The business world is being disrupted by the combined effects of growing emerging economies, shifts in global demographics, ubiquity of technology and accountability regulation. Infosys believes that to compete in the flat world, businesses must shift their operational priorities.

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November 25, 2008

Offsetting the Rhetoric Against Offshoring

A new take on making the outcries against outsourcing less worrisome

The past few years have seen mounting trepidation over job losses in the US, particularly to developing regions such as India and China.These have been accompanied by sporadic outcries againt outsourcing and offshoring of jobs, which the ravages of the current financial crisis will only accentuate. With large banks collapsing and General Motors, once the mightiest corporation in America, sending out frantic distress signals, the crisis has brought the unthinkable to pass. These traumatic events are hardly likely to make Americans –whether government, intellectuals or the public - more tolerant to the steady outflow of jobs from the economy.

Now come two substantial new arrivals - a book and a study - that should go a long way towards allaying any backlash that may be brewing in the ateliers of the protectionists.

The book is a thoroughly researched, eloquently argued and highly persuasive piece, titled The Venturesome Economy - How Innovation Sustains Prosperity in a More Connected World. It's central thesis is that technological innovation is a complex, multiplayer game in which America still leads the world by a long way. American scientific, technological and economic pre-eminence are thus not going away anytime soon. The book goes on to argue that "neo-protectionist" fears are unwarranted, and shows how they will probably undermine America's economic might in the long run.

The book comes with impeccable credentials. It is authored by Amar Bhide, the Lawrence D. Glaubinger Professor of Business at Columbia University. Prof Bhide is also a co-researcher of Edmund Phelps, 2006 Nobel Laureate in Economics who is an authority on, among other things, the relationship between investment in education and research on the one hand, and economic growth on the other.

And Prof Bhide could hardly have chosen a better time to weigh in, as anti-offshoring rhetoric can be expected to rise over the next few months. It must be noted that the primary purport of the book is not to support outsourcing or offshoring,and I am sure nothing could be farther from the author's mind than to be painted as a torchbearer for the outsourcing brigade. Nonetheless, the arguments presented therein can be read as making a substantial case for a more liberal approach toward outsourcing.

The author marshals an astonishing array of evidence in supporting his thesis, stitching together data and information from diverse disciplines. He presents data to show that protectionist  fears in  the 1980s that the US would soon be overtaken by Germany and Japan, which focused on rigorous planning  of their scientific manpower, proved baseless as  the US prospered while  the ostensible aggressors largely floundered.  He says things are no different this time, with China and India.

Continue reading "Offsetting the Rhetoric Against Offshoring" »

August 25, 2008

Mobilizing Remittances for the Unbanked

Every year millions of people leave their home village, city or country in search of better opportunities. Often, family members are left behind and depend on periodic payments from loved ones abroad to survive. Conventional remittance programs are often expensive ($15 to $20 per transaction) and usually require a trip down to a money transfer agent like Western Union.

This traditional process works well and workers abroad are able to provide for their families back home. But I think the time is ripe for the remittances process to leverage cost efficiencies and ubiquity of mobile and internet technologies.

Continue reading "Mobilizing Remittances for the Unbanked" »

September 10, 2007

Five Disparate Global Sourcing Objectives: A Conundrum?

We have heard these before and will hear them again in sourcing deal after deal: the list of Objectives from the Global Sourcing initiatives that an organization is embarking on. And in deal after deal, there will be those sighs and groans as the solution team tries to figure out how to reconcile sometimes seemingly disparate objectives into one elegant package:

1. Efficiency with Innovation

Sourcing initiatives typically begin as a means to get the house in order, eliminate inefficiencies, control and lower costs etc. However the benefits desired do not stop once those are achieved and extend to creation of new value through innovation and transformation. Innovation is expected to follow its humble cousin, Operational Efficiencies, as a natural progression and that too in quick succession!

Now, only if the scope coverage, contractual mechanisms and pricing formats were to support this…On the deals I have worked on, I have mostly come across one or two sheet, unformatted response templates when it comes to proposing Innovation, as compared to scores of defined forms for the Operational Efficiency aspects!

Continue reading "Five Disparate Global Sourcing Objectives: A Conundrum?" »

September 4, 2007

The GSS principle: It is Global Sourcing, Stupid!

Words are like people - some lose their distinctive flavor over time and some start to get confusing. And some start sounding the same as another: just like a popular theory that several years after marriage, a couple starts looking and talking very similar to each other!

The words i am referring to in this post are 'Outsourcing' and 'Offshoring'! They had distinct identities several years ago, when the world was still a little round. They reflected the Cold War mindset - there was a First World (US and other western developed countries), a Second World (USSR and its communist allies), and a Third World (underdeveloped countries in the eyes of the beholder). Outsourcing was associated with getting work done by a vendor who belonged to the First World; Offshoring was linked to sending some bits and bytes to an emerging Third World country (usually India) that would do it, like, ten times cheaper. The Second World was communist, so they never figured in the equation.

This was the world in which the IBMs and the EDSs of the world prospered, and in which some of the top C-level decision makers in F1000 companies grew up in. And it shaped their thinking and worldview.

Continue reading "The GSS principle: It is Global Sourcing, Stupid!" »

August 14, 2007

Celebrating 10 years of CIO Independence

On 15th August, India celebrates 60 years of independence. India gained independence in 1947 as a unified nation after an intensive struggle for independence. As you probably know, India is the second-most populous country in the world with an estimated 1.19 billion people in 2006.

The Indian software industry has grown from a mere US $ 150 million in 1991-92 to a staggering US $ 39.6 billion in 2006-07. No other industry in India has notched up similar growth or had such a progressive effect on India’s economy.

Driving the industry in the future to a $60 Billion in FY09-10 target  will be the following factors:

·      an addressable global market opportunity of around US$ 300 billion

·      growth in existing businesses and new services lines

·      India’s status of “most preferred destination for global IT sourcing”

·      The country’s talent pool, top-quality management and security and quality focus

So why is this important for Global CIOs. The last 10 years in particular have seen India emerge as the favorite destination (65% share of the global offshoring market) for CIOs worldwide. CIOs who were stuck with lack of scale, talent-crunch, flexibility and high costs suddenly found an avenue for success. Most of them actually succeeded in leveraging Indian talent successfully. Most of them found freedom and independence.

Moreover, as a result, India gave birth to several successful global multinationals including Infosys ofcourse, that went on to establish a strong presence in multiple countries and established themselves as global leaders. Large Global IT Services giants in the last 10 years have suddenly discovered India as a hub for their operations as well.

While the future outlook for the Indian services industry appears bright, the sector will need to grapple with certain short- to medium-term challenges such as the appreciating rupee, paucity of “suitable, employable,” talent, infrastructure development and sustenance of a positive policy/regulatory environment. These require timely, consistent and continued effort from all stakeholders including the industry, government, and academia.

As far as the next agenda for the same CIOs: After successfully using the “value for money” wage arbitrage advantage and then making the transition from on site to off shore delivery through the perfection of high quality processes and the ability to migrate technology development and business process management to Indian centres, the third wave of success for these CIOs may well come from innovation using the global delivery model again leveraging India and other emerging economies successfully.

Cheers to 60 years of India's independence and 10 years of Global CIO's independence. Cheers to the Global Delivery Model.

July 19, 2007

"The report of my death was an exaggeration"

So wrote Mark Twain after learning that a reporter was sent to investigate whether he had died.  I was reminded of this quote after reading the latest in a recent spate of articles predicting the decline of India as the leading global sourcing destination.

Citing unnamed "experts" the article, like others of its ilk, blamed wage inflation, hidden costs, and rising demand for skills as the reasons why companies are pulling out of outsourcing relationships or shifting offshore operations from India to "newer" locations. 

There are a number of problems with this line of reasoning.  First, it assumes that global services market is static and cost-obsessed and that the labor arbitrage model will always rein supreme. 

Certainly, cost reduction is and will remain a principal goal driving companies to move IT and business process activities to offshore locations.  But, it is not the only reason.  Establishing market presence or supporting local business activities in emerging economies are among the others, as is the need mitigate geopolitical risks.  Companies also look to different locations for local knowledge and linguistic and cultural reasons, e.g., to serve East Asia markets from China or EU countries from Central Europe.

Continue reading ""The report of my death was an exaggeration"" »

July 5, 2007

Outsourcing Myths and Secrets

by Stephen Lane

I've been thinking about a recent Wall Street Journal article titled "Seven Myths About Outsourcing" (subscription may be required).  Basically, it is a cautionary tale that's been told many times in outsourcing circles.  Last year an outsourcing advisory firm also wrote a report along the lines of something like "the seven secrets of successful outsourcers".
 
Five years ago the authors could have written the same article about CRM and before that ERP.  We all know quite well that every business/IT trend follows the same path.  Gartner hit the nail on the head when they came up with their Hype Cycle.

True, vendors sometimes over-promise, but the problems in many outsourcing cases are due to failure to properly plan by the outsourcer -- that and a lack of dedicated program management.  Many first time outsourcers jump onto the bandwagon with visions of huge cost savings.  What they fail to realize is that if they don't have a good sense of their internal operations, they won't know what they are outsourcing and can't manage it well enough to get the desired savings. 
 
The moral of the story is that outsourcing is a strategic activity, one that requires planning, partnering, and a strong sense of internal processes and costs.  It also requires executive leadership, stakeholder buy-in, and dedicated ongoing management, which is the same for any strategic undertaking.  In raising these points the article is actually quite positive.  If anything, we and the other offshore vendors should be thanking the authors for pointing out what to most experienced outsourcing practitioners is obvious. 

The main problem that I have with the WSJ article is that it follows the recent trend of using the terms outsourcing and offshore interchangably.  The same myths have been and continue to be applied to domestic outsourcing, e.g., the old "your mess for less" approach that led to headlines a couple of years ago about dissatisfaction with outsourcing in general. 

True, the offshore approach does include a cultural wrinkle, which is one reason, but not the only reason why some our most advanced sourcing clients travel to India and other sourcing locations between 3-5 times annually to meet with us.  That kind of dedicated management and attention to relationships yields results.  So does experience, which is another point the authors make. 

April 30, 2007

Cars: "Some assembly required"?

by Ajai Vasudevan, Automotive Solutions Practice Leader

When we sat down for lunch that day, it wasn't exactly the initial topic of discussion. But given the pressures on the North America auto industry, it was only a matter of time before the topic came up.

"How do we enhance our product development capabilities while speeding time to market and reducing cost," asked the engineering director of a venerable Detroit based Automotive Tier-1 supplier. While this happened several days ago, the words are still ringing in my head.

This is obviously the holy grail of automotive product development.

Maybe a day will come when customers will design their own cars - like they today happily "assemble" IKEA furniture at home.

That will effectively take care of at least part of the problem. However till that day of product development nirvana comes, more mundane solutions need to be found. Mundane? Very well! 

The Product Development process remains one of the most complex automotive business processes. It is everything that automotive manufacturing is not. It is iterative, it branches out and congregates, it runs over an extended period of time. In short, it is quite different and hence requires a different approach. 

The rapidly flattening world is opening up new vistas to innovate the product development process. Take Toyota as an example. While common wisdom conveys that there is an outflow of engineering jobs from the US, Toyota is turning the logic upside down. Its Design center in Detroit is hiring locally and growing fast. Toyota and Honda are opening new plants in the US and recently Kia announced opening a new plant in the US as well. It is remarkable that organizations based in developed economies are opening an engineering center in another developed country. What’s attracting Toyota? Talent. Experienced engineers who have spent a lifetime in automotive product development.

Another route is to leverage the global talent pool. Thanks to availability of connectivity, workflow tools and product data management systems it is now possible for an extended global team to pretty much act as one. This opens up the route to tapping a lower cost talent pool, running an extra shift and allowing the core team to focus on innovation.  And, in the process, if the team comes up with new product ideas for the global markets. Now that’s a way to the holy grail!

March 8, 2007

Flat World CIOs - Preparing for the Corner Office

by Sandeep Dadlani, AVP, Retail and CPG Business Unit 

I looked in disbelief at the CIO of a small fast food chain when he asked “Can you help set the menus of all my fast-food outlets and manage the menus from Bangalore?”

No, he wasn’t talking about the menus that run some weekly batch jobs on his HP servers in his datacenter…He was talking about the actual menus with combo deals with fries or fruit salad as an option.  And, to manage that from Bangalore would mean at least a few menu management experts who would take sales data from all over the world, analyze them, take inputs from the company’s menu experts and then set/reset the menus.

Of course it can all be done in Bangalore…that wasn’t the fascinating fact. The most fascinating thing was that the question was coming from the CIO and not the CEO. Such an activity should have been the CEO or CFO’s priority but here was the CIO taking it up in full earnest.

CIOs have always been challenged with being part of the business strategy and using IT to enable business. Their objective has been to listen to their business partners and partner with them on their business ideas to implement them. But the Flat World CIO has a bigger mandate…My last few meetings with leading CIOs of Fortune 1000 companies have revealed that the CIO is well suited to take on another role – that of a flat-world evangelist and champion, that of an originator of business ideas and this is not just about offshoring.

Take for example, the CIO of a large consumer products company who started throwing out ideas in our first meeting on how we could become the analytics engine for his category managers. By using our brand managers in different geographies to analyze sales data and spew insightful reports we could allow his category managers to “Make Money from Information” instead of getting stuck in myriad reporting capabilities (or the lack of it) within the organization and the geography. This CIO was again not limiting himself to offshoring but he was using his experience at offshoring IT applications and basic business processes like F&A and HR. This experience was helping him in thinking globally without limitations. I can say for sure that this CIO would be a true friend of the VP of Marketing because both have the same vision.

Or for example the CIO of a large retailer who eagerly looks forward to the next downturn in the economy where most of the competitors slow down in spending on new initiatives. This CIO actually picks up the pace during a downturn in terms of taking business ideas proactively to his business partners and investing in those ideas “while the competitors are sleeping” as he says. No wonder, this retailer is one of the most successful in its league. It knows how to “Win in the turns.”

All in all, the more forward-looking CIOs, lets call them Flat World CIOs, are taking on their roles seriously as flat-world evangelists. They are best suited to this role for the following reasons:
- They have been exposed to a more global environment more than other CXOs
- In most companies, the IT department today is the most multi-cultural and multi-geographic environment
- They have first access to most of the core information that runs the company

These flat World CIOs tend to be the first to take up new business ideas that address each of the four flat world shifts. In a sense, they are assuming the defacto role of CEO without any limitations or boundaries to their thinking. It is no wonder that these CIOs are known in the industry to be the most successful.

March 7, 2007

Efficient operations are everyone's business

Sandeep Dadlani, from the Infosys retail and consumer products business unit, says that increasingly he has been seeing CIOs taking a leadership role in driving operational changes.  I've asked him to share his thoughts based on recent discussions and meetings with client executives.

Sandeep Dadlani is an AVP responsible for strategic relationships for Retail & CPG business unit at Infosys. He has over a decade of operations, product management and IT consulting experience. He has been with Infosys for over 6 years. Prior to Infosys he worked with Citibank in India, transitioning parts of their cash management operations to their captive and managing some of their global cash management product portfolio. Sandeep holds an MBA in Finance from Bombay University in India and a Bachelors in Electronics Engineering from MS University, Baroda, India.

January 20, 2007

Can Innovation be "Offshored"?

Yes, says Mohan Babu of Infosys on his blog: 

"One gentleman was curious about how 'innovation' could be offshored. We started debating on the 'processes' involved in innovation and how most of it is an evolutionary process-of-improvement rather than a revolutionary 'eureka' moment. The research that leads to innovations in processes and adopting new tools and techniques involves scanning the landscape analysing published research, benchmarking other best-practices..."

Read full blog.

January 19, 2007

Cisco's flat world moves

Cisco's Chief Globalization Officer Wim Elfrink says that Cisco plans to have at least 20% of its top executives working in India in the next three to five years.

Why?  According to Business Week:

"One reason lies in the size of India's market. While Internet penetration in India stands at a mere 4.5%, the online market there is one of the fastest growing in the world and the Indian cellular market is white hot.

"The other issue is cost. Huawei can compete against Cisco on price because of its cheap talent pool. Facing those pressures, Cisco will find it hard to maintain its high margins unless it develops its own vast force of low-cost engineering talent.

"Cisco also wants to acquire the best Indian operations in its field to accelerate growth. As part of its ambitious investment plan, Cisco has set aside $100 million in a venture capital fund to buy out Indian companies. It has invested in a couple of outfits such as gaming destination Indiagames.com. (Cisco acquired Linksys, a home networking company, in 2003.)"

Read full article at businessweek.com

December 11, 2006

What drives offshoring: Just low cost or other factors?

Professor San Murugesan from Southern Cross University, Australia, recently answered this question on Infosys' blog on "Managing Offshore IT".  He conducts research in information retrieval, wireless internet technologies and applications, web engineering, IT adoption, globalization and offshoring.

An excerpt:

... In advanced economies such as the US, UK and Australia, there is strong negative perception about and opposition to outsourcing (offshoring). Their major concern is job loss, though other issues such as privacy and integrity of customers’ information and intellectual property take prominence. As a journalist wrote in an Australian newspaper recently, for enterprises that offshore its service needs, it is the question of their survivability, improving their competitiveness and providing better customer service in cost-effective ways, rather than how and where it gets services accomplished. If they don’t offshore some of their services, some of the enterprises can’t remain competitive and sustain their business contributing to further job loss and strain on economy and the society.

Read full post here.

September 15, 2006

The Role of Countries

by Stephen Lane, Group Manager, Infosys Technologies 

Many readers have commented about trends in resource availability and infrastructure.  Leaving geopolitical risk for another day, then, I’d like to open a discussion about the role of countries in global sourcing with respect to human resources, convenience, and infrastructure in India. 
 
India possesses clear early mover advantages, especially in terms of human resource availability, quality, and cost.  These are, for the overwhelming number of companies, the primary motivations for global sourcing.  Starting with demographics, India presents a much more positive picture than most other low-cost sourcing locations, including China, with their projected steep declines in the number of working age individuals as a percentage of total population in the next 10-20 years. 

However, only 61% of India’s people are literate and a mere 7% in the 18-to-20 age range is enrolled in higher education.  The numbers for China are roughly 91% and 15%, respectively.  Ensuring a large labor pool, not only to meet future demand but also to maintain a cost advantage, means investment in education and bringing more people into the workforce.

By convenience I mean cultural compatibility, the availability and expertise of potential sourcing partners, business transparency, and travel.  Here again, India possesses clear advantages.  Leading service providers such as Infosys have well-established relationships brand-name clients and world-class business and corporate governance practices.  And, as long as the demand side for global sourcing is focused in Anglophone countries the Indian services industry is well-positioned to maintain its leadership. 

How long will be the case, however, is open to question.  Especially as demand begins to shift to non-English speaking countries and, as one respondent noted, China begins to realize the results of its large investment in English education. 

Finally, in spite of its many wonders, India is not exactly the ideal business travel destination, which brings up infrastructure.  Granted, India has far more important needs than making things easier for services companies and business travelers.  Nevertheless, companies must heavily invest to make up for the poor infrastructure.  At the same time, negative comparisons to China continually appear in the industry press, causing people to note that India’s infrastructure problems are having a negative impact, not only on my industry but on economic advancement in general.  True or not, perception is reality.

I raise these points not to sound an alarm about India’s services industry.  I am well aware of things that Infosys is doing to ensure its future as well as maintain its role as a good corporate citizen -- as well as efforts by the national and state governments.  Moreover, if one were to ask me about China, Russia, Brazil, or other countries I could come up with similar concerns, some even more grave than those facing India. 

Nevertheless, although India’s services workers are among the best in the world, they are not some new species immune to changes in the world around them.  So, concerning the role of countries in global sourcing – or any other business in the flattening world – I would say that it’s about creating environments where people can flourish.

September 1, 2006

Global Sourcing is not Olympics

by Stephen Lane, Group Manager, Infosys Technologies

The question as to whether or not China will someday supersede India as a sourcing destination is a debate in search of an issue.  It overlooks changes in the global sourcing market as well as characteristics that different countries – and the service providers that operate from them -- possess that would make them attractive in a flattening world.

Look at the current sourcing market in China.  There companies have elected to outsource IT functions and business processes and/or established captive centers there primarily for the following reasons.    

  • Support operations in China that require local knowledge as well as IT or business process skills;
  • Serve Asia/Pacific markets that are culturally, linguistically, and economically linked to China;
  • And, Avoid over-dependence on other low-cost sourcing locations such as India or the Philippines. 

Responding to, and in some cases anticipating these market forces foreign services companies such as Infosys and others have established development and delivery centers in China, and not simply because of the country’s low cost skilled labor. 

For example, Japanese companies are the largest foreign consumers of China’s IT skills, responsible for nearly 60% of the outsourcing and captive center activity, followed by Taiwanese and Korean companies.  Multinational service providers also use the country as a base to serve markets in the Asia/Pacific region as well as existing clients operating in China.  

Global service providers are also attracted by the country’s potentially huge domestic demand for IT services.  Although Chinese service providers have adopted global delivery models, they too tend to concentrate on China’s domestic market.  The result a services industry that is quite different from that of India or that of any other global sourcing location.

Country specifics aside, the problem with the view of the global sourcing market as some sort of Olympics is that it looks backwards at a model where companies select sourcing locations primarily for their ability to provide skilled low-cost labor.  Although it is true that cost management remains an important objective, mature global sourcing practitioners have adopted much more strategic approaches in which decisions about where – as well as what, how, and to whom – to source are based on multiple criteria.

Finally, the China versus India debate assumes that the Chinese government and services industry can or are even looking to replicate the combination of market conditions, business drivers, government policies, entrepreneurialism, cultural factors, and luck that enabled India to achieve its current position.  History doesn’t repeat itself.

Ultimately the future of global sourcing will not be about country versus country.  Just as China is emerging as a sourcing location the picture in India is changing, as it is in other countries.  China may indeed become a leading sourcing location someday but it will be in a market that is significantly different from the one that exists today.

IT sourcing in China


I've asked Stephen Lane, an Infosys global sourcing expert to comment on this topic. 

Stephen has spent 27 years in the IT industry with more than 15 year’s experience in outsourcing delivery, advisory consulting and industry analysis.  He works with leading Infosys clients to identify and share global sourcing industry best practices.  He holds a master’s degree in East Asian Studies, which partially accounts for his long-time interest in China and its role in the global economy.

August 30, 2006

China, India and IT Outsourcing

by Richa Govil

Infosys recently polled 237 IT and business professionals. The survey asked "Do you think China will overtake India as the next hub for IT outsourcing services by 2020?"

Results
35%: Yes
14%: Maybe
50%: No
(the usual disclaimer about rounded numbers not adding up to 100% applies)

I'm sure if China puts its mind (and muscle) to it, it can make anything happen. But at the same time I am not convinced that China will overtake India by 2020. 

There is more to building expertise in a field than throwing $$s and people at it. There is a reason why Silicon Valley continues to be the hotbed of entrepreneurial activity in tech-oriented businesses. There is a reason why despite horrible traffic Bangalore employs the highest number of IT professionals in India. Experts in any field do not thrive in isolation -- they require a whole ecosystem to support them.

I'm not saying it can't be done. The Japanese automotive industry is a great counterexample.  But if I had to choose between China and India, I'd pick India. Of course, I don't have to choose -- after all, Infosys is building up an IT development center in China.