up to ensure that metrics are providing meaningful insight into performance, get an updated understanding of outsourced operations and how well they're running, and ensure that you're getting what you've paid for per the contract. If things aren't going smoothly, such a review can provide a platform for productive discussions with the outsourcer about why the relationship is faltering. And, in the worst case scenario, it can minimize the risks of transition for buyers thinking about walking away from a deal.

"Ideally, the relationship owners have a solid understanding of the contract, but this is often a lofty expectation," says Tanowitz. "The resources who negotiated the agreement are not the same people who 'operationalize' it."

Tanowitz estimates that a thorough contract review can take just four hours or less. So book a conference room, gather the outsourcing relationship managers, business partners impacted by the deal, and—if possible—those who negotiated the original deal, and go back to the beginning with the following eighteen-point review.

1. Resource Commitments
Many IT outsourcing contracts specify the number of service provider resources for each year of the engagement. In many cases the number of resources is linked to productivity or volume commitments. Buyers should ensure that the number of outsourcing employees and related volume or productivity attributes are correct for the current year.

2. Productivity Commitments
The outsourcer may be contractually required to provide specific levels of services (e.g., a certain number of help desk calls per employee). Ensure that productivity commitments are being met through decreased cost or increased transactions.

3. Pricing and Fees
Everything from service volume to resource allocation to annual adjustment provisions can increase prices. Review recent invoices—or better yet, quarterly invoice audits—to determine whether costs per unit are accurate. Go over any price escalators baked into the deal (e.g., cost of living or currency-related adjustments) and pricing algorithms or indices so you can anticipate and verify price increases.

4. Pass-Through Expenses
These fees are usually charged as they are incurred, but they may be subject to restrictions (advance approval, for example). Review these charges to determine the best approach to minimize them before they add up.

5. Continuous Improvement Plans
If your service provider is required to document proposals for increased efficiency, make sure you've received and reviewed them.

6. Benchmarking
It takes time and money, but if you have a benchmarking clause in your IT outsourcing contract, it's in your best interest to use it, particularly if you have limited productivity commitments in your contract. If service or prices seem out of sync with the market, consider an external assessment.

7. SLAs and Reporting
Services and needs evolve over time. SLAs and reporting requirements should be reevaluated periodically. Consider exercising audit provisions to ensure the service provider is measuring agreed upon metrics correctly, and verify that any performance credits due have been provided. If the contract does not provide for SLA modification and improvement, revisit this issue with the outsourcer.

8. Processes and Procedures Documentation
Service providers are usually required to maintain up-to-date documentation for all processes and procedures in order to train new workers, provide specifications for requirements, and ensure standardization. Verify that documentation is up to date and accessible.

9. Audits
Company policy, regulatory agencies, standards bodies, or just good business practice may necessitate periodic compliance or operations audits. Determine when audits are contractually allowed or due and plan accordingly.

10. Technology Configuration
Technical specifications are established when you sign on the dotted line, but may change over time. That can impact performance. Some IT outsourcing contracts contain technology refresh provisions to address this. Check your contract and make certain that the vendor is operating with the appropriate hardware and software.

11. Resource Certification
In cases where certifications are required to make sure external resources are aware of contractual obligations (e.g., confidentiality agreements, security clearances for defense work, compliance training in healthcare), buyers should verify the provider's employees have met all minimum qualifications.

12. Document and Data Storage
Most IT outsourcing contracts provide for data retention based on company policy or legal requirements, which can change over time. Be certain practices meet present-day requirements.

13. Business Continuity and Disaster Recovery
Your provider should be required keep all business continuity and disaster recovery plans current to minimize operational interruptions, but these plans can quickly become stale. Find out if the plan is current and recently tested.

14. User Access
Attrition rates in the IT outsourcing industry can be high—particularly offshore. Make sure your vendor has a robust user management process so that only authorized users have access to your systems and licensing and that licensing costs are kept in check.

15. Key Personnel
Key personnel and personnel restrictions are often specified in outsourcing agreements (e.g., certain service provider employees may not be swapped out for a minimum time period, the buyer may have a right to remove resources). Make sure this list is current and enforced.

16. Competitors
Your contract may specify a list of buyer and service provider competitors. Update this list to limit the risk of a competitor benefitting from your decisions or best practices.

17. Governance Cadence
Both executive-level and operation governance meetings ought to take place on a regular basis (e.g., quarterly) to address business and technical issues. Evaluate whether the governance schedule has been optimal. Schedule the next year's meetings in advance and set agendas to maximize the likelihood that necessary attendees actively participate.

18. Anticipated Business Changes
Do you anticipate any big business changes in the next year? Acquisition? Divestiture? New line of business? Develop a strategy to inform and engage your partners so they are prepared.


Source: CIO