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More on Rankings

               Phil Expands the Conversation Re: Outsourcing Rankings

Phil Fersht of AMR Research covers the outsourcing space extensively and has a blog, Horses for Sources, dedicated to same. He's pulling together a number of perspectives regarding the recent hubbub re: outsourcing rankings. He has already gotten Deborah Kops to weigh in and I've forwarded along to him a post I did last week on the same subject. I'd like to thank those who took the time to comment on my posting.

A "List" of Issues

            Some "Rank" Behavior Regarding Outsourcing Listings

Steve Hamm penned a blog piece and an article for BusinessWeek (see: "Outsourcing's Dubious Kingmakers", www.businessweek.com, July 14 & 21, 2008) re: Brown & Wilson's annual Black Book of Outsourcing. The article questioned the methodology used by the firm in creating its annual listing of outsourcers. The article also questioned the movement in rankings and the location of the company's office.

I also saw Ed Nair's editor's note in this month's Global Services magazine (see: "The Outsourcing Lists", July 2008, www.globalservicesmedia.com). He took offense to a document that purportedly touts the Black Book list and disparaged others. Since I cannot find this document, I can't comment on it but I was certainly intrigued to its alleged comments.

That a list could generate so much passion and print was interesting to me as I generally can't get many people to care that much about the general ranking of two outsourcers. People seem much more interested in People magazine's Sexiest Man choice than a list of outsourcers.

Today, Wachovia Capital LLC hosted a conference call with Scott Wilson and Doug Brown of Brown & Wilson. Mr. Brown and Mr. Wilson stepped through a litany of Facts and Fictions re: their study and its methodology. Just based on this, it would appear that many of stories attributed to their study are not true.

On that conference call, we learned that:

• vendors are evaluated by customers across 26 factors, each receiving a 1-10 score for a maximum score of 260 points
• each vendor is ranked based on the mean score across all submitted ballots
• customer ballots are carefully screened to ensure that only the customer, and no one else, completed the ballot
• at least ten ballots per company are needed for the company to be included in the rankings
• outsourcers who try to cajole more clients to vote statistically hurt their rankings on average

What appears to be the biggest point of confusion in the market is that there are now 4200 outsourcing vendors being evaluated and the differences in scores between one vendor and the next in the top 50 list could be a mere few thousandths of a point. For example, look at the difference in scores in the example provided by Brown & Wilson for the Wachovia call:

   

When the differences are a mere few thousandths of a point, the differences are not statistically significant. What we should be seeing are the standard deviations for these scores as potential users of this data would see that meaningful differences may not exist between large groups of outsourcers evaluated. In other words, the numerical differences between two outsourcers with similar scores may not be a solid basis for including or excluding either from a selection short-list.

Moreover, when the top 50 vendors in a pool of 4200 vendors are selected, you can bet that the scores will be close for these. In fact, the top 50 represent just over the top 1% of outsourcers evaluated. These scores are like trying to delineate the differences between your salutatorian and valedictorian. They're both great.

As for the Brown & Wilson report, I am satisfied that they have adequately calculated the results and protected the integrity of the inputs. People who rely on this data need to recognize that:

• a statistical score is no substitute for doing your own due diligence re: outsourcers
• narrow score differences are not reasons for including or excluding outsourcers from consideration
• with outsourcers and mutual funds, past performance is no guarantee of future results

I do not have, nor have seen, the document that supposedly came from CIO magazine that alleged some other points.

If you'd like to see the Top 50 list, click on this Wall Street Journal link.

Who to Blame for Skills Shortages

          Are CIOs the Makers of the Tech Skills Shortages They Bemoan?

Check out Allan Alter's piece in CIOInsight (http://www.cioinsight.com/c/a/Opinion/Blame-CIOs-for-the-IT-Skills-Shortage/). Alter lays a goodly portion of the blame squarely at the feet of CIOS. This is an interesting read and one educators, recruiters and others should read.

Destination Wedding? No - Destination Surgery!

                      Surgery - the Emerging Outsourcing Frontier

Next time you need that gall bladder surgery, coronary bypass or other health procedure, your insurer may ply you with financial incentives to get you to have the operation outside of the United States. For example, a heart bypass costs between $10,000 - 18,500 if you have it in India, Thailand or Singapore. Stateside, it will set you back $130,000.

As employers re-negotiate health care benefits packages, some may insist on medical travel unless you want to pay some steeper deductibles or plan costs. In this situation, outsourcing is triggering the work (i.e., the patients) to come to the offshore firm.

This trend may take some time to gain material uptake in the marketplace. Employers with unionized work forces are already spooked about offshore job losses and they will fight these moves. The fact that U.S. patients might lose the right to sue for medical malpractice when using certain overseas physicians or facilities could be another deal breaker.

That said, quality of care in the few facilities offering this is rated well for now and this will need to be closely monitored and adhered to if these sorts of programs are to take off.

Will we see either Hillary Clinton, Barack Obama or John McCain recommend this during their election campaigning? Doubtful.

For more info, see: The Economist, March 24, 2008, "Outsourcing the Patients".

Name Your H-1B Legislation

       When Congress Gets Creative - The Selling of H-1B Legislation

Two new bills are being introduced in Congress to raise the cap on the number of H-1B visas. One would double the number initially and eventually triple the number of visas granted annually. The other takes the limit up to 195,000 in 2009.

Take the H-1B Legislation Naming Game!!!

Can you guess which legislation names are legit and which aren't?

1. The Innovation Employment Act
2. SUSTAIN - Strengthening U.S. Technology and Innovation Now
3. Replacement Work Force
4. Full Employment Act for Outsourcing and Global Competitiveness
5. The North American Job Security and Economic Stimulus Act
6. American Workers are Lazy, Uneducated and Ignorant of Technical Disciplines

The correct answers are the first two although numbers 4 & 5 could also work. The congress persons leading these efforts should be applauded for the creative names they've chosen. You'll notice that the bills are named around innovation as any name that would imply loss of jobs to offshore workers would be death to their political careers.

If you'd like to learn more about these bills (e.g., exactly who is sponsoring them and where they are from), please read: http://www.eweek.com/c/a/Careers/Bills-Would-Double-and-Triple-H1B-Cap/ .

   

Let The Fighting Begin - H1B Issue Goes to Washington

                The Best Reading on H-1B: Issues, Testimony, Fraud....

                        Can't We Make a Hit TV Show From This?

Ever get the feeling that someone's making money on those H-1B visas you read about? Check out U.S. Senator Chuck Grassley's letter to the Bush administration re: H-1B visa abuses: http://grassley.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=9af53fa4-b99b-5638-8db2-5021e681c258&Month=3&Year=2008 There's some really juicy stuff in this. It discusses the blatantly illegal job advertisements here in the U.S. where advertisers are only looking for holders of H-1B visas. It details how visa factories are being established to create false employer fronts within the U.S. There's the story of an Iowa businessman getting harangued by an offshore firm with all of these potential visa holders on the bench. The fact that Homeland Security is being alerted to these abuses suggests something is really rotten here. Great reading - really.

Computerworld expands on the Senator's letter in this story: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9067738&intsrc=hm_list . Like the above, it's a great read, too.

We also have Network World chiming in with their piece: http://www.networkworld.com/news/2008/031208-h1b.html.

Bill Gates, of Microsoft fame, testified before Congress and a synopsis of his remarks can be found here: http://www.networkworld.com/news/2008/031208-gates-immigration-reform.html

All this comes at a time when the U.S. government is being asked to raise the limits on H-1B visas from 65,000 to 110,000/year.

Here are the questions U.S. policy makers must address pronto:

• Does bringing in more non-US workers actually motivate US students to pursue technical degrees or does it achieve the opposite effect?
• The H-1B program was intended to bring in people with unique skills and talent. How do green, low-level tech coders meet that standard? What aren't more PhDs being granted this visa?
• Why are large tech outsourcers allowed to hog the number of available visas? Should U.S. based tech companies get an equal or better opportunity to import scarce, unique talent?
• Why are students at U.S. colleges electing not to pursue careers in technical areas? Is it because of bad employer behavior? Is it because these positions are vulnerable to outsourcing? Is it because potential employers send mixed signals to colleges, employees and job seekers? Or, is it that U.S. college students can't be bothered with these degrees? What is the real root cause?
• Is the L-1 visa program as messed up as the H-1B? Should both be addressed?

Approving or disallowing the increase in visa permits is not the issue. Congress must address bigger concerns (e.g., national security) and discover the answers (and appropriate remedies) to the matters above and more.

Can an Industry Police Itself?

Will H-1B Abusers Corral Their Collective Greed or Ruin Things for Everyone?

Data from the U.S. Citizenship and Immigration Services (as reported in BusinessWeek March 17, 2008), indicates that large offshore outsourcers have materially dipped into the well for H-1B visas for their workers. Infosys led the way in 2007 with 4,559 followed by Wipro (2,567), Satyam (1,396), Tata (797), Patni (477) and i-flex (374).  Cognizant, a US-based firm with the bulk of its workers in

India

received 962 visas.

As the BusinessWeek article (www.businessweek.com “Guess Who’s Getting the Most Work Visas”) indicated, these visas were intended to be granted to the world’s best and brightest. As originally envisioned by Congress, these visas were to be offered to extraordinary individuals with unique skills and abilities. C++ programming language skills are neither.

What’s at risk for Indian offshore service firms is the loss of onshore personnel if Congress reacts badly and publicly to their collective abuse of the H-1B visa program. As the late Ben Franklin was fond of saying “Moderation in all things” and by all, that includes visa applications. There’s no doubt offshore firms would be stung by a retraction of these visas, tightened qualifications or new penalties levied against firms who are abusing the program or taking away US jobs from equally qualified US workers.

Will any Indian firm voluntarily scale back their desired allotment of visas? That’s highly unlikely as many of these firms would gladly accept far more visas than they’re granted now. Moreover, competitive pressures would dictate they grab all they can lest a competitor have an unfair advantage.

Should Indian firms self-regulate? That would appear to be a logical alternative and one that might meet with acceptance in

Washington

. However, these firms would have to agree to some sort of allotment arrangement that would satisfy existing and upcoming offshore providers. Given the number of firms involved, this seems unlikely. Worse, a fixed allotment would favor larger firms and prevent smaller firms better access to US markets. But the real reason self-regulation won’t work is that Indian offshore firms may be all over the map as to how serious the H-1B matter is. For those who don’t see it as a problem yet, no effort will be made to self-regulate.

In markets where there appear to be scarce permits (like taxicab permits/medallions in major US Cities), the government auctions them off to the highest bidder. That may be the best approach for the

US

. Auction off H-1B visas and let market forces bring the best and brightest to its shores. Better still, use those auction proceeds to fund unemployment compensation and training programs.

Hewitt Financial Results - HR BPO Observations

                          An Analyst's Assessment of Hewitt

Check out: http://www.theindustryradar.com/Home/?currentHome=/Accounts/article/layouts/Hewitt_Hood.xml for an interesting read on how Hewitt is doing. This piece is not that positive but it does give some insights into the competition and financial performance of the HR Business Process Outsourcing space. Check it out.

Stats on Outsourcing

                    Great Outsourcing Data From CIO Insight

CIOInsight, like its sister publication Baseline, does some really nice research. I dare say that some of it beats the stuff coming from some of the analyst firms.

In the 03.2007 issue, they ran a piece titled "Expect the Unexpected" (see: www.cioinsight.com). I will not add any editorial comment to their stats. I will just identify some of the interesting factoids they presented in their research on IT outsourcing.

• 67% of executives say domestic outsourcing costs as much as in-house work. 43% of executives believe offshore outsourcing costs as much as in-house work.
• Half or more of executives say outsourcing projects have been successful regardless of whether they were completed via on-shore or offshore resources
• the percentage of IT budget spent on outsourcing varied from  18-30% depending on company size
• the number of companies planning to outsource continues to rise with 40% expected to do so this year
• simultaneously, in-sourcing is also on the rise
• 68% of survey respondents believe that outsourcing is over-rated as an IT cost-cutting strategy
• 53% of respondents use outsourcing to free up staff time to work on other initiatives

This document is several pages long and warrants a review by anyone selling or exploring the use of outsourcers.

Job well done CIO Insight.

Data Point: Maturation of Outsourcing Firms

Finally, It’s Becoming a Global World

Fortune magazine in the August 6, 2007 issue has a small article titled “Indian Call Center Lands in Ohio” (www.fortune.com). The article describes Tata’s outsourcing center in Reno, Nevada.  Tata’s decision had similarities to business decisions other outsourcers have made.  The article indicates how the travel service Expedia needed workers with intimate knowledge of United States destinations. They used a U.S. call center. Some insourcers need workers with a more entrepreneurial attitude in their work.  Some firms need workers with a familiar accent that no amount of training from half-way around the world can replicate.

In the sidebar to this article, other new developments within the United States are being planned by Chinese, Indian and Mexican firms.  Whether these include the opening of domestic manufacturing plants or the creation of talent development arrangements with US-based universities, it’s becoming very clear that outsourcing is no longer just a low-cost country source decision/solution.   

 

The decision as to whether any business function, plant or asset should be located domestically or abroad is a more complex business question than one of simple economics.  In the highly interrelated business world that exists today, businesses have done remarkably well at shrinking boundaries.  Telecommunications capabilities today dwarf those of just 10 years ago.  And telecommunications capabilities 10 years ago dwarfed those of the preceding fifty years.  But the physical shipping of items like automobiles, produce, electronics, etc. requires movement, fuel, logistics, planning, government approvals, etc. These things take time and energy. While collaboration technologies, communications and access to improved decision-making information are abundant today, they still cannot shorten physical limitations like port delays, transportation times, distance and fuel costs. 

 

What we are seeing now, is a smarter kind of outsourcing.  This is an outsourcing where many factors are considered other than just landed cost.  What we’re seeing now is how business leaders are looking at individual customer and market niches to devise solutions that make sense for every segment and constituency.  These are solutions that look at numerous factors such as customer satisfaction, delivery dates, intellectual property protection, and more. 

 

Outsourcing is growing up.  It’s also getting more refined.  Companies like Tata are starting to look less like an Indian-based outsourcer and more like every other well managed multinational or global manufacturer.  This is a good change for the world economy.