Monday, November 2, 2009

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Shifting staff offshore better than rate cuts: Forrester

Firms’ ability to shift more staff offshore drives more savings than the 5 per cent to 10 per cent rate reductions they have been seeking from their IT vendors, according to the latest Forrester report on IT offshoring.

The report notes that more and more firms are now looking to shift away from the traditional offshore pricing approach of an hourly rate to a fixed price model.

The Forrester report titled “Assessing your onshore/offshore staffing ratios” by its vice president and principal analyst John McCarthy, states that the economic downturn has hit IT budgets full force, and as a result, firms are scrambling to react and optimise their offshore spend.

“Our recent Enterprise IT Services Survey (North America & Europe, Q2 2009) shows that renegotiating IT services rates is the top priority of these firms. 80 per cent of the 931 respondents list it as their critical priority. And on an average, we see clients getting actual reductions in the range of 4 per cent to 7 per cent based on current rates, type of work, and volume of spend” says McCarthy.

The report advises such firms to move beyond short term strategies and invest in better specifications and change management processes, which will enable them to move more work offshore and recognise the associated savings.

Forrester notes that clients move through four distinct stages in their offshore maturity namely Bystanders, Experimenters, Committeds, and Full Exploiters.

During this evolution, clients not only build up trust with their IT vendors, but more importantly for the offshore mix, they also mature and add more rigor to their specifications, incident management, and governance processes.

“This improved process acumen on the part of the client, coupled with the domain and tool investments of IT vendors, has increased the amount of work that can be sent offshore by 10 per cent to 20 per cent over the past three years,” says McCarthy.

After the rate renegotiation, the second primary strategy firms are adopting in the short term is transition to fixed price model from time and materials (T&M) pricing model.

“They want the certainty of a fixed price,” notes the report. The report also reveals that the budget crunch has encouraged firms to look at more than just rates.

“Over the past four to six months, we have seen a dramatic rise in the number of inquiries related to IT services governance best practices, specifically around the most cost-effective mix of onshore and offshore staff from IT suppliers. And our research demonstrates that adjusting Onshore/Offshore ratios is the best way to increase savings,” adds McCarthy.

Patni net down 6.5%

Patni Computer Systems posted a net income (India GAAP) of Rs 168.5 crore for the third quarter ended September 30, down 6.5 per cent from Rs 180.2 crore in the corresponding quarter in the previous financial year. Revenue for the quarter at Rs 833.7 crore (including other income) dipped 1.5 per cent from Rs 846.7 crore in the same quarter last year. Excluding Other Income, revenue grew marginally by 0.3 per cent.

For the fourth quarter, the company expects revenue to be at $168-169 million and net income (excluding the hedge gain/loss) in the range of $24-25 million. The guidance is based on constant rupee-dollar rate of Rs 46.5, constant pound–dollar rate of 1.65 and euro-dollar rate of 1.40.
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Infosys BPO to open delivery centre in US

Infosys BPO will set up a new delivery centre in the United States before the end of this financial year.

The $300 million back-office services wing of Infosys has eight delivery centres across the globe, including in Mexico, but it did not have a center in the US so far. Swaminathan Dandapani, senior vice-president and head of global service delivery, told Financial Chronicle that the US delivery centre was the next logical step.

North American clients account for 62 per cent of the BPO’s export revenues, while the European clientele accounts for 26 per cent. Dandapani said the US will be a key market as the economy has been improving and outsourcing again. The US centre will be followed by more delivery centres in the UK and rest of Europe as the outsourcing scene continues to improve.

“All customers are looking to keep the costs down as they have done over the past year. Hence, outsourcing has continued to be a priority,” he said. The recession has significantly helped Indian outsourcing organisations as customers turn to low-cost suppliers to cut costs.

Infosys BPO will also be hiring to fill up these delivery centres, although it was not immediately known how many will be recruited. The BPO has 17,500 people on its rolls, with 3,000 employees outside India.

Indian outsourcing outfits were under huge stress when US president Barack Obama said that there will be no tax breaks for American companies that would ship jobs abroad.

But that cloud seems to have blown over. And now, with companies like Infosys BPO opening centres in the US, local employment would be created driving out fears of outsourcing.

Infosys BPO registered revenues of $71.3 million with a net profit of $16.3 million for the September quarter. It plans to hire 3,000 to 3,500 people during the current financial year. The company will continue to hire at the entry level which constitutes 80-85 per cent of our total employee base.

Google unveils new look for Orkut

Social networking site Orkut has revamped its look and added a host of new features as it tries to regain ground from one of its toughest competitor Facebook.

Google, which owns Orkut, said the new look has a user interface, or homepage, which is faster and easier to use.

"With the new user interface (UI), the user does not have to visit each page for viewing videos, or say posting scraps. He gets to see all updates and respond to his friends from the homepage itself," Google India Head (Products) Vinay Goel today said.

It also allows faster uploading of photos and has features like video chat, automatic face detection and a scroll down menu for viewing all friends on the same page.

"We have about 80-100 million users globally and India is the second leading market for Orkut after Brazil. India is a crucial market and we would continue to drive innovation for all our products," Goel said.

The new version would be initially available through invitation only but after a few weeks would be made available to all users. Companies, mainly in the FMCG, automobile, consumer durables and telecom space, are actively using social networking sites to connect with the youth.

Retaining talent troubles US employers

As the economy shows signs of recovery, majority of American companies are turning their focus to attract and retain top talent, a report says.

According to the survey of 201 US employers by HR consulting Watson Wyatt, about 65 per cent of them are more concerned about the retention of top-performing employees than they were before the economic crisis hit.

Looking ahead three to five years, half (50 per cent) of the employers expect an increase in difficulty in attracting critical-skill employees, and 55 per cent expect an increase in difficulty in retaining talent.

The survey revealed that 44 per cent of employers have encouraged managers to make greater use of recognition plans. However, only 8 per cent of these employers have seen managers actually increase their use of these plans to a significant or great extent. “However, recognition programmes that keep employees engaged and motivated can create a key competitive advantage,” Watson Wyatt strategic rewards leader (US) Laurie Bienstock said.

Besides, the report found that 54 per cent of the employers who have frozen salaries plan to unfreeze them within the next six months. While, 49 per cent of the employers who have ceased hiring plans to hire more within six months.

“The general economic picture right now is definitely brighter than it was just a few months ago,” Watson Wyatt strategic rewards global director Laura Sejen said. “However, most employers aren’t fully convinced that the improvements they’ve seen are here to stay. While, many plan to hire workers over the next few months, they remain concerned about their ability to attract and retain the right people,” Sejen added.

The companies who are expecting to make offers to new hires, 83 per cent would recruit professional, non-managerial staff, followed by 71 per cent for director, manager or middle management positions. Only 47 per cent would be hiring for senior management or executive level positions.

However, about one-fifth still anticipate making layoffs in the remainder of 2009 or in 2010.
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IBM, HP shortlisted for $700 million Microsoft deal

Multinational outsourcing firms IBM and HP have been shortlisted for around $700-million contract for managing Microsoft’s global network of desktops, servers and other IT infrastructure, as the world’s biggest software maker seeks to lower its operational costs and focus better on its core business.

India’s top outsourcing vendors had also bid for this contract, but they lost out to the multinational rivals who have better global footprints and are even ready to take over assets, including Microsoft’s staff.

“This was one contract where most of us were bidding hard, especially given the kind of customer we are talking about, but global service providers seem to have taken a lead,” said a senior executive at one of the tech firms involved during the early-stage of bidding.

Another person based in the US and familiar with this contract said, Microsoft had issued a global request for proposal (RFP) few months ago for this contract. Officials at Microsoft India did not respond to an e-mail query sent by ET.

The global IT infrastructure market has been growing exponentially over the past few years. The top-15 vendors, analysed by Forrester in a recent report, provided remote and onsite services for about 16.7 million desktops, 1.7 million servers and 23.4 million users globally. These vendors, including IBM, HP-EDS, CSC and some Indian tech firms, delivered $83.9 billion worth of infrastructure services past year.

“Some clients clearly will require the scope only an IBM or HP can deliver, but many don’t,” said Paul Roehrig, principal analyst at Forrester Research. “All of the India-centric firms, included in the study — Cognizant, HCL Technologies, Infosys, TCS, and Wipro — have excellent forward-looking strategies for the infrastructure business,” he added.

On their part, Indian tech firms, such as TCS, Infosys and Wipro, have made substantial progress in gaining market share when it comes to application development, maintenance and back-office outsourcing, however, outsourcing of computer hardware maintenance is an area where multinational rivals still lead.

“In areas where infrastructure can be managed remotely, Indian vendors are as good as anybody else, however, there are certain pieces of infrastructure management, such as end user computing, where they do not have enough global resources,” said Siddharth Pai, managing director of outsourcing advisory firm TPI India. Indeed, when HCL recently won over $350 million infrastructure from Reader’s Digest Association in March this year, it involved remote management of the publisher’s desktops and servers.

Apart from having substantial onshore resources, some infrastructure outsourcing contracts also involve financing, which is readily offered by vendors such as IBM and HP. India’s pure software vendors do not have hardware products to be bundled with such contracts. Moreover, because of asset transfer, most infrastructure deals offer lower operating margins when compared with application development and maintenance contracts.

“In a $500-million contract, involving only people, the margins can be $100 million, but when it includes asset transfer, the margins can hit $55 million,” argued Mr Pai. While lower margins may be making it less attractive for Indian companies to pursue large infrastructure outsourcing contract, they are ready to execute projects, involving remote delivery, which helps them retain their margins.

“Although dwarfed in size by the legacy global service provider firms, India-centric firms, including Cognizant, HCL Technologies, Infosys, and TCS, also landed among the leaders by showing good delivery capability and generally strong forward-looking strategies for the global infrastructure services business,” added Mr Roehrig of Forrester.