The U.S. Congress in 2004 is set to address the problems of Internet sales taxes and whether to increase the number of visas for foreign high-tech workers. We asked CIOs and e-commerce executives to weigh in on the wisdom of the lawmakers' efforts.

ISSUE: Fair Internet taxes for all

2004 AGENDA: Create a national agreement for collection of state sales taxes from online and catalog retailers

The rub: Currently, states can't force retailers with no in-state stores to collect sales taxes, and state and local government lost more than US$13 billion in 2001 because of it, according to a study by the University of Tennessee. Pending legislation in Congress, sponsored by Rep. Ernest Istook Jr. (R-Okla.) and Sen. Michael Enzi (R-Wyo.), would allow states to require remote sellers to collect taxes by joining a national agreement. Companies with annual out-of-state sales of less than $5 million would be exempt.

E-commerce execs say: It's fair. Every retailer should pay the same taxes, says Sam Taylor, vice president of e-commerce with Lands' End Inc., whether or not they have a physical presence in a state. Before it was acquired by Sears, Roebuck and Co. in 2002, Lands' End collected sales taxes in only five states but now collects taxes on catalog and Internet sales in all 50. "The role of government is to level the playing field, creating rules and laws that balance fair trade with bureaucracy," says Mark Kohls, former director of e-commerce technology with furniture retailer KI Inc., which does not collect sales taxes in 27 states.

ISSUE: Who gets tech jobs

2004 AGENDA: Raise the limit on the number of foreign high-tech workers allowed in the United States on H-1B visas

The rub: On Oct. 1, the cap on H-1B visas dropped from 195,000 to 65,000. With bills pending that would further limit H-1Bs, lawmakers are being pressured on one side from companies such as Intel, which says it continues to have trouble hiring U.S. workers for some high-skill tech jobs, and on the other by workers who point out that unemployment for some technology jobs is at an all-time high.

CIOs say: Depends who you ask, even among tech company CIOs who, as a group, clamor for foreign labor. "There are plenty of people in the United States willing to perform these jobs," says Walt Crosby, executive vice president and CIO at Terabaseb Corp., a search engine and database software vendor. Crosby thinks his peers are misusing the visas by importing foreign workers as cheap labor, instead of hiring foreign workers only for hard-to-fill positions.

ITWORLD

By David Zielenziger, Reuters

U.S. corporations are picking up the pace in shifting well-paid technology jobs to India, China and other low-cost centers, but they're keeping quiet for fear of a backlash, industry professionals said. Morgan Stanley estimates that the number of U.S. jobs outsourced to India will double to about 150,000 in the next three years. Analysts predict that as many as 2 million U.S. white-collar jobs such as programmers, software engineers and application designers will shift to low-cost centers by 2014.

But the biggest companies looking to "offshoring" to cut costs, such as Microsoft Corp., IBM and AT&T Wireless Services Inc., are reluctant to attract attention for political reasons, observers said this week.

"The problem is that companies aren't sure if it's politically correct to talk about it," said Jack Trout, a principal at marketing and strategy firm Trout & Partners. "Nobody has come up with a way to spin it in a positive way."

This causes a problem for publicly traded companies, which would ordinarily brag about cost savings to investors. Instead, they send vague signals that they are opening operations in India and China, but often decline to elaborate.

Moreover, on the threshold of a U.S. presidential election year, job losses are a hot-button issue. A company that highlighted a major job transfer could wind up in the campaign debate.

Multinationals find that when they trumpet expansion overseas, they cause problems at home. When Accenture Ltd. executives in India this month announced plans to double their staff to 10,000 next year, they triggered a flood of calls to the company's U.S. offices about U.S. job losses.

Offshoring companies "are paying Chinese wages and selling at U.S. prices," said Alan Tonelson, at the U.S. Business and Industrial Council, a trade group for small business. "They're not creating better living standards for America."

The U.S. sales director for one of India's top computer services providers said his company has won business from customers such as The Walt Disney Co., Time Warner Inc.'s CNN and the Fox division of News Corp. -- none of which want public disclosure.

In India, some technology companies have recently adopted lower profiles. Microsoft has been removing its name from minibuses used to ferry engineers on overnight shifts. Major Indian beneficiaries of U.S. business such as Infosys Technologies Ltd., Wipro Ltd. and Satyam Computer Services Ltd. have stopped identifying new customers.

While there have been reports that IBM intends to ship 4,700 high-end jobs to India and China next year, that marks a rare instance when figures "have been reported in black and white," said Linda Guyer, president of Alliance@IBM, a union that has tried to organize IBM employees.

Those numbers weren't released by IBM but rather disclosed by The Wall Street Journal, which had obtained an internal memo. The company has declined to comment.

Guyer said she believes that as many as 40,000 of IBM's 160,000 U.S. jobs will be transferred overseas by 2005, a figure she said was gathered from phone calls by IBM employees.

Previously, IBM has pointed to a report by the McKinsey Global Institute that concluded that the U.S. economy ultimately will benefit. The report was commissioned by Nasscom, a group made up of Indian tech companies as well as IBM's Indian services unit -- showing an effort by those invested in offshoring to sway public opinion.

Recently, AT&T Wireless told the U.S. Securities and Exchange Commission that it would lay off 1,900 employees this year. Communications Workers of America members obtained an internal memo prepared by Tata Consultancy Services in India that discussed how it would assume those U.S. jobs.

Subsequently, AT&T Wireless officials acknowledged that the company was exploring the job shifts, but they didn't offer details.

While some companies, such as Electronic Data Systems Corp., Cap Gemini Ernst & Young and Sapient Corp., acknowledge that they shift jobs abroad to exploit cost advantages and round-the-clock work, IBM asserts that it isn't moving jobs but creating new ones.

COMPUTERWORLD

Cost cuts make sense but it's not politically correct to advertise it

US CORPORATIONS are picking up the pace in shifting well-paid technology jobs to India, China and other low-cost centres, but they are keeping quiet for fear of a backlash, industry professionals said.

Morgan Stanley estimates the number of US jobs outsourced to India will double to about 150,000 in the next three years.

Analysts predict as many as two million US white-collar jobs such as software engineers and applications designers will shift to low-cost centres by 2014. But the biggest companies looking to 'offshoring' to cut costs, such as Microsoft Corp, IBM Corp and AT&T Wireless, are reluctant to attract attention for political reasons, observers said this week.

'The problem is that companies aren't sure if it's politically correct to talk about it,' said Jack Trout, a principal of Trout & Partners, a marketing and strategy firm. 'Nobody has come up with a way to spin it in a positive way.'

This causes a problem for publicly traded companies, which would ordinarily brag about cost savings to investors. Instead, they send vague signals that they are opening up operations in India and China, but often decline to elaborate.

Moreover, on the threshold of a US presidential election year, job losses are a hot button issue. A company that highlighted a major job transfer could wind up in the campaign debate.

Multinationals find that when they trumpet expansion overseas, they cause problems at home. When Accenture executives in India this month announced plans to double their staff to 10,000 next year, they triggered a flood of calls to the company's US offices about US job losses.

Offshoring companies 'are paying Chinese wages and selling at US prices', said Alan Tonelson, of the US Business and Industrial Council, a trade group for small business. 'They're not creating better living standards for America.'

The US sales director for one of India's top computer services providers said his company has won business from customers such as Walt Disney Co, Time Warner and the Fox division of News Corp - none of which want disclosure.

In India, some technology companies have adopted lower profiles. Microsoft has been removing its name from mini-buses used to ferry engineers on overnight shifts. Major Indian beneficiaries of US business such as Infosys Technologies, Wipro Ltd and Satyam Computer Services have stopped identifying new customers.

While there have been reports that IBM intends to ship 4,700 high-end jobs to India and China next year, they mark a rare instance when figures 'have been reported in black and white', said Linda Guyer, president of AlliancezIBM, a union that has tried to organise IBM employees.

Those numbers were not released by IBM but disclosed by the Wall Street Journal, which had obtained an internal memo.

Ms Guyer believes as many as 40,000 of IBM's 160,000 US jobs will be transferred overseas by 2005.

Previously, IBM pointed to a report by the McKinsey Global Institute that concludes the US economy ultimately will benefit. The report was commissioned by Indian industry group Nasscom - showing an effort by those invested in offshoring to sway public opinion.

Recently, AT&T Wireless told the US Securities and Exchange Commission that it would lay off 1,900 employees this year.

Communications Workers of America members obtained an internal memo prepared by Tata Consultancy Services of India that discussed how it would assume those US jobs. Subsequently, AT&T Wireless officials acknowledged it was exploring the job shifts.

While some companies acknowledge they shift jobs abroad to exploit cost advantages, IBM asserts that it is not moving jobs but creating new ones.

'It's a business strategy, period. You cut costs. You look at what your mission statement says and try to turn a profit,' said Sylvia Thomas, who was laid off by Agere Systems after declining to relocate to Allentown, Pennsylvania, - or to Singapore. - Reuters

TheBusinessTimes

Once popular with cost-conscious IT execs, outsourcing has been shown to be full of security holes.

In October, global outsourcing nearly flat-lined the hospital at the University of California at San Francisco. To save money, the school had been sending out thousands of patient medical records for transcription. Halfway across the world, a woman in Pakistan had taken on some of the work. Things seemed to be working well for both – and neither knew about the other because of three subcontracts in between. That changed when the woman’s subcontractor in Texas did not pay. The Pakistani worker contacted UCSF and threatened to release the confidential patient information over the Internet if they did not help her collect, according to the San Francisco Chronicle, which broke the story.

With that, outsourcing suddenly shifted from an unqualified business no-brainer to a risky financial liability.

IT outsourcing was once essentially limited to software programming and staffing call centers. No longer. Now outsourcing tasks cover everything from storing sensitive financial, tax, and medical records to handling mission-critical database files. With the specter of financial blackmail looming, an outsourcing backlash may emerge in 2004. Security concerns, compounded with the fear of jobs lost to foreigners, as well as the wake-up call that outsourcing does not equal fast and easy cost savings, will lead companies to rethink their practices.

"There are many wrong reasons for outsourcing," says Lily Mok, a senior consultant at People 3, a New Jersey-based human resources and IT research division of Connecticut-headquartered research firm Gartner. Companies may think they are saving money, she adds, but high costs are involved at the outset, namely related to infrastructure set up.

Offshore IT outsourcing took off during the late 1990s, with Y2K coding. Since 1999, outsourcing has grown an average of 23 percent per year, according to Gartner data. The outsourcing industry now employs 170,000 in India, where it has been the most successful. Revenues there reach more than $2 billion annually, according to market research firm IDC.

But trends can be deceiving. “A reality check is warranted. Offshore outsourcing will not be applicable to all enterprises, all IS roles, or all IS professions,” says Diane Morello, an analyst at Gartner.

Outsourcing’s downside is in the spotlight, especially for firms that failed to thoroughly appraise the costs and risks at the outset. One example of an outsourcing gig gone wrong: Dell’s recent decision to stop sending U.S. technical support calls for two of its corporate computer lines to Bangalore, India. Because the offshore call center workers could not answer customers’ technical questions, Dell faced numerous complaints and had to route calls back to U.S.-based call centers.

In 2004, a presidential election year, the U.S. government could be a key player in curtailing offshore outsourcing. With unemployment and the economy as hot topics, political opposition to issuing H-1B visas, which allow foreigners to enter the U.S. for training, has been mounting. According to an annual report released by the Department of Homeland Security’s Office of Immigration Statistics, the number of H-1Bs issued to workers in the high-tech industry dropped 74.3 percent, from 105,692 in 2001 to 27,199 in 2002.

In defense of struggling U.S. employees, some states have nixed outsourcing government contracts. In one highly publicized move, Indiana governor Joseph Kernan shut down a $15.2 million deal with the Indian company recruited to upgrade the Indiana state computers processing, ironically, unemployment claims. New Jersey has passed a bill to prevent government contracts from being outsourced overseas.

One proposal is the offshore development hybrid model, which enlists trusted U.S. development firms as intermediaries in the offshore development process. “Offshore development is here to stay, but companies are looking for ways to mitigate the risk,” says Robert Northrop, a Design and Development Director with technology consulting firm Tallan. With the hybrid model, the per-hour cost is greater than regular offshore development, but the risk is much lower, because locals with experience in the offshore market are heading up development.

How much does outsourcing really save companies? According to a November 2003 report by People 3, only 21.1 percent of companies surveyed reported a cost savings of greater than 20 percent due to IT outsourcing, while 18.4 percent did not achieve any cost reductions, and 9.2 percent actually had an increase in costs from outsourcing contracts.

"Many companies often neglect to factor in all costs associated with managing outsourcing engagements, which average 4.5 percent of the total contract value and can be as high as 15 percent," says People 3's Ms. Mok. The report states that "the word on the street is that companies can save as much as 40 percent by outsourcing some or all of its IT capabilities. The true savings, however, are not always as promising as one would expect." Because of the high costs and risks associated with offshoring, some companies are opting to nearshore outsourcing, giving work to neighboring countries instead of going overseas.

Though it once glittered as a savior of IT savings, outsourcing certainly isn't gold.

REDHERRING

By Jay Lyman

"We will be seeing [outsourcing] spread across all IT services segments," IDC program manager Ned May told TechNewsWorld, adding that offshoring is likely to spread beyond current limited areas that include call-center help and custom application development.

In a move that falls in line with analyst predictions about offshore outsourcing, IBM (NYSE: IBM) plans to move nearly 5,000 software programming jobs to India and other foreign nations beginning next year, according to a published report. Yankee Group program manager Andy Efstathiou told TechNewsWorld that in addition to the cost-savings advantages of offshoring, IBM is seeking to move some of its workers to the foreign markets the company serves.

"IBM is doing it also to facilitate true global sourcing," Efstathiou said. "They've been in the Indian market for an extremely long time. Having that ability and having workers [there] isn't something new. Increasing their footprint there is really an ongoing trend for them."

Moving U.S. Positions

The report -- published first in The Wall Street Journal -- also indicated that IBM plans to move thousands of U.S. software jobs across the country to India, China and elsewhere. The reported 4,730 jobs represent 1.5 percent of IBM's total workforce of about 315,000. The report said about 1,000 employees are scheduled to be notified of the job movement in the first half of next year, but it did not indicate when IBM will make those notifications or send the other positions overseas.

In a statement, IBM said, "the vast majority of the growth in applications services that will occur in markets like India, China and Latin America will result from winning new contracts," especially in high-growth areas like business transformation outsourcing. "We expect our hiring next year in the U.S. to equal or increase over 2003 levels," the statement said. "In fact, on a percentage basis, our forecast is for hiring across the Americas to outpace the hiring in the rest of the world."

Global Market, Global Workforce

Yankee's Efstathiou said that while cost savings is the reason for most offshore outsourcing of U.S. jobs, it would not make sense for IBM to use U.S. workers to supply a foreign market such as India.

Efstathiou added that most of the jobs IBM will be moving, like most other offshored IT jobs, are in the software space. The analyst indicated that the jobs in the case of IBM's plans likely will be entry-level programmer jobs that are below systems analysis positions. He also said the move represents only a potential loss of U.S. jobs because some workers will be able to take other positions at IBM or other firms.

Business Matters More

While he expressed sympathy for IBM workers who might be displaced by the offshoring plans, Efstathiou said IBM's business success will have far more impact on U.S. jobs.

"This is extremely small compared to what goes on in business," he said. "It doesn't make it easy for people who have to adjust to a different position, but relative to business, this is relatively minor."

Widening Impact

While they have indicated a positive economic environment might mitigate the trend of jobs moving overseas, analysts still believe the movement of U.S. IT jobs abroad will continue to increase. In a recent survey of IT services vendors, industry research firm IDC indicated that the offshore component of delivering U.S. IT services might rise to as much as 23 percent by 2007, up dramatically from 5 percent in 2003.

"We will be seeing [outsourcing] spread across all IT services segments," IDC program manager Ned May told TechNewsWorld, adding that offshoring is likely to spread beyond current limited areas that include call-center help and custom application development. "We're going to see a broadening of the impact in many different activities."

TechNewsWorld

By LAURA ROHDE

IT'S THE KIND OF announcement U.S.-based companies have made into a kettledrum roll of dread for IT workers during the past couple of years: Jobs are headed to lower-waged workers overseas. The trend has led to protests from worker groups and calls to Congress about limiting foreign worker visas.

So it shouldn't surprise American CIOs to learn that when it emerged Oct. 17 that the London-based global bank HSBC Holdings planned to move 4,000 data processing and call center jobs to China, India and Malaysia by 2006, the angry reaction from leaders of Britain's big unions was swift and strong.

"The scale and the pace of what HSBC is proposing is what takes the breath away," says Rob O'Neill, national secretary for Unifi, the European trade union for 158,000 financial-sector workers. "There has been concern about the loss of U.K. jobs through outsourcing for a while, but on a fairly small scale. HSBC's decision marks the largest single announcement of job losses due to this sort of outsourcing and has brought the issue into sharper focus."

Both Unifi and Amicus-AEEU, Britain's 730,000-member manufacturing union, have warned of a possible strike from workers depending on how HSBC handles the job cuts, particularly in cities such as Birmingham and Swansea, Wales, where the local economy is expected to be hardest hit by the closures. Steve Pantak, Unifi's Wales regional organizer, says the union is meeting with members of the Welsh Assembly in hopes of getting governmental support for limiting local job losses.

The HSBC case is interesting because it isn't the only British institution to set up overseas shops for IT jobs, but HSBC's move is the one that has received the loudest critical attention. The response to similar moves by such companies as British Telecom, British Airways and the supermarket Tesco has thus far been fairly mute, says Chris Gentle, an analyst with Deloitte & Touche. "In the U.S., for example, some states are looking at drafting legislation in an attempt to save local jobs, but in the U.K., that sort of thing hasn't really happened yet," he says.

The employment export trend, though, is expected to continue. Gentle estimates that 730,000 European financial services jobs will migrate offshore by the end of 2008. "With cost savings of around 39 percent, there is enormous pressure on companies to move some operations offshore. Financial services companies are way ahead of everyone else and are the pioneers," Gentle says. "Banks such as Citibank were among the first to turn to outsourcing and have put other financial institutions in the marketplace at a disadvantage."

In the wake of HSBC's move, some U.K. banks—the Royal Bank of Scotland and its subsidiary NatWest, and Edinburgh-based HBOS—have pledged or reiterated past promises that jobs will not be moved out of the United Kingdom, despite the potential cost savings.

"We will not move jobs out of the U.K. as long as the fiscal and regulatory climate is supportive of business. Though the cost savings could have been considerable, we also took into account the impact on staff and on the communities in which we operate and decided not to make the move," says Carolyn McAdam, spokesman for the Royal Bank of Scotland.

HSBC's plans to close five customer service centers in the United Kingdom by the end of 2005 begin in January. HSBC declined interview requests, but its CEO Bill Dalton said through a statement that the move was "essential to HSBC's continued success.... This is the best, indeed, the only way, of ensuring job security for our staff worldwide."

Members of Britain's parliament thus far are taking a wait-and-see approach to offshore outsourcing. Martin O'Neill, chairman of the House of Commons Trade and Industry Committee, says he was expecting the issue to come up at a November hearing the committee scheduled on the IT industry, but the committee has no plans to address the issue directly.

Nigel Roxburgh, cofounder of the National Outsourcing Association, says parliamentary action is less likely in London than in the United States. "Employment laws are very different here and already protect employees to a larger degree than in the U.S.," Roxburgh adds. For example, European Union law requires employers such as HSBC to negotiate separation payments and end-of-work dates with workers. Regardless, union leaders say they stand ready to fight.

CIO

LONDON (Reuters) - Germany's Siemens plans to place one third of its software development operations, involving at least 10,000 jobs, in low-wage countries over the next few years, the Financial Times has reported.

"We have to follow the trend, as all of our competitors are doing the same, and move some of our activities eastwards," Johannes Feldmayer, head of the industrial conglomerate's corporate strategy, was quoted as saying.

Siemens' current 30,000 software developer workforce are based worldwide. The company has a global research and development workforce of 50,000.

Siemens is also planning to move part of its production and accounting oeprations offshore, the newspaper reported on Friday.

Feldmayer said the company wanted to take advantage of cost cuts and highly skilled labour in eastern European states.

The Munich-based giant is already moving its back-office operations for Europe to the Czech Republic, in a pilot project.

"We are not happy with the conditions in Germany in comparison with conditions in the strongest growth countries."

Feldmayer said the trend for outsourcing would put pressure on Germany to change.

"In the end Germany should benefit from this trend as it will make us more competitive," he said.

REUTERS

By Matt Hines and Dinesh C. Sharma

IBM announced pair of substantial outsourcing agreements Thursday: a $1.21 billion contract with French tire maker Michelin and a "pay per use" deal with a Swiss financial company to manage front-end systems and software support. Under the terms of the eight-year Michelin contract, IBM will take control of Michelin's information technology operations in North America and Europe. The tire maker said it sought the outsourcing agreement to lower costs and improve the performance of its IT processes. The companies reported that roughly 600 Michelin employees would join IBM beginning in the first quarter of 2004.

IBM will oversee Michelin's IT production operations as well as systems management, user support, and technical support. It will also manage the company's ongoing vertical industry technology efforts and its physical IT assets, including its servers, workstations, PCs and software.

Under the Swiss deal, Big Blue will consolidate and manage personal technology for all 64,000 employees of Zurich Financial Services. The employees work in five European countries, the United States and Canada. The companies said that approximately 470 of the employees will be transferred to IBM.

IBM reported that payment from Zurich Financial will be made using a "pay per use" system for desktops, laptops, help desk support, printers and software support, which should let Zurich Financial lower hardware-related overhead and avoid upfront capital investment.

IBM currently leads in the global IT outsourcing market , ahead of rivals such as Hewlett-Packard. The Armonk, N.Y.-based technology-industry behemoth has reported numerous outsourcing agreements over the last year and continues to push its "on-demand" computing model in deals such as Zurich Financial's, which gives businesses the ability to buy IT services on an as-needed basis.

However, some industry watchers warn that the impressive dollar values often attached to these deals, and those of other outsourcing vendors, should be looked at with some caution. Many times there are substantial costs hiding behind the big numbers that make the original figures less impressive than they may first seem, experts say.

For instance, in July IBM reported a $1.1 billion, 10-year IT services contract with ABB, a Swiss power and automation technologies company. At the time, IBM said that, along with roughly $600 million generated by two other contracts signed in late 2001, its revenue from ABB will approach $1.7 billion over 10 years. But Big Blue didn't say that it could incur personnel expenses that total as much as $90 million.

Analysts say IBM's method of reporting deal values is typical of large IT services contracts. They point out that outsourcing services providers are often required to make sizeable upfront investments in IT equipment and personnel. What's more, experts say, these companies' clients usually renegotiate contracts along the way, which can trim profits even further.

CNET News.com

Research company’s doom-monger takes main stage.

By Techworld staff

Half of all technology suppliers will be dead by the end of 2005, according to the latest doom-sayers report from Gartner.

There are 50 to 60 per cent too many software companies in the world at the moment, said one Ian Bertram, doomsayer-in-chief at the research company. By 2008, a wave of bankruptcies, mergers and takeovers will see a huge shake-up in the IT market - companies going down the toilet, CEOs begging for spare change, once-proud white-collar workers in your local Tesco, that sort of thing.

All this trauma will be induced by a massive outsourcing of IT functions (an increase of 30 per cent in the next two years) and a shift to more modular software, Bertram claims. Companies’ current software is coming to the end of its usefulness and they will decide to tie main systems into Web services.

"Software code will be generated for a Web services environment. I can get a new service and suck that code into my environment, rather than re-coding or paying for a coder," he warned. This means no more big development projects, rather small groups of developers and business analysts tacking extra functions onto an existing and flexible framework.

Bad news for Microsoft too. Apparently the move towards Linux is unstoppable. Just next year in Australia for example, 90 per cent of all large companies will be using open source software. Blimey.

But Guru Bertram can see a new dawn at the end of this terrible era. IT spending will continue to rise (by roughly 4 per cent) and the upheaval will usher in fantastic innovations, the likes of which mankind has never seen, roundabout 2007. Plus outsourcing companies should do well.

But before IT suppliers run screaming from the room, it may be best to review Mr Bertram's previous pronouncements. It seems as though coding fire-and-brimstone is one of this vice-president’s specialities.

Take this strangely familiar quote from the morose Mr Bertram, 18 months ago. "The IT industry faces accelerated job losses and vendor consolidation that will last through 2002, and as many as half of all IT suppliers that existed in 2001 will disappear from the competitive landscape by the end of 2003, as they are acquired or go out of business.” Hmmm.

That time it was because companies were going to use their existing IT resources and not buy any new stuff. "To minimise new investments in IT infrastructure, many organisations will identify and redeploy underutilised server and storage resources," said Bertram.

The year before - 2001 - Bertram was again forecasting doom, this time due to the proposed Compaq/HP merger. The two companies' merger would “create confusion in the market” he warned. "This will also be devastating for some distributors and resellers, particularly those who deal exclusively in either company's products," he added. But we shouldn’t worry because it was unlikely that the US regulators would let the deal go ahead anyway. How right he was.

So who is this Doom-monger General? Well, Mr Bertram is Gartner’s VP of Hardware Platforms for Asia Pacific. He joined in 1999, having spent the previous 10 years at IBM. IBM is very big on this Web services stuff at the moment. He is also one of Gartner’s star PR men - pulled out and spun round the media outlets, giving good quotes and getting the Gartner name up in lights. From his vantage point in Singapore, he sees all and then relates to the world the devastating news. Year after year.

He also knows that bad news travels faster. So you would do well to keep a pinch of salt by your computer the next time you learn of the IT industry's forthcoming apocalypse.

TECHWORLD

By Anitha Reddy

American Management Systems Inc.'s chief executive, Alfred T. Mockett, told investors and analysts yesterday that he is restructuring the company to make the most of the fast-growing outsourcing business.

The Fairfax-based company plans to create a division devoted solely to performing back-office functions for organizations by the end of next year and more than double revenue from outsourcing -- what AMS calls its "managed services" -- to $150 million from $70 million this year.

"Clearly, the greatest opportunity is in managed services," Mockett said yesterday at an investor conference in New York. For AMS, he said, the opportunities were even greater in managing information technology for government agencies. The federal market for outsourced services was $6.5 billion last year and is expected to grow rapidly, he said.

To cut costs and support the new effort, the company also will combine its software-engineering operations into a single unit early next year and will rely more on foreign workers.

Expanding offshore software development is a priority, Mockett said, because it's cheaper. The company said it will quadruple the size of a development center in Krakow, Poland, to 200 people next year.

"We've been a little late to the game in offshore software development," Mockett said. "Believe me, we are making up for lost time."

AMS said it will expand managed services through acquisitions as well as internally. Mockett said he hopes revenue from outsourcing will rise to one-third of total sales by 2006. Managed-services revenue accounted for less than a tenth of AMS's $987 million in revenue last year, according to its annual report.

Richard Stice, an analyst with Standard & Poor's Equity Research Group in New York, said the plan to increase managed-services revenue "was an appropriate decision given the market conditions." He said pricing pressure and increased competition has made AMS's traditional technology consulting a difficult business in recent years, and outsourcing has more growth potential.

Mockett has overseen cost cutting and streamlining during his three years as chief executive, while trying to identify new growth opportunities. AMS recently bought a Reston-based firm, R.M. Vredenburg & Co., which serves the intelligence agency.

Washington Post

By CHARLIE FELD

OVER THE CENTURIES, technological innovation has spawned changes in how and where people live, play, work and provide for their families. The late Harvard Business School professor Jai Jaikumar described how fire, the wheel, the lathe, the steamboat, the locomotive, the automobile, the telephone and the airplane were transformational inventions. But his research shows that societies generally took 30 to 40 years to understand the possibilities of these inventions and leverage their use. When Jaikumar spoke to my IT group at Frito-Lay in the early '80s, he described the invention of the computer as similar to other transformational technologies. He predicted that the computer would go through a birthing period, a childhood and an adolescence before eventually reaching maturity. He estimated that this cycle would take a full human generation. I believe Jaikumar's historical perspective was correct; the computer age is now leaving its adolescence and will enter adulthood during this decade.

Jaikumar's research on technological innovation yielded another important observation: People, companies and even national economies have risen and fallen on their ability to understand and master "game-changing" technologies. Manufacturers that didn't embrace the lathe or the assembly line, for example, perished. Countries that were slow to adopt the steamboat or railroad fell behind in commerce.

If this pattern holds for the information age, then the responsibilities of the CIO in the modern corporation are staggering. It's a very tall order to be able to recognize the game-changing nature of IT, to have the street smarts and influencing skills to navigate executive committees to the right decisions, and to then have the technical savvy and skill in execution to deliver the goods. Most IT professionals have some of these leadership skills. Acquiring and employing these skills will be essential to IT leaders in 2010.

By then, most corporations that think IT doesn't matter won't be around. The leadership skills that CIOs will need for the rest of this decade fall into three major categories: understanding the lay of the land, building a great team and having an impact. I've organized the leadership skills into a framework that I believe can help many good leaders become great leaders. (In my next few Total Leadership columns, I'll talk about these competencies in greater depth.)

Getting the Lay of the Land

The first skill that will be required for great IT leadership is pattern recognition. In essence, this is the ability to see underlying relationships and get at "the meaning beneath the surface." CIOs with this skill can distinguish the important factors in a situation from "noise," demonstrate this insight to their colleagues through discussions and decisions, and craft a compelling story of the organization's challenges and opportunities.

Another important skill for IT leadership will be street smarts. CIOs need to learn who the important players are in their organizations and industries and know what issues matter to them. CIOs must know their organizations' full history and all the baggage that has built up over time. They have to be politically adept, leveraging their relationships with people to address problems and opportunities.

Technical knowledge is often dismissed these days as something CIOs can delegate. Nonetheless, IT leaders in 2010 will need to be technically savvy-able to sort complex issues independently and take advantage of technological opportunities while avoiding fads. Other corporate officers should view the CIO as a thought leader. One good way to accomplish this is by staying abreast of important technologies and trends.

Building a Foundation

The first leadership skill in this category isn't really a skill-it's a quality. CIOs must show personal character. This means doing and saying what's right, not just what is expedient or what others want to hear-even if it's at substantial personal risk. Without the credibility that comes from demonstrating character, you can't build a great IT team. In 2010, as today, CIOs will need committed staffers and partners to be successful. This will require mastery both of "hard" management skills (such as establishing clear performance expectations and dealing firmly with poor performers) and "soft" skills (such as mentoring and celebrating team successes). CIOs must foster passion among their staffs and suppliers and build a sense of enthusiasm for the work at hand.

In the next few years, the importance of influence and persuasion skills for CIOs will only grow. Leading other executives to a full understanding of the game-changing nature of IT will require a planned approach to influencing. Involve other execs in IT decisions to get their buy-in, and customize your approach for each person. There are limits to your personal influence; only by persuading others to support your course can you move the organization in the right direction in its use of technology.

Creating Impact

Once you've gained an understanding of where IT needs to go and have built your IT team, you're ready to make waves. CIOs in 2010 will need to be high-profile in their organizations. They must set a course for others to follow toward strategically important goals. They must act with bold decisiveness-when there's a difficult decision to be made, don't hesitate. You know you've become an impact player when you can accomplish tasks without having to always lean on your formal authority. The credibility you've built gives weight to your opinions.

A lot of lip service is paid today to the notion that CIOs should act as business partners. By the end of this decade, however, it will become vitally important that IT leaders fully engage with their colleagues in the business-not simply to get their buy-in on IT projects, but to provide input that business leaders actively seek out. CIOs will need to articulate unstated business needs and guide the organization to better processes and solutions, tactfully challenging their colleagues' positions, when necessary.

Finally, CIOs in 2010 will need to be resilient. When there are problems-as there always are-IT leaders will need to emphasize solutions rather than hurdles. When IT is changing the game, you're the one who needs to develop new approaches to work over, around and through obstacles and setbacks.

I believe that by 2010, every CIO of a major, prospering corporation will possess all of these leadership skills, by definition-because organizations without great IT leadership will be also-rans. For today's CIOs, the requirement for the future is clear: Build on your strengths and work hard on your weaknesses. We each need to be personally accountable for improving our leadership skills if we are to become true change agents.

CIO

SMU academic Steven Miller shares research from CIOs on the challenges in viewing business trends in a lifecycle framework.

By Steven Miller

In the business world, startup organisations are often viewed with great interest, especially if they represent a distinctively different approach or an alternative path for moving into the future. Part of the intrigue with startups relates to the inherent risk of the pursuit. Many, if not most startup organisations falter and either disappear or fall short of fulfilling their potential. However, the fact that some startups make it as sustainable organisations, and become economy-wide icons for alternative approaches for success or growth, is what leads people to take note of these embryonic organisations.

Startups in the university "sector" are much less frequent than in the business sector due to the complexity and cost of launching a credible and legitimate institute of higher education. Thus, the recent establishment of a brand new School of Information Systems (SIS) at Singapore Management University (SMU) is especially noteworthy. SIS is a startup organisation established in 2003 to provide research and education capabilities in the area of business-focused information technology, systems and application. It is the fourth and newest school within a relatively new university, since SMU started with its first school, Business, in 2000.

The advantage of being a startup is the ability to start with the proverbial "clean slate." In our case, this means the ability to map out a distinctively different approach towards education and research at the intersection of IT and business that will meet near term as well as long term needs. In order to build this roadmap, we have been holding intensive discussions with over 20 business user organisations and IT service providers, and soliciting their feedback on the key assumptions underlying the strategy and design of our programme, on our execution tactics, and on what a business-focused IT programme should be emphasising for both education and research. The people we have been talking to--CIOs or IT heads of business user organisations and senior level management of IT services companies--are the tier of executives with visibility of the local, regional and global trends that are important for 2004.

While these discussions were held in the context of helping the School establish a distinctive roadmap, the content provides an interesting sampling of the themes that are important to leading organisations in the IT community. Aside from being useful to us, we believe that the substance of these conversations is also relevant to executives working at the intersection of IT and business. For this reason, we are sharing the results with the readership of CIO Asia magazine. We have purposely removed references to the names of specific companies and individuals to preserve confidentiality.

Viewing important business focused IT trends in a lifecyle framework
In many of our discussions, we asked business IT leaders to use the framework shown in Figure 1 to summarise their views on important changes and trends in their organisations.
This simple solution lifecycle framework shown in Figure 1 encompasses all key phases of business-IT related activity, regardless of the particular software technologies and applications used by an individual company. The phases summarised in Figure 1 are:-
Phase 0: Enterprise level business and architecture definition;
Phase 1: Project level concept design and demonstration
Phase 2: Technical design, construction and deployment
Phase 3: End-user deployment
Phase 4: Post-deployment service delivery and support

A summary of trends that emerged from the discussions is shown in Figure 2. IT groups in end user organisations we spoke with say they are maintaining strong internal ownership of Phases 0, 1 and 3, and increasingly using various forms of external partnering and outsourcing for Phases 2 and 4.

IT groups in end user organisations continue to get more focused on making sure that technology and design choices meet the needs of line-of-business executives and business process owners. They are fulfilling increasing portions of the technical aspects of solution creation (Phase 2) and support (Phase 4) through external providers. Yet, even with increasing use of external resources in Phases 2 and 4, all of the IT leaders we spoke with representing end user organisations emphasised their own groups were still accountable for IT project results and overall IT service quality delivery. This led all of those interviewed to strongly emphasise the importance of being able to verify vendor technical solution and project proposals, and to manage vendor bidding and delivery efforts.

What is staying in-house?

There is an interesting irony in the result that business user organisations want to maintain strong ownership of Phases 0, 1 and 3. High quality performance of the tasks involved in these phases (see Figure 1) requires strength in what are often referred to throughout industry as "consulting skills." Yet, business user IT organisations are saying that the tasks in these phases are so strategically important to their company that major responsibility for this work cannot be fully handed over to external consultants. Business user firms often want to leverage the industry-wide perspectives and best-practice experiences of outside consultants and partners to help them during these phases. At the same time, they want their own IT and business professional staff to expand their competencies to include these consulting abilities so that the company can own the execution of these phases and make its own decisions.

It is noteworthy that enterprise-level business and architecture definition (Phase 0) is treated as a phase in its own right, and one that is distinct from individual IT application projects. Our initial versions of the lifecycle framework did not include this phase, since it typically falls outside the scope of software system lifecycle development frameworks such as the Rational Unified Process. Our ongoing discussions with both business user organisations and IT service providers made it apparent that this phase needed to be explicitly recognised, since IT and business people are increasingly spending time to collaborate on the tasks related to Phase 0.

Both business users and service providers emphasised the importance of industry specific domain knowledge. This type of knowledge is clearly essential to perform the tasks in Phase 0 and 1. Execution of Phase 1 tasks typically requires a team of analysts who can coherently pull together an understanding of the enterprise business architecture from Phase 0, a definition of a process model, a business case, user requirements, and initial solution concepts for architecture and design that reasonably anticipate the direction of the more detailed technical design work that will later be completed during Phase 2.

While business case analysis has always been important to business users, several IT service providers commented on how requirements for financial business case analysis are getting more complicated. As a regional executive of a global IT services firm explained, "Increasingly, customers want to know how to evaluate what will happen to proposed IT investment alternatives...and to both fixed and variable components of cost in light of possible expansions or contractions, or in light of other adaptive changes which could possibly be required."

What is worth noting here is that both the business user customer and the IT service provider want to understand what will happen to the financial model as customer demand moves either up or down. Prior to the dot-com bust, most customers and providers only wanted to know what would happen to the financial and solution model if demand increased.

An entrepreneur and venture capitalist investing in India-based software firms doing business process outsourcing for global clients summarised his views on skill needs for IT professionals in business user organisations. Given the expanding role and capabilities of outsourcing firms like his own, he believes that business focused IT professionals working for business organisations should be:-

+ IT savvy business professionals who are the marriage of an entrepreneur, a business process designer and an expert at executing the business process, which includes IT enablement

+ People who can go out and manage projects. These people need to be able to build the links between customer requirements and technical delivery. But they need to have the depth and experience needed to serve as this link between requirements and technical applications and technical delivery.

+ People who are able to:-

• Participate in creating the concept for the new business venture or new business process.
• Determine the user requirements, given the business concept and needs.
• Determine the solution concept.
• Determine what is needed to deliver the requirements and solution concept.
• Manage the teams that build the components and deliver the solution.
• Be able to measure the result.

+ People who are able to manage the programme and manage the business case.

+ Architects and designers who can shape and deliver the project, based on understanding of both commercial issues and technical issues.

We believe this list is a good summary of the skills required for IT professionals in end user organisations who will be focusing on doing the work of Phase 0 and 1, and who will also be accountable for the delivery of the results of Phase 2.

A regional healthcare provider who works with outside partners for technical delivery says that he has kept three major functions in-house. The first is IT planning, budgeting, and resource management. The second is architecture, including both enterprise architecture and architecture and design for specific projects (including functional and hardware design). The third area kept in-house is service delivery management, which includes IT operations management, service level agreement management with business end users, and vendor management with external partners providing solutions and ongoing service support.

Several organisations are increasingly focusing their efforts on data management. The regional healthcare provider mentioned above stressed the strategic importance of data management and administration in their industry. Other organisations spoke of their increasing emphasis on data definition, data warehousing and data mining. This naturally leads to increased emphasis on data storage, data recovery and disaster planning, and addressing data security issues in a hierarchical organisation. "A good data architecture design that meets user requirements and reduces system processing overheads is important. XML will also become more important in the future," says the head of IS Outsourcing and Vendor Management at a global bank.

Established organisations seldom have the option of building applications or infrastructure from scratch given the existing base of legacy systems. Legacy systems integration is thus a main focus at end user organisations. "Integration with legacy systems is always a key part of projects," says an executive of a regional bank. Planning and design for legacy systems integration are key concerns with Phases 0, 1 and 2.

Impacts of outsourcing on business user organisations

While the trend towards outsourcing is continuing in Phases 2 and 4, it is important to emphasise the wide range of hybrid models used by different companies. Nearly all firms we spoke with are using some combination of internal development staff, subcontractors, partners, and broader outsourcing relationships to deliver the tasks in Phases 2 and 4, with each firm taking its own approach to the appropriate balance of hybrid resources depending on its particular strategy and needs.

Because the IT staff of business user organisations are increasingly operating in a hybrid model for Phases 2 and 4, the emphasis in these settings is moving away from the role of the core technical specialists. For example, end user IT professionals have to know how to use XML for data management. They have to know the requirements based on the needs of their organisation's business processes. Rather than undertake the coding of the components of the solution, it is becoming increasingly necessary for them to verify what their specialised IT service provider partners are proposing, designing and delivering. As some of our business end user IT leaders mentioned, this is a major change in mindset for an IT professional whose career was built as the execution person who actually delivered the final code. It is a major undertaking to "re-educate" this type of experienced professional to play more of the verification role, and at the same time, handle more of the business process interface.

We came across a particular example of a change in a CIO's role in response to the trends in Figure 2 that we believe is especially significant, and likely to serve as a model of CIO role changes that will increasingly spread throughout industry.

Not so long ago, the regional financial services provider where this CIO works outsourced much of the work of Phases 2 and 4 to an external provider. While the outsourcing provider and other external partners may consult on work related to Phases 0, 1 and 3, the company chose to maintain strong ownership of these phases, due to their tight coupling with business strategy and overall business performance.

People kept asking him if the role of the CIO in his company had been weakened because of the transfer of a large number of IT professional staff and related execution responsibilities to the external outsourcing provider. While he had fewer headcount under his direct responsibility, he actually believed he had strengthened the influence of his IT organisation because of the leverage he and his group could exert on business value creation through sharper focus on the work of Phases 0, 1 and 3. In addition, he had more delivery power to leverage through control of the outsourcing contract for the work of Phases 2 and 4.

The really interesting part of this story is that the financial services organisation actually broadened the scope of his management portfolio. Recently he was given responsibility for business operations, in addition to IT. Now he has integrated, end-to-end responsibility for operational process execution, business process design, and the design and deployment of enabling IT to support the processes. In essence, this financial service organisation is attempting to fully integrate the way the operational side of the business and the IT people work together to create value for the organisation. The work of business professionals and IT professionals will increasingly intermingle and overlap as this organisation proceeds with current and future efforts related to Phases 0,1 and 3.

This new form of organisational structure would not have been practical to implement unless the responsibilities for execution of the work of Phases 2 and 4 were redistributed to an external provider.

This same CIO and head of operations emphasised the importance of vendor management skills in his organisation. He summed up the situation as follows. "We partner to build. We outsource to operate. And we need our own IT staff to be able to work with multiple vendors to deliver projects. As we outsource more, the internal IT people who remain on my staff are playing more of a consulting role. They deal with unstructured and dynamic situations, and they have to be the bridge between the business user, business process and IT solutions."

Another financial services organisation that had previously outsourced much of the work related to Phases 2 and 4 to a provider in India highlighted the skills required for the professionals who will lead IT-enabled process improvement in their organisation:- + Knowledge of the industry, which in this case is the finance service sector.

+ A good sense of business operations. This requires thorough knowledge of both operational process flows and system process flows, and the ability to interface process with the supporting technology.

+ Strong ability to interface with systems development professionals who work for the outsourcing vendor.

+ The ability to lead project management efforts for business process change and improvement, especially the ability to support the launch of new products and services by bringing operational process flows and system process flows into the necessary alignment.

+ Strength in project management skills, which includes:-

• The ability to balance scope, schedule and cost given the constraints and goals of a given business situation.
• The ability to influence the behaviour and actions of others, even without official authority.
• The ability to get things done without alienating people.
• The ability to deal with time pressure.

This example reinforces the point made previously that IT professionals remaining on the side of the business user organisations are playing more of a consulting role as they bridge between the business user, business process and IT solutions, especially when much of the core technical work of Phases 2 and 4 is done by external providers.

Many of the business IT leaders we spoke with stressed the increasing emphasis on verification and results management in their business user organisations, especially given the trends for using external subcontractors, partners and outsourcers in Phases 2 and 4. Of course, this raises an exceedingly difficult dilemma. How do you retain and even strengthen the skills required to verify technical solution designs and related project management plans as you decrease the quantity of "hands-on" core technical work performed by your organisation?

Given this situation, an IT executive responsible for application delivery in a regionally-based major airline says that even though they use external partners for most application development, she is looking for professional staff with strong coding and database design skills to validate both application and database software generated by external providers. Her organisation is also putting more emphasis on testing knowledge and skills (e.g. white box testing, black box testing and regression testing for applications, and well as performance testing for databases). In order to manage the hybrid development process with external partners, she also needs her technical staff to have a solid knowledge of contract law, to know how to deal with non-performing vendors, and more generally, to know how to manage complex, multi-vendor development projects.

The IT head of a global logistics services provider that is transitioning from mostly internal development to more hybrid development with external partners, agrees that his people are spending more effort on guiding, validating and managing the tasks in Phase 2. His business user IT group is still responsible for validating that the proposed architecture is a good choice, and that the proposed project plan is workable. Therefore, his group is increasingly focusing on the estimation of time, cost and risk of the tasks in Phase 1 and Phase 2. Given this stronger emphasis on verification and results management, his organisation's interest in IT and business process policy and governance, CMMI, service level management, and cost, benefit and risk analysis has significantly increased.

The executive vice president of a regional bank observed that "co-sourcing", that is, having partnerships with vendors who do part or all of the design and development for a specific project, typically leads to more complicated relationships. Both conflict resolution and project management get more complicated in a co-sourcing project, especially during Phases 2, 3, and 4. This has led her organisation to stress the importance of facilitation skills, systematic problem solving skills, and change management skills for those in project leadership roles.

About the Author: Practice Professor Steven Miller is Dean of the School of Information Systems (SIS) at Singapore Management University (SMU). He is responsible for launching and establishing the undergraduate, research, and masters and professional programmes of the SIS. He also chairs the SMU-Carnegie Mellon steering committee that manages the joint SMU-CMU relationship. He also sits on the Advisory Panel of Judges for the CIO Awards.

CIO

Gartner survey bullish on spending outlook in Asia-Pac, reports Amit Roy Choudhury

COMPANIES across the Asia-Pacific region will spend more on IT next year, with IT spending by companies in Singapore expected to rise by about 6 per cent.

This is significant because Singapore-based companies cut their IT spending by an average of 4 per cent this year over last.

According to a survey conducted by research house Gartner Inc, average IT spending by Singapore-based companies is likely to shrink to US$1.14 million this year, from about US$1.19 million in 2002. The companies said they will spend US$1.22 million each on IT next year.

Ian Bertram, vice-president of Gartner Asia-Pacific, said the information and communication technologies (ICT) market in Singapore is expected to go up 5 per cent overall to US$8 billion next year.

However, the hike in spending in Singapore may not necessarily mean a commensurate increase in new jobs, since there will be industry consolidation, another Gartner analyst warned.

Presenting Gartner's major technology forecasts for the coming year yesterday, Mr Bertram said the move by companies to invest in technology with the aim of making their business stronger and more innovative was a global phenomenon.

One immediate contributing factor: 'IT assets, acquired pre-Y2K, will reach the end of their lifecycle and must be refreshed.'

But more than that, 'we now see true recovery in the making,' he commented. 'The combination of business transformation with key technology advances, architectural changes, market forces and best practices will lead to a strong recovery for IT in the near future.'

Outsourcing will accelerate from next year, with more enterprises looking to deliver IT and business processes through service providers. Gartner predicts that by 2005 the number of enterprises that enter into new outsourcing relationships will increase 30 per cent while the number of IT providers that claim outsourcing relationships will increase by 40 per cent.

It won't be smooth sailing for all IT providers, however. According to Gartner, the IT industry worldwide has entered a period of vendor consolidation which will last through 2005.

'This will see as many as 50 per cent of technology suppliers being eliminated from the competitive landscape,' Mr Bertram said. He, however, added Asia in general could be shielded from the period of global accelerated job losses.

Speaking to BizIT about the situation in Singapore, Gartner principal analyst Jacqueline Heng said that since many of the multinational IT companies had their offices here, any consolidation could result in some job losses.

'Some of the consolidation is going to take place next year and this could have some impact on the jobs in the Singapore offices of the IT multinationals,' she said.

Ms Heng said companies in Singapore were more conservative on outsourcing and hence are more selective on what they outsource. However, she added: 'It may appear that a lot of companies in Singapore are not outsourcing but they are. It is just not publicised and it is focused on infrastructure outsourcing rather than business process outsourcing (BPO).'

'Companies in Malaysia are more aggressive at this point of time about opening up to outsourcing. There are more published big-scale outsourcing work there, like for example, in Malaysia Airlines, Bank Bumiputra and Maybank over the last six months,' she said.

According to Gartner, although the long-term outlook for IT is brighter, it will also result in pain for many. 'We are on the cusp of the most fundamental changes to business processes driven by technology advancements since the Internet,' said Mr Bertram. 'However, the resulting huge impact will be both positive and negative.'

On the positive side, there will be massive productivity improvements, significant increases in demand and enormous infusions of true innovation. 'But on the negative side, hundreds of thousands, if not millions, of workers will be displaced, many of them currently holding high-paying, white-collar positions,' he warned.

Gartner also predicted that in the coming year:

In the software industry, Linux and alternatives to Microsoft will continue to make headway, but mainly at the cost of Unix. According to Gartner, by 2008, 60 per cent of large enterprises with 500 or more employees will have migrated 80 per cent of their Unix-based applications to Linux.
IT security organisations will focus on vulnerability shielding, mitigation and practices that improve the overall resiliency of IT resources and business processes.
Standards and regulations, including the Sarbanes-Oxley Act in US, and the increasing adoption of globally recognised accounting standards, will start to have global knock-on effects.
'Compliance is an underestimated issue for many Asian companies, and as they start to play on a global stage, many of the factors and metrics that need to be put in place have not even been considered by local companies,' Mr Bertram said. He added: 'Understanding and managing the compliance issue could signal the success or failure of companies in the coming year.'

TheBusinessTimes

Business Transformation Outsourcing promises technical innovation--if you set expectations properly and can stomach the risk

By David L. Margulius

OUTSOURCING | Ask most CIOs about the biggest benefits of outsourcing relationships, and "innovation" is unlikely to top their lists. Conventional wisdom holds that outsourcers can do only what they're told--they can help reduce costs and manage technology efficiently, but they can't innovate or help a company use IT to transform the way it does business.

But a new marketing push by some of the largest IT outsourcers is aiming to change that belief. Dubbed Business Transformation Outsourcing, or BTO, the providers claim that new types of outsourcing relationships can help initiate technology-based business transformations--rather than simply lowering costs.

It's too early to tell if BTO will deliver on its promise or just turn out to be a ploy to sell strategy consulting on top of traditional IT services, but the term's very existence is another clear indicator that enterprises are seeking creative ways to get consultants to assume more risk and responsibility for delivering business innovation.

An Innovative Edge?

"The idea that you continue to have joint accountability and vested interest in what happens seems to make a lot of sense," says Lou Delery, vice president of operations for AT&T Consumer Services, describing a BTO-like structure he calls "cosourcing" that his company chose for a US$2.6 billion deal with Accenture.

While stopping shy of an actual joint venture, the deal's structure aims to reward consultants for delivering ongoing innovation by creating a new organisation staffed by both AT&T and Accenture employees, with its own pro-forma P&L and gain-sharing provisions, according to Delery. Technology investment decisions are guided by a quarter-to-quarter master plan and financial metrics.

The genesis of the deal, he says, was AT&T's realisation that it had fallen behind on key technologies in its consumer sales and customer care operations--such as CRM, personalisation and self-service--and that it needed a partner to help it deploy innovative technologies quickly and strategically to achieve business goals such as customer retention.

"Technology had changed dramatically, and [our] ability to serve customers was lagging a little bit," says Delery. At the same time, however, he adds that AT&T knew that "one of the things you have to be very careful about with outsourcing was taking a part of your business and giving it to another company." So in negotiating the deal, the company made sure it would retain all control over business direction, marketing strategies, product offering definitions and the "customer experience blueprint."

"Cosourcing allows you to retain quite a bit of control," says Delery, while also creating the right incentives for ongoing innovation on the part of outsourcers. "They have an incentive to make the technology work even [better]. There's a certain committed investment that they're making and we're making." The deal structure also helped AT&T reduce its up-front capital outlays and retain IT talent within AT&T, Delery claims. AT&T has subsequently added a similar US$500 million deal with Accenture for credit and accounts receivable management.

Benefits of Offshore

Other enterprises have attempted to reap the benefits of outsourced innovation using more traditional deal structures. In 1999, when Ron Glickman became senior vice president and CIO of San Francisco-based DFS (Duty Free Shoppers) Group, a unit of Moet Hennessy Louis Vuitton, he found that the IT operation was badly in need of a transformation. "The organisation was perceived as a cost to be minimised and not very strategic," he says, and it was split into 10 different regions supporting the company's luxury products stores.

Glickman quickly started exploring opportunities to remove cost and improve service. "It was clear to us from the beginning that we had to do both," he says. So he created a map that involved outsourcing key IT processes such as systems development to Cognizant Technology Solutions, a vendor with extensive offshore development capabilities.

Glickman then negotiated a three-year deal that commits a guaranteed revenue stream to Cognizant with the capability to add projects on a pay-as-you-go basis. "We don't do gain-sharing [as does AT&T]," says Glickman, "but as they come up with ideas to reduce our costs, we redeploy some of those dollars into other projects."

Thirty percent of the Cognizant team is dispersed throughout DFS's operating environments, and 70 percent is offshore, mainly in India. The result? "It's working great," says Glickman, who points to specific technology successes driven by Cognizant recommendations. DFS had legacy merchandising systems running in 10 different locations, for example, which Cognizant was able to consolidate onto a single IBM AS400. Glickman says the vendor also found a way to rearchitect DFS's data warehouse environment for faster reporting and a single view of enterprisewide data.

BTO, Ill-Defined?

According to Agilent Vice President and CIO Marty Chuck, who led his IT team through a major transformation when the company spun out from Hewlett-Packard in 1999, transformation outsourcing is a concept that exists in the eyes of the beholder.

"One person's outsourcing, or management consulting, or vendor software purchase is business transformation to them," says Chuck. "You do BTO for a couple of reasons--improve capabilities, reduce cost, lower risk. You're either transforming, or you're outsourcing, or your doing both--they're neither mutually exclusive nor married."

To help facilitate the Agilent divestiture, Chuck cloned a copy of HP's IT infrastructure. Unfortunately, that design was twice as expensive and 10 times the complexity of what the new company would ultimately need. It was also burdened with thousands of legacy applications. So Chuck turned to a group of trusted vendors to help drive a transformation. "We kind of got a kick in the rear when we left HP to fundamentally transform ourselves," says Chuck, who realised he needed to make dramatic changes quickly to resize and rationalise the infrastructure.

Chuck began by consolidating Agilent's technology spending so that it could be "pointed at our significant partners"--a small handful of major vendors such as Oracle and Deloitte Consulting. He then proceeded to involve those vendors in helping drive the company's transformation to an environment consisting of fewer integrated applications, such as ERP, that could serve as the basis for further innovation. The end result was a 50 percent reduction in IT spending while maintaining "substantially the same" service levels.

"Before, we pretty much kept our body shop vendors at arm's length," explains Chuck, describing Agilent's deepening BTO relationship with Deloitte Consulting (and the other select vendors). "Now [we're] beginning to use them to help put together an integrated IT strategy. Our relationship with them is much more involved. The value is much higher." In addition to helping to identify growth opportunities and figure out how to prioritise projects, says Chuck, "they tell me everything that is going on in my organisation that does not align with my strategy."

Chuck's conclusion? "As much as IT organisations like to believe that they're innovators, they can't innovate as fast as partners who are deeper in the areas they want to innovate," Chuck explains. "I can do IT better by knitting together vendors."

Buzzword du Jour?

Despite its promise, the BTO concept certainly has critics. "BTO promises to solve all the problems you don't know you have yet," says Stan Lepeak, a vice president in the technical services practice at Meta Group. "It's a very nebulous term." Lepeak isn't convinced an outsourcer can take over an IT-driven business process and also transform it. "Three to five years down the road, how do I know that I'll still be competitive?" he asks.

He cites the challenges of measuring BTO's success without clear benchmarks, motivating and retaining internal leaders who are left with only a skeleton staff, and managing competitive conflicts with vendors who may be servicing multiple industry players.

"The pieces are really just being put together," Lepeak says. "It's a natural next step, but we're looking at a five- to 10-year maturation process." He says vendors that require a steady diet of big deals are currently pushing BTO. "It's a way of saying we want to kind of run a lot of their business," he says.

It's All About Structure

Unlike traditional outsourcing, the industry has not yet developed standard structures for BTO deals--each is unique. Regardless, customers and vendors say a deal's structure is a key to success.

Business transformation is "not just smart people sitting around, but about traction, getting it to work," says Agilent's Chuck. "The creativity part I think I can buy; the innovation is about having a governance structure, weaving the great ideas into supporting your company's strategy. You have to have a very clear governance model."

Many BTO deals are structured as joint ventures or close variants. "These have to be gain-sharing deals," insists Meta Group's Lepeak. "It can't be an us-and-them; it has to be a we. It doesn't need to be a joint venture, but it has to be darn close."

The best BTO deals incorporate standard outsourcing terms such as operating and service-level agreements, clear definitions of roles and responsibilities, and incentives. And they also provide mechanisms for dealing with total unknowns. "You want to be able to modify what you have," says AT&T's Delery, who says his company's deal with Accenture allows either side to come to a steering committee and say, "Our business or your business has changed," and to discuss what that shift means for the relationship.

Whether BTO will become a dominant form of outsourcing relationships remains to be seen. However, it is clear that the bar is being raised on the outsourcing community by its own marketing initiatives. And CIOs should be ready to wring every advantage out of the new reality.

CIO (U.S.)

By Dawn Teo

SINGAPORE : Tech research firm Gartner says global IT spending is likely to pick up in 2004 after staying largely flat this year.

It is predicting IT spending will grow 4 to 5 percent to over US$2 trillion next year, driven by government and private sector projects.

But it is also warning of more consolidation in the industry.

Remember Y2K -- that much feared computer bug that sent many companies scrambling to upgrade their IT systems?

Since that shopping spree, businesses have suffered the dotcom bust and an economic slowdown.

So they have have tightened their wallets and even stopped spending on technology.

Now that conditions are picking up, Gartner says the market is making a slow but steady recovery.

"A lot of people on a global basis did the Y2K upgrade. They are now getting to a stage where they are now on a growth cycle, they need to start to utilise their technology, utilise their businesses and so they need to refresh that to take them to the next level," said Ian Bertram, vice president at Gartner Asia Pacific.

Despite the brighter outlook, Gartner warns that as many as half of the world's tech firms will not be around by 2005.

It says they will either be eaten up by bigger rivals, bought over by companies looking to tap niche markets or go under simply because there are just too many of them selling the same thing. - CNA

Channel NewsAsia