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Outsourcing, especially offshoring, has become quite an emotional issue. There is little doubt IT moves in cycles. The mass move to outsourcing of a few years ago has been reversed by some companies bringing IT back in-house but what is also happening are fundamental changes in the outsourcing model. John Costello looks at the issues and what is being done to ensure Australia remains competitive.

In a now famous outburst of several years ago, the CEO of one of Australia's major banks queried whether his organisation was getting value for money in its spending on IT.

The bank had signed a huge outsourcing contract with a major specialist in the field. Now, several years into the contract the bank was very publicly querying the move.

It almost started the turning point for the outsourcing cycle to start swinging back the other way. Very large organisations began publicly moving IT back in-house.

Typical was Suncorp Metway. The major Brisbane-based financial services giant had taken over the GIO general insurance business from AMP. As part of the deal Suncorp Metway announced it was bringing the IT operations of GIO back in-house.

More recently, Coca-Cola Amatil (C-CA) also announced it was moving its IT operations back in-house. The move is expected to save the soft-drinks company money as well as giving it more control over its IT operations.

The move will see C-CA divert its entire AU$40 million annual IT budget away from the outsources.

On the other side of the ledger, Qantas recently announced it was outsourcing its global reservations system. Reason? No single airline is able to afford the huge cost of continually developing vast and complex reservation and departure control systems on its own.

Indeed, while the moves by Coca-Cola Amatil and Suncorp Metway grab headlines for reversing a trend, IDC is sure outsourcing will continue to expand. The research company says growth in outsourcing continues to drive the services market.

Phillip Allen, a senior analyst with IDC's services group, estimates outsourcing will represent about half the total Australian market for IT services for this year. IDC sees that market valued at AU$11.3 billion this year but growing at almost 7 per cent annually. This will see the Australian market grow to reach AU$14.6 billion in 2008.

There is little doubt the major outsourcing companies are nervous about their work. All were reluctant to appear for this article. One said the issue of moving jobs offshore through outsourcing had become a "political football in an election year".

But while the debate on whether moving outsourced IT jobs overseas hurts Australia, there is an argument it also provides opportunities.

Dr Phillip Lehman is vice president for sales and marketing at iCarnegie Inc. He says Australia has the educational infrastructure to compete on value rather than cost. "The best way to compete is with smart and skilled people," he says.

"Australia can win business from overseas by building the skills to attract high value work globally while its own low-value, high-routine IT jobs may go offshore. If Australia can maintain its educational advantage, it will continue to win in the long run."

'Offshoring' is the term used to describe the increasingly common practice of large organisations reducing their technology costs by sending software programming projects to low-wage economies such as India. Just-released research commissioned by the Australian Computer Society reports that as many as 11,000 IT jobs may head overseas during the next five years as the offshoring trend gathers steam. With a predicted inflow of 7000 jobs created by overseas IT work performed in Australia, the report suggests the net job loss could be 4000 by 2009.

Pittsburgh-based Dr Lehman was in Australia to meet with executives from iCarnegie's educational partner, Adelaide Institute of TAFE. Since 2001, Adelaide Institute of TAFE has delivered the internationally accredited IT curriculum from iCarnegie, an educational affiliate of Carnegie Mellon University. Students complete the program in less than two years, qualifying them for a variety of career options in computer programming, software applications development, software engineering and IT management.

Dr Lehman says Australia's challenge was to maintain and further extend its edge by providing the best education for a global technology market. He said the 'blended' model espoused by iCarnegie - and exemplified by its relationship with the Adelaide Institute of TAFE - provided the best possible education by leveraging skills, experience and expertise from both parties. This creates an ideal partnership that benefits students, their employers and the Australian economy by maintaining this country's competitive edge.

"Attempting to legislate against IT projects going overseas is probably pointless," Dr Lehman says. "A more practical option is to equip Australian students with globally relevant high-value skills that put them at the forefront in the market for IT resources."

Rolf Jester at Gartner Group says there will always be an ebb and flow of companies moving to outsource or bring IT back in-house. "But we see fundamental changes in the outsource model," the senior analyst says.

Jester moves to quickly dispel the move that outsourcing offshore means a loss of jobs in Australia. "We estimate that only about US$50 billion out of a total outsource expenditure of US$728 billion will be spent offshore by Australian companies by 2007," he says.

He says in analysing outsourcing there are two major factors that will influence an organisation's approach to IT and thus its move to outsource all or part of its IT business.

The first is a move to a real-time enterprise strategy where the organisation uses its information flows to adapt quickly to the constantly changing business environment.

The second major factor is the types of services an enterprise will outsource from now until 2013 - particularly whether they outsource whole business processes or just the underlying IT functions.

Jester says these two factors will, in turn, determine one of four future scenarios for your IT department.

He says the scenarios are intertia - where existing IT investments serve to slow down the ability of the business to change quickly enough.

Next are what Jester calls 'process islands' where individual departments within an organisation look after their own business process needs thus diminishing the relevance of the CIO and corporate IT staff.

The third scenario is one of the IT-centric real-time enterprise - in which business has become agile through a strong focus on IT.

Finally, there is the scenario of the virtual enterprise. These organisations are real-time by nature, stick to core business and buy external services for all non-core activities.

Before you decide which scenario best suits your organisation, Jester says one of these scenarios is likely to be dominant for all organisations over the next 10 years.

However, he says one scenario is not necessarily more desirable than another for an organisation. "The concept of 'process islands' might be perfectly acceptable in some enterprises," he says. "However, the world will move towards either a virtual enterprise or an IT-centric real-time enterprise in 2013," he says.

"Ultimately, buyers will influence the shape of the outsourcing sector over the next 10 years," Jester says. "They can only accept or reject what the suppliers are prepared to offer."

He predicts a substantial push towards business process outsourcing (BPO) but cautions that while every enterprise, "should consider it, that does not mean they should do it".

UCMS is one outsourcing specialist embracing the concept of BPO. Founded in 1995, UCMS began basically as a call centre operation. From there it has spread into back office business process management and consulting.

"We set ourselves apart from the traditional outsource companies like EDS and Fujitsu," says John Paddick , CEO of UCMS.

"We look at an end-to-end approach to BPO in which we work with the client to re-engineer the fundamentals of the business," Paddick says.

UCMS specialises in working with major organisations in the financial and government sector and utility suppliers.

Typical of the recent outsourcing project it signed was with Alinta Network Services (ANS) for energy-related products and infrastructure solutions.

Alinta is part owner of around AU$4 billion in regulated energy assets across Australia. ANS has long-term service agreements to operate, maintain and manage the network assets of United Energy Distribution (UED), Multinet and AlintaGas Networks.

ANS is an energy distributor to over 1.2 million connections of electricity and natural gas in Victoria.

UCMS is now providing ANS with contact management and business processing operations including 24x7 customer fault assistance, service desk for retailers and meter data and network billing services.

"These are critical functions for ANS," said Peter Magarry, general manager of ANS. "The deal gives us a flexible back office operation capable of scaling to meet ANS' future needs for customer contact and transaction processing.

"It was important for ANS to find a new outsource provider with the experience and capacity to handle the complex processes associated with transforming business critical services," Magarry says. "UCMS expertise in similar projects supported their efforts in achieving a successful transition, assisting ANS and its retailers to acclimatise with changes in the business environment that have occurred during this changeover period.

"As market forces yield a more competitive environment, it is critical that organisations maintain positive relationships with their clients and focus on back office process efficiency. By outsourcing to UCMS, ANS will be better able to support its growth needs, improve efficiency in its cost base and raise consistency and quality of its service and overall responsiveness," says Paddick.

Outsourcing answers prayers for some While the IT industry is used to the concept of outsourcing, the move is being picked up by more organisations in a variety of fields. In the US, Roman Catholic clergy is in short supply. Priests constantly face requests to celebrate mass for their parishioners for special occasions such as christenings, weddings or anniversaries. They normally expect the parishioner to make a donation for the celebration of the mass. And they are moving the work offshore - mostly, you guessed it, to India. The move is being picked up by some European countries which are also short of priests. Traditionally, requests for such masses were handled personally, but what's the use of technology if you don't use it? An increasing number of requests are coming via email. The New York Times reports that in the Indian town Kerala, Roman Catholic churches handle memorial and thanksgiving prayers for local residents for a donation of around 40 rupees (90 US cents). A prayer request from the US typically comes with US$5, the Indian priests say. The local bishop in Kerala is reported as saying his diocese receives an average of 350 mass intentions a month from overseas. Most were passed to needy priests. In Kerala, where priests survive on US$45 a month, the money is a welcome supplement. It brings a whole new meaning to the word catholic - which originally meant universal.

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