Hedging their outsourcing bets

By Stan Gibson  |  Posted 2006-04-10 Print this article Print

Rosenthals job is to keep tabs on the choreography of global work and ensure work is meeting ABN AMROs specifications. "We know specifically where every bit of work is being done on our behalf. Outside of risk issues, work is work," Rosenthal said. He said he is in the process of consolidating several different portfolio management tools to a single platform.

Bruce Jacobs, CIO of LaSalle Bank Corp., a unit of ABN AMRO, said diversifying its suppliers creates an "internal market" by establishing a set of approved global vendors. Savings are to be spent on developing new applications in the banks "fuel for growth" strategy. "Well buy more work at a lower hourly cost. Well get a heck of a lot more applications that will be fuel for growth," said Jacobs, in Chicago.

Genworth: Low-cost regions get pricey

While ABN AMRO is just embarking on a global strategy, Genworth Financial has been at it for more than a decade. Genworth, a consumer financial services company in Richmond, Va., was part of General Electric until it spun out in 2004. As a unit of GE, it started working with offshore providers in 1994 to tackle such tasks as Y2K remediation. Now, much of Genworths work is done by Genpact, the India-based former GE IT services unit, although Genworth calls on other outsourcers including TCS, Satyam Computer Services and Patni.

At the Nasscom 2006 conference, a panel discussion centers around India. The market there is cheap, but can it innovate? Click here to read more. Scott McKay, senior vice president and CIO of Genworth Financial, said he considers his approach to be "process globalization," rather than outsourcing. Genworth, he said, has advanced through several stages of working with global partners. Companies just getting their feet wet with outsourcing will typically seek the advantages of low-cost labor. That was Genworths goal at first, but now, he said, Genworth has a higher-level view.

"Business processes are competitive weapons, and globalization is the strategy, not outsourcing. Global intellectual capital is very important," McKay said. "In business process globalization, organizations that move beyond a regional footprint to globalization should cover every zone where they have customers. Globalization is integrating people and expertise."

Why focus on expertise and not costs? McKay said countries that start out at rock-bottom cost inevitably become more expensive. Nine years ago, when Genworth started sending work to a captive operation in Shannon, Ireland, the Emerald Isle was among the worlds low-cost leaders. Thats not true anymore. India will be no different, said McKay.

"The cost structure in India 10 years ago was quite enviable compared with today. Our costs there were probably 25 percent to 50 percent of what they are today. Its pretty significant. Looking at globalization, you have to ask, Would you do this deal if there were no labor arbitrage?" said McKay.

Now, Genworths global IT and business process locations are in Richmond; Shannon; and Hyderabad, Gurgaon and Mumbai, India. Genworth also works with partners Genpact, Patni and TCS for application development in Mexico, China and Hungary. Putting Genworths eggs in a variety of global baskets gives the company plenty of choices when local conditions change. "We are continuing to take processes and balance them out globally across our existing hubs," said McKay.

Nissan: Split the difference

Nissan North America found that going global means hedging bets. Splitting its IT infrastructure work between IBM Global Services and Indias Satyam was its best approach. In the final lap of a major corporate turnaround, Nissan North America had outsourced all its technology to IBM Global Services but decided another partner for application development would be better than sticking with IBM, said Robert Greenberg, CIO for Nissan North America, in Gardena, Calif.

Despite cultural differences, Big Blue has an Indian workforce that is second only to the United States among countries in which the company operates. Click here to read more. IBM bid against Satyam, TCS and Infosys for work that included maintenance and enhancement of the automakers entire application portfolio, including financial applications, human resources, supply chain and logistics. Most applications are from SAP, although the HR applications are from Oracle-PeopleSoft, while logistics applications are mainly homegrown. All the bidders intended to handle the work offshore, said Greenberg.

During its darkest corporate days, Nissan North America had little flexibility to explore new options and was beholden to IBM Global Services as a single outsourcing partner. With its turnaround—known inside the company as "Project 180"—creating a healthier bottom line, Nissan North America has added staff to manage the offshore relationship with Satyam, Greenberg said.

By balancing the increase in management against what he hopes will be superior execution, Greenberg aims to have Nissan North America come out ahead. Still in the early stages of the transition to Satyam, Greenberg said his experiences so far have been "extremely positive and professional," although, he added, "we will know more in six to nine months."

Indymac: Banking on India

Indymac bank sought to reap the benefits of short-term application development without hiring additional staff. "We didnt want to hire the people and lay them off if the work was only going to take 18 months," said Mark Nelson, executive vice president of global resources for Indymac Bank, in Los Angeles. Indymacs project: to build the banks next-generation loan origination platform, drawing on the banks expertise in risk-based pricing for mortgages.

Next Page: Shall we dance?

Stan Gibson is Executive Editor of eWEEK. In addition to taking part in Ziff Davis eSeminars and taking charge of special editorial projects, his columns and editorials appear regularly in both the print and online editions of eWEEK. He is chairman of eWEEK's Editorial Board, which received the 1999 Jesse H. Neal Award of the American Business Press. In ten years at eWEEK, Gibson has served eWEEK (formerly PC Week) as Executive Editor/eBiz Strategies, Deputy News Editor, Networking Editor, Assignment Editor and Department Editor. His Webcast program, 'Take Down,' appeared on Zcast.tv. He has appeared on many radio and television programs including TechTV, CNBC, PBS, WBZ-Boston, WEVD New York and New England Cable News. Gibson has appeared as keynoter at many conferences, including CAMP Expo, Society for Information Management, and the Technology Managers Forum. A 19-year veteran covering information technology, he was previously News Editor at Communications Week and was Software Editor and Systems Editor at Computerworld.

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