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eWeek, September 28, 2010

Offshore Outsourcing Is an Increasingly Popular Business Strategy

By Don E. Sears

With the simultaneous pressures of cost savings and software-centric innovation, CIOs continue to look abroad for development projects and managed services.

A global CIO study from 2010 reveals that 90 percent of CIOs will be maintaining or increasing offshore outsourcing projects in 2010 and 2011. According to the UK-based IT staffing and managed services firm Harvey Nash, outsourcing has been greatly used during the recession and CIOs are inclined to continue using outsourced services.

In its 2010 Global CIO Survey, Nash surveyed 2,855 IT executives from around the world and found 62 percent outsource software-application development; 53 percent outsource software maintenance; and 53 percent outsource IT infrastructure services. Twenty-two percent outsource systems integration, 8 percent outsource BPO, 8 percent outsource HR BPO, and 6 percent outsource their entire IT department. Thirty-six percent of CIOs are increasing their budgets in 2011 for offshore outsourcing activities.

The rising star for offshore outsourcing is Eastern Europe, but India is still a major player. Vietnam, the Philippines and China are also seeing increased IT activity. Says the Harvey Nash report:

"The role of India in offshore outsourced programmes remains dominant, but the dominance is waning and the rise of Eastern Europe as a preferred hub, especially for European-based CIOs, is undeniable. More than one in ten global CIOs now undertakes offshore activity in Eastern Europe. That figure is significantly higher within those European countries closest to the region."

Nearly half of CIOs-48 percent-spend 10 percent of their IT budget on outsourcing. Roughly a third of CIOs have their budgets cut for 2011; forty-three percent had declining budgets in 2010.

Key issues facing CIOs and the IT department include increasing operational efficiencies, cost savings, and improving business process. All three of these areas weighed heavily on the minds of CIOs, as more than 70 percent of them rated these highly. Other issues revealed by the survey include new-product development, entering new markets, improving price competitiveness, green IT and mobile commerce.

CIOs, according to this study, are looking for skills that lean heavily toward business acumen.

The top rated skill with the highest percentage of demand-44 percent-is business analysis, followed closely by project management (37 percent) and business relationship management (31 percent). Architecture (35 percent), IT strategy (28 percent), development (23 percent), testing (22 percent) and service management (21 percent) were eclipsed by skills that help the CIO work strategically with the business. The most surprising technology skill to fall in the bottom ring of demand in the study is security, at 16 percent.

Despite the cost savings, offshore outsourcing and hybrid models that mix onshore and offshore services come with their own set of issues. As the study points out, business culture and project expectations are not always on the same page. From the Harvey Nash report:

"For both CIOs and their outsourcing providers, the key statistic that continues to cause concern is a growing level of dissatisfaction with project management standards, despite the overall popularity of the offshore outsourcing model."

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