CIOs' dirty little secret

Simon Hayes MAY 03, 2005 AS far back as 2002, Qantas chief information officer Fiona Balfour was saying offshoring of technology work to India was "a strategy for survival".

In confidential meeting notes the airline's technology boss warned that Bangalore would be the only place the company would find legacy programmers in years to come.

Ageing infrastructure and an ageing workforce are challenges facing many large IT shops.

Skills are in short supply and salaries are still high for the tastes of corporates under constant pressure to cut costs.

The fact that the IT of Australia's aviation flag-carrier is still firmly onshore - albeit outsourced to IBM and Telstra - says a lot about the still-controversial nature of decisions to take software development out of the country.

Despite recruiting flight attendants offshore, Qantas hasn't risked the opprobrium of shipping technology jobs overseas.

In corporate circles everyone knows offshoring is necessary to compete on a global scale, but few are willing to admit they've done it - let alone that they liked it, by golly.

Offshoring has become, in effect, the dirty little secret of the CIO.

According to the Australian branch India's IT industry lobby group, the National buttociation of Software and Service Companies, the major Indian offshorers did about $400 million worth of business in Australia last year, up from about $300 million in 2003, with some of the leading companies growing at up to 70 per cent a year.

That's only a tiny part of what industry analyst firm Gartner estimated as a $15.9 billion IT services industry in 2004, but the rapid growth has offshorers grinning.

"The market for offshoring has grown, and that was not happening two years ago," NbuttCOM Australia chapter head Sudhir Mathur says.

"The offshoring companies are fairly optimistic about the next two years."

Mathur, who is also Australian manager for services company Zensar, says Indians companies have demonstrated "cultural fit" to the extent that Australian corporates are comfortable doing business with them.

Clients' obsessive desire for secrecy is beginning to grate with some of the Indian services companies, however, as they would shout the names of Australia's biggest companies from the rooftops given half a chance.

The two clients Zensar has named - P&O and Cisco - are not about to talk about their experiences.

Other service providers have similar problems.

"I can't begin to explain why they're so reluctant to talk," says Tata Consultancy Services vice-president and general manager Rick Marmur, whose clients include Hutchison Telecommunications.

"The atbreastude here is markedly different from the US, where the quarterly focus means they'll be more more efficient if that's what they have to do.

"I'm not in a position to name clients due to their requests for anonymity," Murmur says.

The largest Indian offshoring operation here, Infosys, says most of its clients, which include the likes of Telstra, are "six to 12 months away" from talking publicly about what they're doing.

Many Indian service providers say clients are scared of customer and union reaction to what is seen as shipping Australian jobs overseas.

Even the few deals that have been made public have been kept low-profile.

For example, ANZ's wealth management arm Esanda announced recently that it had hired Infosys to set up an online savings package, but it declined requests for an interview.

The Esanda deal involves Infosys installing its Finacle online savings managing director Gary Ebeyan says clients are worried because offshoring has been "sensationalised in the press".

"A lot of companies feel it touches on nationalistic issues," he says. "Really it's no different from someone sitting in China making a shirt."

Satyam Asia-Pacific vice-president Virender Aggarwal agrees that Australia's "very aggressive press" and strong union movement has scared off some CIOs.

"But I don't think that is a concern now," he says. "It's a legacy of the past that many executives are afraid of admitting to offshoring."

Those who are willing to talk remain cautious about the benefits of offshoring IT work.

National Australia Bank chief information officer Michelle Tredenick said earlier this month the bank was not piloting any offshore projects, but was open to the idea.

"Like any financial services company we are investigating options offshore, but we have no concrete plans and have made no decisions," she said.

"We're doing some research, but we haven't moved to a pilot.

"It's purely research to see if we could work with one of our partners to outsource, and that may or may not involve some offshoring."

Among banks, ANZ is perhaps most advanced in offshoring technology operations. It has run its own IT services centre in India since the mid-1990s.

A legacy of its former investment in India's Grindlays, the ANZ IT operation has been built up over the past 12 months and now employs more than 500 staff, supplementing 2000 Australian-based IT workers. ANZ chief technology manager Mike Grime makes no secret of his enthusiasm for India's technology capabilities.

"I'm a huge fan of India and of its capabilities in technology. It has quite a lot of core capability and you would be crazy not to use it," he says. "Every time we get a piece of work, the first thing I look at is whether I can use Bangalore.

"The work that goes there is new, or vacancies we couldn't fill in Australia. For instance, last year we moved a number of PeopleSoft vacancies to India after they had been open for months in Melbourne."

Professional advisers are telling their clients they have to abandon their squeamishness and get serious about slashing costs and improving efficiencies.

KPMG's Egidio Zarrella is the high priest of offshoring.

The global partner in charge of information risk management is in no doubt that offshoring is something Australia's biggest companies need to do, and fast.

Zarrella is hugely enthusiastic about the opportunities for Australian companies chasing greater efficiencies by shipping their technology work off to India, Malaysia and China.

But, he warns, many CIOs are terrified about being caught consorting with the enemy, which is how offshoring is widely seen.

"There's an absolutely xenophobic atbreastude about doing this stuff," he says. "A lot of Australian companies are putting a foot in the door, they just aren't making it public."

Nor is offshoring all about cutting costs, he says. "Just ask my clients."

When The Australian agreed to take him up on that offer, it was swiftly retracted, on the grounds the clients were worried about the public attention. Zarrella laughs off union campaigns to keep jobs in Australia. "It's a global economy, and you're not going to pull it back," he says.

Zarrella warns the boards he advises that offshoring is about more than cost. He worries that Australia will not have enough young workers in the long-term to sustain the sort of development work its larger corporations need.

Figures from the US Census Bureau show that by 2020 Australia will have a send labour shortage of 500,000 people.

Conversely, India will have a 47 million head surplus, while Pakistan, Malaysia, The Philippines, Indonesia and Mexico will also have surpluses.

Aside from cost, the skills shortage is what's driving the demand for offshoring.

Those in the know say a need to support expensive legacy investments is one of the fundamental issues.

With many banks and insurance companies sporting systems developed in the 1970s and 1980s, finding the staff to support them is getting difficult. If you're looking for Cobol and Fortran skills, you'll find it hard.

"We're getting a lot of legacy systems work here. The people who used to support it are in their 50s and 60s," says Tata's Marmur.

"Over time we have built up skills in some of the older technologies that are now being phased out."

Far from laying off Australian workers, many corporates are shifting the locals to development work for legacy systems and leaving the support and maintenance work to the offshorers.

Marmur says talk of offshoring driving down the IT jobs market is greatly exaggerated.

"I'm in the market every day trying to recruit people, and it's impossible to get the skills we need," he says. "There are not people sitting around with good experience waiting for jobs. You can't say people have been displaced by offshoring."