Redefining offshore outsourcing

CTOs increasingly look to outsourcers to improve management practices and mitigate project and geopolitical risks

Guardian's McIntyre also took pains to set up a particularly close relationship with outsourcers. After the success of its original pilot program, the insurance company contracted with Patni Computer Systems of Mumbai, India; NIIT Technologies of New Delhi, India with offices in Singapore; and with Covansys, in Farmington Hills, Mich., which has centers in India and elsewhere.

"When we started our pilot program, [managers from the outsourcing companies] came here with the goal of gathering information and knowledge, so as we ramped up offshore, resources could be shifted offshore," McIntyre explains. "Now we have point people [from the outsourcing companies], management people who stay here and help us get resources engaged."

John VanZandt, CTO of 10 month-old biometric security company Security First in Rancho Santa Magarita, Calif., says he selected two companies for offshore outsourcing -- CEO Consulting in Irvine, Calif., with offices in Malaysia, and Luxoft in Moscow.

"They've got the technical manpower in the U.S. to [make it feasible] to keep the implementation team offshore. We found it was best to do it that way," VanZandt says. "The arrangement gives you a group you can work with every day, which helps."

Risk management

Bringing offshore outsourcers closer to them has also made some CTOs more conscious of geopolitical instabilities that might endanger offshore facilities. CTOs are also taking note of offshore outsourcers' disaster recovery and backup plans. Infosys, for example, has facilities outside of India to use for storage backup, BNSF's Campbell says.

Still, says Campbell, the railroad may add another offshore outsourcer to its vendor list, saying he has no exclusive commitment with Infosys. "We can move our application house around. A strategy is in place if something goes wrong. We are possibly looking at a two-horse race, in case one gets winded," he says.

After Sept. 11, the Indian-based vendors responded very quickly to reassure customers about their continuity capabilities, says Sandip Patel, a partner at IBM Business Consulting Services in Boston. "Some Indian providers [opened call center and development facilities] in other places in Southeast Asia, especially the Philippines and China and in some cases even to Mexico -- in part to [manage] risk."

Guardian's McIntyre "didn't want to put all our eggs in one basket. We went to three [companies] to lessen [geopolitical] risk." One of Guardian's outsourcers, NIIT, has offices in India and Singapore which provides choices about where to run operations, McIntyre notes.

This dispersement strategy also allows the enterprise to shift work to lower cost areas, says Joe Kulak, vice president and consultant at New York-based Cap Gemini Ernst & Young involved in setting up offshore outsource operations. "Today, the lowest cost may be India, but tomorrow it could China," he says. " People are making investments now in Vietnam."

Expanding services

Kulak says that as the offshore IT outsourcing success -- both fiscal and performance-based -- becomes apparent, CTOs will hand over more projects to third parties to manage the offshore outsourcer. "Now there is a whole new level of sophistication the client is looking to use, like CRM, which customers historically kept inside their four walls," he says.