"While new investments in technology remain tightly controlled, outsourcing is booming. Vision talks to Mike Weston, managing director of LogicaCMG’s offshore operations, to find out why"

As more companies transfer back office functions – ranging from infrastructure and database management to human resources and finance – to locations such as India, one could be forgiven for thinking offshore outsourcing are the latest IT services buzzwords.

The combination of unlimited numbers of numerate, well-educated staff and salary differentials of the order of 60 to 80 per cent compared with the West, is now, more than ever, proving a compelling selling point for these developing countries. It also explains why the Indian outsourcing market has grown in value from an estimated £826 million in 2000, to £2.5 billion in 2002.

However, as Mike Weston, managing director of LogicaCMG’s Bangalore-based offshore operations points out, the origins of offshore outsourcing date back to the 1970s, when much of the work comprised low-level maintenance.

General Electric’s decision in the early 1990s to build a large offshore capability in India fuelled the development of the leading Indian outsourcing players. “In the mid-1990s, Year 2000 compliance accounted for most offshore work, coupled with a large amount of offshore labour onshore, particularly in the US,” Mike explains.

Since the dot.com boom, there has been less emphasis on offloading monotonous work. He explains, “There has been an emergence of applications management work, and as a result, a shift from bringing offshore labour to existing operational sites to true offshore outsourcing. The focus is less on the relative cost per person and much more towards reducing the overall programme costs and total cost of ownership. Consequently, there has been a huge increase in the volume of work placed offshore over the last two years, as well as greater variety in type of work,” he says.

Moreover, the last five years have seen a move not only to take more work offshore but also to ‘nearshore’ locations such as Prague, for Europe and Kuala Lumpur, for Asia. While these locations are not quite as low cost, they offer less time difference.

LogicaCMG’s own offshore history in southern India has tracked the growth of outsourcing in the region. “We started in India in 1995. Initially, ours was a domestic operation selling finance solutions locally and reselling and integrating a suite of third-party retail banking products through a 90-strong software development company in Bangalore,” Mike explains.

In 1998, LogicaCMG acquired assets, staff and a product suite as well as a foothold in Indian offshore services.

Today, LogicaCMG’s offshore arm focuses on offshore and onshore project development, application management and services. It is also a centre of excellence in the areas of finance and wireless networks and is complemented by nearshore centres of excellence for SAP in Kuala Lumpur and, for telecoms, in Prague.

LogicaCMG’s development centre in Bangalore provides applications development and support, project management and full solution development. Its work force has expanded from 90 people in 1998 to more than 500 this year. It is anticipated that the capability will double by the end of next year and be based in a state-of-the-art facility currently under construction.

The changing face of offshore  
As the concept of outsourcing matures, argues Mike, businesses are much more sophisticated in their purchasing of offshore and near-shore services.

“In the past, a couple of senior executives from Indian outsourcing companies would fly to Europe to talk about offshore, the focus being entirely on the cost savings they could yield for clients.

“Today, European clients demand an in-depth knowledge of their industry and their business, as well as risk management and project management skills.”

What is expected, says Mike, is a more complete outsourcing and consultancy capability featuring programme and risk-management skills, together with deep industry knowledge.

LogicaCMG brings these components together for customers, combining them with on-site services to provide clients with a truly ‘blended’ delivery model.

The recent contract between LogicaCMG and T-Mobile to run the mobile operator’s partner integration desk function, exemplifies outsourcing of the future.

Staff currently support T-Mobile’s partners to develop and integrate products into its portal, reviewing and approving service descriptions for new content, setting up the portal configuration to include content, providing development support and performing integration testing.

It is an ongoing service contract, where increasing value is just as important as lowering costs, Mike stresses. “We signed up to stringent service levels and aggressive turn-around and response times,” he says.

Offshore outsourcing is a permanent feature of the business landscape and Mike believes it will set the pace of market recovery. “The mistake people made during the last boom was that there was so much work that companies were hiring people, even if they had insufficient skills.

“Next time, businesses will expand slowly and cautiously, considering which part of their operations must be done closer to home and which elements can be moved off-shore – establishing the right balance will be key to achieving competitive advantage,” he concludes.