The question on the lips of most CIOs is no longer whether to send work offshore. It's a question of how much to send.
The offshoring of IT jobs is now an everyday business reality. Every Australian bank does it; and if you believe the whispers, even our federal government departments are strongly considering it.
The question today is how far you go -- how deep do you build a partnership with your offshoring partner, and how much of the high-risk or sensitive operations you keep in-house.
ZDNet Australia's Brett Winterford travelled to Delhi in India to talk with some CIOs at a customer meet to learn from their efforts.
Motivations
It's often assumed that those Australian companies that opt to push their business processing or application development offshore do so purely to drive down costs.
While there can be no doubt that the average IT knowledge worker in India earns far less than his Australian counterpart, the reality is that from a business perspective, cost is rarely the sole driver.
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Ask an Australian CIO, and they report that it's simply a matter of having little choice -- there is just not enough IT students graduating from our universities to hire.
Those workers with in-demand skills can afford to pick and choose between employers with little regard for loyalty.
John Loebenstein, former CIO of St George Bank, said that while originally executives like him approached the Indian outsourcers with a view to conducting basic labour arbitrage for cost savings, those days are over.
"It's evolved from there," he said. "These days, if you are purely going for cost you won't find the cost differentiation isn't that much. You only save money after you reach a certain scale, and even when you do it might be 10 percent, not 20 or 30."
In application development, for example, he sees little savings. "For every three or four developers you hire in India, you have to hire another at home. Offshoring development is an extraordinary expense, when you consider the dedicated line for security, the travelling costs, the set-up calls and firewalls and servers. That soon eats away at the pure wage arbitrage."
Rather than cost, it's the scale and flexibility of the resource pool the Indian outsourcers provide which is more attractive than cost: the ranks of the bigger outsourcers -- Wipro, Infosys, HCL, Satyam et al -- have tens of thousands of young, skilled staff ready to deploy on projects.
Loebenstein said it is the intellect, the flexibility of resource and discipline of certain offshore providers that make them attractive.
"There is incredible brilliance and innovation in Australia," he said. "But today the world is your oyster. We are fortunate that we can now look across borders to get the best resources. Whether or not they are in India is almost immaterial. It could be The Philippines, Ireland, Melbourne or Delhi: geography doesn't matter anymore."
Global trend: Deeper relationships
Australian companies tend to be a little more nervous about sending work offshore than their American or British peers. Most of the application development local banks have outsourced to Indian companies, for example, occurs 'onshore', where an outsourcer brings staff over to Australia temporarily from India to complete a project.
More advanced nations in the outsourcing game, said Pradeep Bindal, vice president and infrastructure services global director for Indian outsourcer HCL, took their initial forays into outsourcing in a similar fashion.
"Australia tends to be behind the US and the UK in terms of being comfortable with sending work offshore," said Bindal. "When outsourcing first started in the US and Europe, it was mostly done onshore too."
Globally, the direction tends to be sending more work offshore -- and more to a single partner or handful of partners with which the client is asked to place greater levels of trust.
"Trusted relationships will be of the most importance in the next few years," is the catch-cry of Vineet Nayar, CEO of HCL, a US$6 billion Indian-based outsourcer whose clients include AMD, Boeing, Cisco, IBM and Microsoft. "We want to do business with fewer customers, but be more strategic to them."
Financial services conglomerate Deutsche Bank and networking giant Cisco are two very large companies that have gone with this mantra.
Over the last decade, said Tony McCarthy, managing director of IT at Deutsche Bank's Investment Banking group DB, has made India the "single largest resource pool for Deutsche Bank in the world".
Cisco has gone even further -- making India its "second head office".
Wim Elfrink, chief globalisation officer at Cisco Systems, moved his family to the Indian city of Bangalore in January.
Elfrink doesn't believe that globalisation is about where things are cheapest anymore. "It's not about cost and labour arbitrage," he said. "It is not about call centres. It is about how you can globalise the brains of the world. It's about picking up on the innovation of different players and making something out of that."
While a cost advantage is a bonus, Elfrink said, it's not a "sustainable differentiator" from your competition. That can only come when you derive real value from your partners.
Elfrink said that Cisco, like many of its global peers, is consolidating the number of partners it works with and is building deeper relationships with those remaining by using virtualisation and collaboration tools.
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