Outsourcing: Vivek Chopra of Computer Sciences Corp. (Part 3)

By guest author Tony Scott

Managing in a Virtualizing World

Tony: There has obviously been an increase in labor costs over the past few years in India and in other world sourcing locations. But labor costs seemed to have risen faster in India particularly, at least for the IT outsourcing side and also for business process areas where English skills are critical. How has that impacted CSC in India and in other locations?

Vivek: One thing is that margins have taken a little bit of a hit. I feel that the Indian services market had become a market where there was almost a feeling of entitlement. If your market is growing 60%–70% annually, literally anybody who has a pulse has a job. The result was that everyone out of college in India had a job. I think what the downturn has done over the past two or three years is bring that 60%–70% growth rate from the 1990s down to maybe 40%–50%, or 30%–40%.

You know, compared to any other industry 30%–40% is a large number. With what’s happened over the past two or three years, I think that number will become a little more sane. You will also find that growth rates that have maybe been in single digits over the past twelve to eighteen months will probably go back to 15%, 18%, 20%, or 25%.

Tony: So let’s say there is growth of 15%–20% all of a sudden, won’t that mean that if there is going to be a demand for labor? Can you supply that demand?

Vivek: I think that fundamentally the labor mix has to be such that you have a significant portion of people starting at your company who are coming in through colleges and institutes.

Tony: You mean directly in after school?

Vivek: Yes. Part of the value of this is that they come in, you control the cost, and you can control salaries at least for a two-year period. Of course, within the frame of what you deliver, there are tools and processes that can make you more productive, so there is productivity built in. Those productivity tools and proprietary processes should enable you to scale down in terms of people and still deliver what you have to for customers.

Beyond people, and what is perhaps more important, what we are trying to do well is that you have to look at application infrastructure on a combined basis. You’ve talked about value addition and what is the next stage of outsourcing. I believe – now this is based on seeing what we have – that customers tend to look at application infrastructure in terms of silos, but today a lot of infrastructure is driven by demand. Companies are not looking at monetizing or even monitoring and controlling what they have.

So if you look at infrastructure, you need to look at virtualizing it. A company should be asking whether it needs to spend on the desktop, to spend on servers, or to spend on storage. Suddenly, companies realize what the savings on their existing infrastructure could be. It could be the money for the additional investments they need or could fund applications. On the other hand, you have applications that suck up a lot of infrastructure, whether it’s the CPU, storage, or setup. We are finding that if you put it together and look at it as a combination rather than in silos, you can optimize your applications. This approach allows companies to look at what parts of their applications and the infrastructure required to run those applications are can be modernized, which parts they ones need to keep, and which are the ones they need to dump.

Tony: Do you find the general movement to cloud computing and SaaS accelerating the impact of what you just talked about?

Vivek: I think a little early to say whether cloud computing will become the reality which people are expecting. But fundamentally, if we can address the customer’s concerns around the issues of security and confidentiality – which is a big issue when we are dealing with cloud – then we can deliver. We always recommend that our clients take on a pilot project to deliver some very key applications to start with before jumping in fully into the cloud. I think you need to look at cloud virtualization and SaaS together. SaaS is more a way of de-capitalizing your spend and saying to an outside vendor: “OK, you do the service, you control the service level agreements (SLAs), you control what you want to deliver for me eventually but give it to me with SLAs.” What customers are saying is that they are looking for commitments from vendors to deliver with the same level of service they would have received had it been provided on a sole-source basis.

This segment is part 3 in the series : Outsourcing: Vivek Chopra of Computer Sciences Corp.
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