Extreme Outsourcing

Nandan Nilekani, CEO of the outsourcing firm Infosys and the man who inspired the phrase "the world is flat", is pushing a new mantra that could become just as universal: "Work will be done where it makes the most sense."

Relaxing on the couch in his Bangalore office, Nilekani points out that his own company has offices in 39 countries around the world. And it's not alone. Wipro, another large India-based IT services company, has eight offices in Europe alone, and TCS, the IT services arm of the Indian conglomerate Tata, has 10 development centres and 10,000 consultants in the United States and Canada. Locally TCS has a development centre in Melbourne, which employs 180 people according to the company.

Meanwhile, providers we identify as US-based are no longer so. IBM now has 53,000 employees in India (up from 4700 five years ago), and Accenture (which is actually based in Bermuda) will soon have more employees in India than in the United States and delivers its infrastructure and hosting services from 15 delivery centres scattered in countries across the world, including China, Argentina, Slovakia and the Philippines. In other words, as sourcing has gone global, so have sourcing companies.

And it hasn't just spread. It's evolved. Sourcing isn't just about finding cheap labour any more. Yes, you can still take something, ship it offshore and probably save a few dollars. "But cost in and of itself isn't going to get anyone a competitive advantage," says Tom Sanzone, CIO of Credit Suisse.

The New IT Supply Chain

The new model is more refined and complex. Today, IT services companies take work, break it down into pieces, and perform each piece in the location that offers the best combination of skill, cost, quality and manageability. If, for example, a new insurance application requires frequent contact with underwriters in New York City, any of the emerging global providers can do it there. But if there is a component of that work that only requires cheap coders, these companies will do that component in China, or if they need to speak Spanish they'll do it in Costa Rica or Spain. "This is the future," says Nilekani. "IT is being disaggregated. Slice by slice, the whole model is changing."

With change comes opportunity for CIOs, who can tap into the global network that the outsourcing companies are building to improve quality, gain the flexibility and agility to respond to business changes faster, and, yes, save money. The outsourcing vendors have spent the past several years establishing centres of excellence dedicated to specific tasks — Java programming or business intelligence, for example. This allows for economies of scale and maximizes the chances that someone will find a way to improve the process. It also means that outsourcers have assembled deep rosters of talent, organized by skill and experience, that most CIOs cannot match. "I can't think of any IT organization that has skilled people just sitting on the bench," says Alan Boehme, CIO of Juniper Networks. "What you are really talking about is building a variable cost model for your IT organization."

To reap all the benefits that modern outsourcing can provide, CIOs need to start thinking like a service provider, says Dane Anderson, an analyst with Gartner. That means examining your own internal model for IT service delivery and breaking down the work into the most granular pieces possible, just like outsourcing companies are doing. "You have to look at your operating model and ask how it developed and for what reasons," says Sanzone. "Then you need to ask yourself if it still makes sense in today's environment." It's a gruelling process that Sanzone says can take a team months to complete. But it's worth it. Thanks to the evolution of the outsourcing industry, he says, "You have a chance to reinvent your operating model. That is what we are really talking about."

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