The BIG news today that shocked every tech-news reader was the announcement on HP close to buying EDS for $13 billion in order to challenge IBM. And no, this time it is no rumor. If this deal comes through, it could, in fact, be very well termed as one of the biggest news of the year.

Wall Street Journal first published this report stating that “An announcement of the all-cash transaction that would unite two of the most storied names in computing was expected on Tuesday, though it could falter in last-minute negotiations. The price represents a more than 30% premium on where EDS’s shares were trading before The Wall Street Journal reported the talks on its Website Monday afternoon.”

It also mentioned that a deal would make HP the world’s second-largest provider of technology services after IBM.

However, last year, HP overtook IBM as the largest IT company in the world when its revenue hit $104 billion for the year ending in October, with IBM trailing at around $98 billion.

Although industry analysts have cited that EDS was having difficulty in growing as an independent company despite the best efforts of its management, but last year it was second to IBM in controlling the tech-services market with a 3% share and HP was a distant fifth with 2.3% market share, according to Gartner.

But now with this announcement, what we need to see is: Should IBM be worried?

At a time when the Indian outsourcing industry is at the apex, it is hard to imagine that the attractive, bright industry is dipping is an “odd” color. And, interestingly, this new, odd color has a religious tinge.

A few weeks back, an Indian Business Process Outsourcing (BPO) organization announced to cap its job for Muslims, which are in minority in the country. Even though the announcement sounded rubbish — and many didn’t even pay attention to it — the news certainly had impacted the feelings of those Muslims who are serving to the industry for the several years.

I am still not able to understand the strategy behind the step. Maybe, it is just a personal grudge. Whatever it is, are we actually ready to lose the talent for such pointless strategies when the demand for skilled talent is already higher than the supply?

On the other hand, there are several steps taken for minorities in the country. “It is good news for the aspirants from minority community who wish to work in the BPO sector with the West Bengal Minorities Development and Financial Corporation (WBMDFC) joining up with a private BPO training institute to provide BPO training to the backward sections of society absolutely free of cost. A large number of Muslim aspirants have already registered their names for the four month training course.” 

Even though it’s good that something is being done for these people, is it necessary to segregate people on the basis of the religions they belong to? Why can’t we have programs for poor and unemployables instead of majorities or minorities?

Is it the time to learn sailing without a captain when the ship gets trapped in a storm? Or, is it time to gear up and start measuring the attrition level among them, and try to bring down the number of global CEOs who are leaving the companies every month?

A recent study by a global outplacement-consultancy firm, Challenger, Gray & Christmas, reveals that Apr. ’08 saw 112 CEOs leaving their posts. John A. Challenger, CEO, Challenger, Gray & Christmas, says, “We are seeing a lot more movement among CEOs from one company to another. In this challenging economy, this could be a sign that more companies are luring coveted leaders away from competitors, or it could be a sign that CEOs are leaving their companies before things get too bad.”

During the last month, 50 CEOs moved to other companies. Surprisingly, only about half (24) retained the CEO title with their new employer. At this point last year, 33 CEOs had left their companies for positions elsewhere, 20 of whom remained CEOs.

However, the number of CEOs who left their companies in the last month has gone down by 11.1 percent from 126 a year ago. In fact, CEO turnover during the last month was 8.9 percent lower than the previous month when 123 CEO changes were announced.

Whatever maybe the number, now, we need to take count of the reasons of this attrition among managers.

But the irony is that when the crew and passengers need his guidance the most, the captain prefers to leave the ship without giving a second thought.

“20,000 Jobs Lost in 4th Month of Decline” was the top story in New York Times on 3rd of May.

As anybody’s first reaction would be, I also thought it as the aftermath of a recession. But as I read through, I came to a startling conclusion altogether. Read this:
“The punch line is that you don’t have to lose your job to get pinched in a recession,” quoted Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington.

True, because as it turned out the number of jobs reported lost by the Labor Department last week was significantly smaller than most analysts had predicted, and the unemployment rate nudged down to 5 percent, raising hopes that the American economy may not suffer as severely as once feared.

But interestingly, the number of people working part time because of slack business or because they could not find full-time work swelled to 5.2 million in April from 4.9 million in March. In percentage terms, employees working part time involuntarily were the most since 1995.

In these unstable conditions, people are holding on to jobs but the wages and working hours are cut, giving rise to part-time or contract workers.

As a matter fact, researches earlier this year also had similar data to reveal. “There is often an upswing in demand for temporary workers during challenging economic conditions as organizations put off hiring permanent staff,” quoted one of the surveys. According to the same survey, long-term joblessness amongst these workers fell from 4.7 percent at the end of 2006 to 4.4 percent at the close of 2007, its lowest level for nearly two years.

The recent financial crisis that shook up most of the developed and developing economies, seem to be settling now. News on how the markets across the globe are seeing the sunshine again: “Since a financial crisis was averted last month, markets in the U.S., Europe, the U.K. and Brazil are up by about 10 percent. Japan has rallied 15 percent even as Hong Kong climbed more than 20 percent.”

A recent survey done by us at Global Services, clearly states that the last two quarters were great for the outsourcing industry, and despite the impending recession, the future looked quite positive. As per our survey findings, customers — keeping in mind the possible crisis — are prioritizing work and controlling the IT spending. On the other hand, providers are anticipating high impact in terms of probability of deals and exchange-related risks. (Click here to see the complete survey.)

This does paint a pretty picture on the canvas of global services, but like always there is a “but” … I agree signs are positive, and the recent market trends are encouraging BUT would buyers and service providers provide the real boost to this industry? The current economic scenario with rising unemployment, and of course, the political milieu in the U.S., has made outsourcing a sensitive issue. Thus, I would say that like it was too soon to call it a recession, similarly it’s too soon to say that economy has bounced back.

The rumor mills are ever active. At election time, these kind of rumors can add more fuel to the fire and in an already wobbly stock market, there would be serious impact on the stock prices of these companies. But in the end, it is the reputation of these companies that gets sullied. And PR folks can’t do much either. The direction and shape of the next rumor can’t be anticipated, and even after the rumor has gained strength, there’s pretty little that can be done except issuing a negative statement.

A fresh rumor this week started killing the stock prices of India’s one of the leading outsourcing service provider, Wipro. “The company was hit by rumors on Monday [28^th April, ’08] of a mass exodus of its top executives, which contributed to a near 2 percent decline in its stock price. Other than the newly promoted joint CEOs, nearly every senior management officials’ names were bandied about. Eventually, it turned out to be a case of a storm in a tea cup. A Wipro official confirmed that P.R. Chandrasekar, President, Americas and Europe, had resigned, but no other executives had quit,” as quoted by Economic Times.

This is just one of the several cases wherein such rumors damaged more than just the companies’ reputation. As the sourcing industry is getting larger and matured, the frequency of such rumors making headlines has also increased. The most recent one being [today, May 1^st, ’08] Westpac Bank’s intention to axe 3,000 jobs. “The bank admitted that it intends to increase “offshoring,” but denied media reports that it planned to shift the work of up to 3,000 of its back-room staff to overseas locations such as India during the next three years.”

The truth remains that rumors have no uses.

Our experience with outsourcing shows the there are 3 common misconceptions related to outsourcing.

Outsourcing requires minimum work

It is a common misconception in the hi-tech industry that outsourcing requires minimal involvement from the outsourcing company. An outsourcing project is like any other project started by a company – there is decent level of upfront investment to reap long term benefits. This upfront investment in creating the right strategies and put together a viable plan is critical for the success of an outsourced project.

We suggest that companies contemplating outsourcing project must set aside budget and time to create an outsourcing strategy. More on this in a future post.

Lowest cost provider is the best provider

Many companies are blinded by the cost aspect of a project and take the easier route of choosing the company which provides the lowest quotation. Many times companies get stuck with a lowest cost vendor who finally is not able to deliver. This may cause project to be delayed and in the worst case may have to re-started with another vendor.

Lowest cost may mean that provider is knowledgeable or may mean that the depth and complexity of the project is not clearly understood.

In addition to the “cost” many other factors should be taken into consideration when choosing the “right partner”. Following are example of some of the factors which should be considered:

1. Do the two companies have the right chemistry?
   • Are they knowledgeable in the field of required expertise?
   • Does the partner company have a quality process required to build the products for our industry?
   • Do we have similar cultures?
2. Can we benefit from outsourcing to the company in the future?

• for development of new version of the produc
• can the partner help us support older versions of our products
• can the partner help us port our technologies to other products platforms our customers have been demanding

Consider more than just the “costs” before choosing the right vendor.

Assign the work and work gets done

Another common misconception in the industry as shown by a high percentage of outsourced failed projects is no involvement is required from the outsourcer.

In practice even after the project is successfully handed off to the chosen “right partner” company must expect to work closely with the company to make sure that even in case of unforeseen issues the project is completed and delivered meeting expectations.

What is the impact of the U.S. slowdown on global outsourcing? This probably is the most-discussed topic in the outsourcing fraternity. Not surprisingly, it is more so in India, where hundreds of companies and millions of employees are directly affected by it.   

Just a few months back, when the U.S. analysts were discussing the possibility of a slowdown, the opinion in India about its impact was divided. While many argued that a slowdown means increasing pressure on customers’ margins — the raison d’être of offshoring initiatives — pushing more work to India. There were many others who believed that a slowdown actually slows down every business activity, and hence most new activities would be shelved. A few were not too sure. 

But even as the slowdown has become a reality, paradoxically those debates have almost ceased. And, the number of people in the third category (the not-so-sure types) has actually gone up.     

Yes, on the face of it, it is paradoxical. Here is an attempt to explain.  

Most of these discussions are fuelled by comments from the executives of global outsourcing firms, especially the offshore-centric service providers. When it is a distant possibility, it is taken as yet another topic to get media coverage. But with slowdown becoming reality, the investors are getting concerned. The fact that most such service providers — right from the top three to the tier 3 — are listed and contribute significantly to India’s principal stock index, means this debate spills over to the investor and the analyst communities in general. As no company wants to take the risk of making public statements about slowdown’s effect on their businesses.  

Interestingly, the couple of results that have been announced, have actually pleased the market. Infosys, which was the first to declare (as it does in almost every quarter), took up the market sentiments so much that since then the Indian markets have gone up, led by Infosys and peers such as Wipro. Considering the fact that in most of the financial year 2007 to 2008, when the Indian stock markets were registering the biggest gains among all markets, the IT-services exports firms were actually lagging behind.  

It is a fact that barring IT or business process outsourcing services exports Indian economy is one of the least internationally integrated economies in the world. And, if the one that is most integrated with the global, and more specifically U.S., economy is showing positive results, then the logical conclusion is that it has a positive effect. And, in the last few days, a few Indian equity analysts are kind of suggesting that. 

However, that could be too simplistic a conclusion. Infosys has given a cautious, though not alarming, guidance. But based on the company’s track record of issuing conservative guidance, market players are not too worried. While a few more results, especially of TCS and Wipro, will certainly make the picture far clearer, that may still not answer the question unequivocally.   

Interestingly, IMF’s World Economic Outlook 2008 — giving more emphasis on the possibile inflation in both China and India than recession — reminds me of my previous article, which talked about the future of globalization lying in integrated global strategies for regions, not in slicing it up into pieces like offshoring, emerging market strategy, and so on. So the old-fashioned China strategy or India strategy — how to leverage the potential of the regions be it as markets or labor markets — makes better sense than an offshoring strategy, especially in an uncertain world.     

Let’s admit that it’s ironic to talk about talent shortages in a recession. Unemployment is rising in America, though it’s still better than in Europe. But in Manpower’s annual survey of 43,000 employers in 32 countries, nearly one-third of the companies experience difficulties filling open positions.

Globally, that’s down by 10 percent in a year, clear evidence that there’s more supply in the talent markets. But in the US of A the situation is more worrisome: a year ago 62 percent of employers said they were having difficulty filling jobs and this year only 28 percent shared the same complaint. Click here to read more.

It is official now. We are in the midst of a slowdown. So what happens to your entire outsourcing plan? Your offshoring plan? Elementary — you are told by your sourcing consultant — a slowdown means more pressure on bottom line, so more the reason to do offshoring. And if you have a mature offshoring activity — with stable operations — that makes a lot of sense.

But if you are just beginning the journey; or if your offshoring has been that of a single, isolated function, does that over-simplistic formula works for you? Probably not, no matter how much we — that includes me — agree with the fundamental logic of that proposition.

Your top bosses now have different priorities, even if they still agree with you. They have to fight the recession. Depending on the business you are in and the size of your firm — offshoring may not be the top three/four things that will immediately provide an answer to their worries.

But here is something that will. And it is for real.

I assume that if you have an offshoring strategy — as opposed to isolated, tactical offshoring — India is part of that. Now, can you turn that around and come with a completely new proposition? Instead of India as part of a bigger outsourcing strategy, can you have offshoring as part of a bigger India strategy?
Here is what I mean. India’s domestic consumption growth is on a historical high. White goods, fast moving consumer goods, retail, telecom, travel, automobiles, personal finance — almost all consumer sectors are witnessing growths of anywhere between 10  to 100 percent. Those of you who have had not yet captured a share of that growth, even while leveraging India’s professional, low-cost knowledge workforce by offshoring IT/BPO, here is a chance to look at combining both and have an integrated India strategy in which offshoring is a part.

Of course, my observation does not mean anything for Citigroup or IBM; Procter & Gamble or Coca Cola — the companies, which have a booming business in India already. But I am sure many of you are not out there yet.

Can you turn the challenges thrown by slowdown to an opportunity by stepping up the India activity? Absolutely. So far, India has contributed to your bottom line by bringing down your cost. Now, it can do the same by contributing to your top line.

And that is true for both the users of offshoring and service providers. India’s domestic IT services market is beginning to grow as well, though nowhere near the growth witnessed by the consumer markets.
Am I beginning to sound like those gurus of outsourcing? Where you do agree with my fundamental logic but are beginning to doubt how practical it is to look at a new expansion plan in the face of a slowdown? That is a very, very sincere question.

And here are my answers: At two levels.

First, at the more fundamental level, there is little choice before you. A slowdown is probably the best time to try this out because the reward to risk ratio will look more attractive during such a time.
But at a more tactical level, I assume you have done some groundwork for India offshoring. You already have or are planning to have a dedicated team working on that plan, visiting India, and talking to people there. My only point is: Why not broaden the scope of its brief? In a very narrow way, it is leveraging the resources better. So you have little to lose. In just a small incremental cost, the same team can work on an integrated India plan that will give you both growth and profit. ‘Profitable business,’ as management writer Ram Charan tells us, is “everyone’s business.”