The Gamble of Going Global
The Gamble of Going Global
The U.S. company is going extinct. Increasingly, all companies are global, and those that succeed will glean every bit of business advantage they can from every corner of the globe.
But the big question: How does your company get there? At the annual Gartner Outsourcing Summit April 3-5 in Orlando, Fla., globalization and how to make it work was a topic front and center. The consensus: Going global is imperative but fraught with risks.
Technology executives interviewed by eWEEK likened the effort to go global to a high-stakes game. Spend too much time and money trying to manage companies across different time zones and cultures and you lose the advantage of low-cost labor and specialized expertise. Ignore the potential gains of globalization and your company will fall hopelessly behind its competitors.
Meanwhile, going global means executives have to standardize their internal operations across IT infrastructure, application development and BPO (business process outsourcing) for functions such as accounting and human resources. "You cant operate globally without standardized contracts and standardized work," said Lisa Gage, director of corporate planning and strategy at General Motors. "You need standard operating data and processes, managed by accountable people."
Indeed, those who are leading the way say theyve discovered certain best practices: Start with a high-level mandate; build a cross-functional team of business leaders; simplify your processes; standardize your contracts; use an established management framework such as ITIL (IT Infrastructure Library); and then work overtime to build and maintain successful relationships.
General Motors, under the leadership of CIO Ralph Szygenda, has a mandate to work with the worlds top technology providers as it expands its outsourcing partners beyond Electronic Data Systems. To make sure the company addressed global outsourcing in an organized way, the auto giant pulled together a "basket weave" of executives from several disciplines, said Gage. "We called together purchasing, contract management, finance and legal."
Wells Fargo, a relative neophyte at global sourcing, took a similar approach. The bank made global sourcing a priority and, in 2003, formed "an offshore outsourcing council consisting of people specializing in HR, legal, contracts, audit and security," said Pamela Carreon, technology manager for the offshore outsourcing office at Wells Fargo, in a Gartner conference presentation.
GMs Gage said that standardization has to be in writing. Its best to write a global service contract with all terms and conditions included. That way, its not necessary to include terms and conditions in each IT service request, a practice that can multiply the number of different contracts beyond whats manageable, she said. "Making it standard and signing it once took 20 percent to 30 percent out of supplier costs," said Gage. GM has cut its contract tally from 650 to 40.
After getting executive buy-in for a global strategy, Jim Nanton, CIO of Sara Lee, in Winston-Salem, N.C., eliminated stray processes as the company prepares to spin off its Hanes Brands unit this summer. "Process maturity has been a weakness. We have lacked standards and consistent, repeatable processes," Nanton told a Gartner audience. "You need to develop a road map to transition [from the] current to [the] future state. Global delivery is a fundamental part of our IT strategy."
Analysts said such a disciplined approach is an essential first step. Gartner analyst Linda Cohen advised companies to develop comprehensive global sourcing strategies rather than relying on a piecemeal approach that has characterized much global outsourcing so far. Forrester Research analyst Julie Giera said, "You establish a framework with a sourcing strategy. Its based on whats core and what you should give to a third party. Its an IT ecosystem of internal capabilities and external providers."
Once the early legwork is done, the real fun begins. Heres a look at how companies are playing the global game.
ABN AMRO: Create an internal market
ABN AMRO Bank went into global outsourcing with its eyes open last fall, when it signed a $2.24 billion, five-year deal with several providers for its retail bank operations. The bank signed a deal with EDS in 2002 to handle IT infrastructure for its wholesale banking operations. In the deals signed last fall, the bank divvied up its needs and then sought partners, said Louis Rosenthal, ABN AMROs managing director for group shared services for IT. The goal: to create internal competition to keep costs down.
IBM Global Services, at $1.87 billion, got the banks infrastructure, including data center and desktop management and the companys help desk. Indian companies Tata Consultancy Services, Infosys and Patni Computer Systems, along with U.S.-based Accenture, won ABN AMROs application development business. Each outsourcer, in turn, will call on its own global development localities to serve ABN AMRO. For instance, TCS will put developers to work for ABN AMRO in India, Brazil and Hungary. ABN AMRO has selected four telecommunications providers. The bank also runs its own BPO operations in India.
Next Page: Hedging their outsourcing bets.
Hedging their outsourcing bets
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.
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.
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 turnaroundknown 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?
Shall we dance
"We identified nine different vendors. Two were global consulting firmsAccenture and IBM Global Services. The other seven were based in India," said Nelson. "We went over and visited everybody in India. We narrowed it down to four, then sent our IT managers to tour the final four: Wipro, Infosys, Cognizant and Accenture. All were really goodCMMI Level 5."
Cognizant won the deal, which was signed in June 2004. Some 300 Cognizant employees now work for Indymac.
Building the team
While all these companies have taken different approaches to globalization, executives agreed that building a team is necessary to make outsourcing work, and that means ironing out cultural and communications issues early.
"We spend a lot of time with Cognizant on governance structure," said Indymacs Nelson, describing how he formed a team in Los Angeles of 10 Cognizant people and 20 Indymac employees. That group is broken up into smaller teams to manage specific projects, Nelson said. In addition, about 100 Cognizant workers came from India to work in the Indymac building.
Nelson sent a native Indian who had worked for eight years in IT at Indymac to India as the banks liaison to Cognizant. "Hes our country manager there. He works with the vendors in India. Hes our primary point of contact," said Nelson.
ABN AMROs Rosenthal recognized early that his vendorsall of which are rivalshad to work together.
Soon after the banks deals were signed, Rosenthal called a meeting that brought together all ABN AMROs sourcing providers in one room, even though it was a bit awkward. "The first one we had was like a junior high school dance," he said. "Weve had a couple since then. These are companies that compete aggressively with each other. They know the secret to our being successful is them being successful," Rosenthal said. "They understand that their polite cooperation is critical."
But Jacobs said that the bank needs more than a handshake. ABN AMRO drew up so-called operation-level agreements that set out ground rules for how the different contractors will work together. "Getting the vendors to work together on operation-level agreements was a big challenge," said Jacobs. But, he added, such a measure was necessary. "The suppliers work for us; if they dont get it done, we can change them."
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