One of those dirty little secrets about outsourcing has finally been challenged. The slash ‘n’ burn strategy.

Although everyone in the industry hates to admit it, the reason most executives have historically considered outsourcing is to reduce or control cost. That’s pretty much it. Yes, every IT supplier has a suite of research to indicate how the outsourcing model gives access to a global resource pool of better educated people with up to date skills and the immediacy of being able to scale up and down the resource requirement as needed. But regardless of all these strategic reasons for using outsourcing as a business model, most executives would still summarise it as a cost reduction exercise.

However, the latest research from recruitment firm Harvey Nash indicates that the theory and potential for outsourcing may finally have caught up with the reality. Three-quarters of the 650 UK-based CIOs surveyed by Harvey Nash indicate that flexibility and responsiveness are the key benefits they are looking for when outsourcing. This is a strong demonstration of outsourcing kicking away from the cut-cost approach to an access-to-experts strategy.

In fact, half of the surveyed CIOs indicated that more than ten per cent of their entire budget would be spent on IT outsourcing, so it’s becoming a serious chunk of the entire IT industry. It cannot be denied that a lot of companies explore outsourcing when they need to reduce cost, but to see a survey like this with quite a large sample of CIOs who – in the majority – are focused on flexibility rather than cost demonstrates that outsourcing is really maturing as a strategy.

I attended the 2007 Innovation Forum hosted by Indian tech giant, Tata Consultancy Services today. It was a forum focused on the connection between IT, outsourcing, and innovation – particularly how an IT services group such as TCS can be involved in helping their clients engage with more innovative technologies, rather than just low-cost outsourcing.

TCS has started a collaboration with the London School of Economics to explore how outsourcing can stimulate innovation and professor Jonathan Liebenau from the LSE talked to the forum about some new research he has performed on creating innovation ‘habitats’.

I found the presentation by a fairly small company called Cassatt really interesting though. Cassatt has a really exciting system that can control power use in data centres. They are partnering up with TCS to give them the scale to reach out across the world, and TCS clearly gets access to the innovative nature of the Cassatt solution so it looks like a good partnership.

Steve Oberlin, Chief Scientist at Cassatt, described some stats that set the scene for those who still doubt that efforts to explore data centre efficiency are worthwhile. He said that about $7.2bn was spent on running data centres in 2005 and the power requirements are going up by about 8-20% per year. A really interesting fact though is that the present 3-year cost of powering a server is now more than the cost of a server itself. That kind of fact does emphasise how important this can be – not just for creating a green ‘image’ for the company, but for the possibility to explore the creation of extensive new efficiencies.

Essentially, idle servers use a lot of power. We pay to heat them up and we pay to cool them down again, so active power management through the use of a service such as Cassatt makes a lot of sense. By outsourcing the power management of a data centre to a company such as theirs you can introduce business rules that ensure servers are switched off when not needed for any business activity, switched off when idle, switched off when power emergencies occur, and all the requirements for applications to be closed down gracefully can all be handled – of course servers can’t just be shut down like the lights in an office!

Services like that offered by Cassatt are clearly making the issue of how to explore green infrastructure a lot easier to manage and the great thing is that by actively taking some time to look at the efficiency of your infrastructure footprint, you will probably end up saving money and making what you have in the data centre perform better.

Thomas Friedman writes a regular column in the New York Times (NYT) and is well known throughout the outsourcing community for his book The World is Flat – an exploration of globalisation that takes in offshoring, outsourcing, and a new wave of services along the way.

His NYT column yesterday addressed the questions of the green agenda and how so much IT work is going to be needed to change IT systems so they are all carbon neutral, it should be obvious that a load of offshoring is going to take place. He suggests that India is the natural best destination for that offshoring to take place – for the combination of brains and value.

I agree entirely with his sentiments. It’s a fact that customers are going to soon be demanding carbon neutral IT suppliers. Any IT company today that is blundering along not thinking about this is going to be dead in the water when their biggest client calls them up one day and says we can only continue working with carbon neutral suppliers. This is even more important for IT companies with clients that are in energy hungry sectors, such as airlines, utility companies, or transport.

What I’m a bit doubtful of is holding up companies such as Infosys and Satyam as exemplars of this new breed of green company. I have nothing against either of them and I’ve done lots of things with both of these companies before, but it seems a bit forward to suggest that putting up a few solar panels is expressing leadership towards carbon neutrality.

IBM seems to only get a fleeting mention in the NYT article, yet IBM has very publicly announced its ‘Project Big Green’ which aims to turn the company inside out – not only going carbon neutral itself, but explicitly learning the best way of being able to advise others because the company has done it itself. The only Indian player I can think of that is actually carbon neutral is ITC Infotech. It is a mid-size organisation, owned by the massive ITC Group. It is already carbon neutral, so how come the company doesn’t get a mention?

Friedman is right, but we shouldn’t forget that the green agenda can be tapped for media coverage and the ‘feel good factor’. It’s not good enough to say that your company is green - it needs to be proven.

On Wednesday evening I was out at the Computing Awards for Excellence ceremony. It was a great evening, with Sanjeev Bhaskar cracking jokes about the local tandoori in Battersea and nearly 1,200 people from the IT industry all gathered together for dinner and drinks.

I had a chat to the competitiveness minister, Stephen Timms MP, when I saw him sitting nearby. The minister was there to collect a special award granted by the editor of Computing, Bryan Glick, for his outstanding contribution to the UK IT industry.

Timms is in the right job. With a background before politics of working for companies such as Logica and Ovum, he is well suited to his present role and over the years he has held the IT or ecommerce portfolio – but in politics people change jobs all the time depending on what the party leader requires. It’s good to see him coming back to IT now. I reminded him about an interview we had done together in Mumbai back in 2004. That interview was at the Nasscom conference, the big event every February where the entire Indian technology industry all gets together to plan the year ahead.

Timms told me that he had really enjoyed seeing India that time and that he would love to return, especially now he has a focus on the IT industry again, so if the Nasscom conference planners are reading this you know who to invite for 2008.

And on this Indian theme today, happy Diwali to readers over there – enjoy the fireworks!

The early bird catches the worm – so the old saying goes. So here we are with two months of the year left to run and already the advisory firm Equaterra (now incorporating Morgan Chambers since the acquisition in September) has started sending out its predictions for outsourcing in 2008. It’s the first of the 2008 lists I have seen, but I am expecting them to flood in over the coming weeks.

Anyway, the full list of predictions from Equaterra of the important trends for 2008 is:

•    Outsourcing is recession-proof.  IT outsourcing Demand in North America will improve in 2008.
•    Europe will experience more growth than the US, perhaps because it is at an earlier stage of the outsourcing evolutionary cycle.
•    Public sector demand will continue to grow as baby boomers retire and the sector struggles with attracting talent.  Shared services and internal transformation in this sector will get stronger.
•    Recent turmoil in credit markets will slow outsourcing in the financial services sector in the short term but drive more IT outsourcing in the longer term.  Financial services firms will also continue to pursue offshore captives but often within the region rather than in India or China for various regulatory and risk reasons.
•    Global multi-shore and multi-provider outsourcing will become more the norm than the exception. This could mean several providers in several regions around the world.
•    Indian service providers will set up more local delivery services centres in US and Europe as the Indian market gets impacted by wage inflation; talent attrition; stronger rupee and infrastructure strain.
•    Canada‘s appeal as a near-shore destination will lessen due to currency appreciation.
•    A confluence of factors will lead to the expansion of service-delivery capabilities beyond India to regions like Central/South America, Central/Eastern Europe and China.
•    Governance of outsourcing deals will become paramount as buyers seek to maximise value and minimise value leakage.

This is a good and broad list of trends, and I believe that they are all important, but it is interesting to observe a few that seem to be missing in action. Almost every IT supplier I talk to at present is also talking about:

•    Innovation; how suppliers can work in partnership to drive innovation to their clients
•    Green Agenda; how the IT industry has to start taking notice of the corporate carbon footprint and how suppliers are going to have to start dancing to the tune of green service buyers pretty soon
•    Web 2.0; how the tools that every teenager is already using are transferring into corporate life and the IT suppliers are at the vanguard of trying to sell this expertise

By the end of the year I’ll think of a comprehensive list of my own trend observations to write up for this blog.

Last month I mentioned in this blog that I had a new book about to come out - Building a Future with BRICs: The Next Decade for Offshoring. Well, I’m happy to say that it is out in the shops now and also that there is a launch party planned in London for later this month. I’d love it if some readers of this Computing blog could come along to say hello.

It’s going to be at 6pm on November 30th at the Nehru centre in Mayfair. I’ll be talking about the book and there will be a couple of other speakers there, including the chief executive of Indian technology firm NIIT. We won’t drone on for too long though – no more than an hour of chat and discussion about the book before we open the bar and enjoy some drinks and networking.

If you are interested in finding out more and registering for the event then go to this web site. I hope to see you there!

Organisational psychology is a subject I find fascinating, ever since I found that the best grades I received in my MBA were for the organisational behaviour module. If sociology is the study of groups of people or society in general and psychology is focused more on the individual, organisational psychology bridges the gap between the disciplines – focusing on the way individuals behave within organisations.

This is an important subject in our present environment. We all know that things are moving faster these days. Everyone is under more pressure at work, and there are those who claim that outsourcing is having a direct impact on the health and wellbeing of some employees.

No, I don’t mean the wellbeing of those workers in the UK who fret over the possibility of their job being transferred to a far-flung location. I mean the fact that outsourcing encourages an explicit measurement of service delivery and so the workers delivering the service are suddenly under more pressure than ever – every moment at work can be measured.

This is not news to those in the contact centre industry. I can remember a campaign lead by Channel 4 News about 10 years ago, where they referred to call centres in the UK as ‘dark satanic mills'. There were tales of toilet breaks not being allowed, long hours, constant performance checks. This was back in the 1990s well before the present boom in offshore contact centres had begun.

So I found it interesting when I had a chat recently with Payal Shah from the Irish organisational psychology experts Inicio. Inicio has recently started focusing more attention on India and it is using the experience of working in outsourced service centres in Ireland in the high-pressure Indian environment.

Anyone with any experience of human resources in India might be doubtful of what an organisational psychologist can do to make an outsourced team more effective – or less stressed. A typical view is that this is all just woolly fluff geared to making the organisation look like a better place to work, without really improving anything at all.

I asked Payal all these questions and I was impressed by the approach Inicio has taken, which is to take the expertise of a similar industrial environment in Ireland and to apply that to India, where directors of the firm have personal experience. The firm does focus on the individual, but its main concern appears to be in reducing sources of stress or conflict in the working environment. Personal stress from issues such as relationship troubles or addictions may actually be beyond the control of the company, though many employers are starting to help in these areas too.

Inicio’s help with planning how to look after human resources by eliminating stress created by the working environment is certainly needed and Payal explained to me how the firm genuinely feels it can quantify what it brings to an outsourcing firm. In short, whatever the services cost will be more than saved through the improvement to the workplace, and given that the biggest problem in the sector is securing the right people and then hanging on to them, I think she might just be right.