Objective

Over the last 10 years IT Application outsourcing with off shoring has been growing in size and volume, an indication that organizations have been benefiting from outsourcing. However, there are projects and deals that have been rolled back and organizations have been hurt due to vendor’s inability to deliver quality product on time. This article addresses how organization can do an effective IT application outsourcing and not get trapped into standard headcount replacement by cheap labor pool. The article brings out perspective from the Authors; Vendor manager has worked for 12 years for outsourcing companies, managed large teams/project for outsourcing vendors and the customer who has championed outsourcing successfully in his organization. The article brings out the challenges that IT organizations face today in outsourcing effectively and successfully and how can they address these challenges.

A business will always try to produce at the least cost and sell it at the highest cost to maximize the return to promoters/stakeholders. No wonder that outsourcing in some form has always been present since ancient time when people traded goods or services. In the modern times, with communication cost coming down and availability of large pool of educated labor force in a developing country, IT application outsourcing with off shoring started to take place. The application outsourcing started with Year 2000 problem in a big way when industry ran out of resources and a problem that needed attention before the time ran out. Over the time, outsourcing vendors based out of India have established themselves and have grown in size many folds (The employee strength of Infosys’s # rose from 1100 in 1996 to 91,187 in 2008 Apr, the figure for TCS is 3000 to 111,407 in 12 years, and for Wipro 3000+ to 82,122) and along the line have built credibility and capability to deliver large projects as well. The number indicates that outsourcing in general is working. Let us look at closely what are the challenges that IT organizations face with outsourcing, how it impacts them and what they can do to address these issues.

Current IT Projects are more complex compared to Year 2000 projects - Year 2000 projects were simple in nature. One would just review the source code base offshore and provide the fix. Completing these projects didn’t require writing new software or working with new technologies. Nor did it require the domain or application knowledge.

All projects today however require working with new technologies, deep domain knowledge, other interfacing application knowledge and experienced staff. While IT vendors have done a good job of training their personnel in new technologies, but biggest problem faced today is lack of personnel with requisite knowledge as there is high attrition among these skilled labor.

IT vendors have tried to answer some of these problems by having vertical units aligned to a particular segment of the business and specialized domain within the same. However this also doesn’t solve the problem as these trained people would not have enough knowledge of an organization’s application landscape and domain.

One of the ways in which IT organizations can address these challenges is by training their employees on new technologies. These employees who already know application and adding domain experience will make them subject matter expert in a short time... CIO and senior management should plan to have trained employees in each technology and each application. IT organization can form center of excellence within organization for different technologies and identify key personnel to meet the organization’s requirements. Center of excellence can be around technologies (J2EE, Mainframe, Reporting, and EDI) as well as around

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