The Gamble of Going Global

Case study: Globalization is accelerating- here's how several companies are hitting the gas pedal.

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.

/zimages/4/28571.gifClick here to read more about ITIL.

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.

/zimages/4/28571.gifRead more here about GMs outsourcing strategy.

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.

/zimages/4/28571.gifEDS made an offer for 52 percent of Mphasis, an applications and business process outsourcing services company, in Bangalore, India. Click here to read more.

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.