In 2006 a company without a strategy to expand its global-market reach probably has a CEO waiting to cash a severance check. In an era where “non-core” business processes are viewed by senior executives as commodity services, savvy corporate managers are responding to this challenge by reinventing themselves as turnaround specialists who are global sourcing to achieve higher levels of performance and cost containment.
No company better exemplifies this trend than General Motors (GM), which recently announced plans to cut 30,000 jobs and close more plants. CIO Ralph Szygenda pledged to transform the services strategy of the Detroit automaker’s famously outsourced IT department. In times to come, the company is expected to cast off its legacy practice of single sourcing with EDS in favor of a multisourcing, global-services strategy that brings Asia into the equation. GM might not have gotten there first, but it may just be the largest offshoring deal yet.
With Szygenda in the driver’s seat, the deal may be better known for a series of innovative ideas rather than a plethora of billion-dollar contracts. GM is instituting a new form of governance requiring that its global service providers adopt standard processes for managing IT tasks — a move aimed at commoditizing delivery practices that would otherwise be too costly to manage. GM is also teaming up with the venerable Software Engineering Institute to develop an “acquisitions” certification component to CMM-I, its popular standard for measuring the operational maturity of customers and vendors of outsourcing services. The bid is expected to quickly gain currency in an industry where non-standard Request for Proposals (RFPs) yield costly and arcane apples versus oranges comparisons between competing service providers.
Though outsourcing is the centerpiece of GM’s strategy, 2006 is also a time when, in the financial services and IT industries, the global services trend du jour is a hybrid of investments in captive (company-owned) global operations.
Fourteen months after JP Morgan Chase (JPMC) cancelled a $5 billion outsourcing deal with IBM Global Services and said it would take those jobs in-house, the company announced plans to hire 4,500 India-based college graduates over the next two years. The bank, one of the earliest to tap Indian resources, is on track to double its presence there by the end of 2007 with 9,000 workers in Mumbai and Bangalore. JPMC’s customers stand a good chance of encountering its captive call center, which has nearly 2,000 workers. JPMC’s expansion plans include research, too — nearly one-third of JPMC’s investment operations, including foreign exchange trades and credit-derivatives contracts, will be created in India.
Will these global-services strategies pay off soon enough to please notoriously skeptical investors? In 2006 many IT-equity investors and IT customers may wonder where’s the return on investment in the billions of dollars of R&D capital flowing into India and China. In the past year, seven of the leading American technology brands have announced expansion plans and investments in India, most notably Microsoft at $1.7 billion, Cisco at $1.1 billion, and Intel at $1 billion (which includes a quarter billion dollar venture capital fund). IBM said it would hire 14,000 more workers in India by the year’s end and scale back 13,000 jobs in Europe and U.S.A. IBM India employs 38,000 people, more than 10% of its global workforce. Dell went on a hiring binge of its own in 2005 scaling up to 10,000 employees in India mostly in call centers and software development roles. Oracle employs upwards of 6,000 employees in India, having picked up some workers in its PeopleSoft acquisition. Not to be outdone, HP has more than 26,000 employees in Asia, including several thousand in its new BPO center in Bangalore that sports a dedicated area for Procter & Gamble.
The Envelopes, Please
For most companies planning to tap the global-labor supply, the impetus is usually cost savings or an operational expansion into a new global market. As you might expect, the vast majority of companies prefer to outsource rather than invest in an offshore-delivery center with high fixed costs, tax and liability issues. Yet, even for resource-rich companies, tracking the burgeoning world market for business and technology service providers is a complicated and expensive undertaking.
In this spirit we teamed up with neoIT to field an in-depth study that yielded more than 100 responses from service providers spanning four continents. We vetted the companies much the way a Program Management Office (PMO) engages in an RFP, and selected winners in 10 categories based upon the strengths of the information they provided us, plus what we were able to learn from customers and industry analysts. Primarily for convenience, we organized the awards into three basic categories: Tech -Delivery Awards; Customer and Business Process Awards; and Regional and Emerging Company Awards.
