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Inside HP's new US$1 billion outsourcing plan

Stephanie Overby | Nov. 11, 2010
CIO.com spoke to Rasmussen and Jeff Womack, VP, Best Shore enablement, about HP's increased focus on cost cutting and offshore delivery, its pursuit of domestic business in emerging markets, and the criticism that HP doesn't adequately value the IT services business.

Rasmussen: One thing that's different about HP versus the competition, particularly the pure-play Indian firms, is that we've been very strategic in building a balanced delivery model. We've got thousands of employees in Eastern Europe, thousands of employees in Latin America, thousands of employees throughout Asia. We have that balance for lots of reasons, not just for geopolitical risk or education and skills. If you take a country like China, close to 50 percent of [outsourcing] business in China is serving China-based companies in China, and the other half is serving other Asian customers. As we look at building out our global delivery model, there's clearly a chance to provide lower cost service to customers in higher cost economies but we also want to be prepared to deliver services to these higher growth markets.

Many outsourcers are saving money by rebalancing their workforce to low cost countries. What will be the cost savings due to rebalancing your workforce with labor from low-cost countries?

Rasmussen: In every deal we structure, there's always an element of value proposition required to win the deal-multi-year cost reduction, transition at limited cost. Each deal has to provide some increased value or lower cost to the client for us to be able to continue to win. We are advantaged by the assets we have in software, hardware, and our HP Labs organization. We've spent a bit of time to embed that software and automation into our global delivery centers so our costs are as low as possible.

Womack: It's not just lower labor costs themselves. We want to take labor [out of the cost equation] as much as possible.

HP is reducing its R&D spending. What impact will that have on your services business?

Rasmussen: There's a little bit of work we do with R&D. Several hundred of our technicians work with HP Labs, which is often located near the "best shore" center. [This happens when] a client has an idea that they work with labs on to bring some innovation to their business and we team with them on the delivery. It's applied R&D [paid for by the client].

Does the global delivery model lock customers in to some extent? Once client workload is dispersed to multiple global delivery locations, it becomes very difficult to back out of that kind of arrangement.

Rasmussen: When we acquired EDS, both EDS and HP had a global methodology for how we manage our business from an onshore and offshore perspective. In IT, there was the ITIL framework. In application development or testing or management, we use our [propritery management processes]. So if we get to a situation where a client wants to do more maintenance work in the Philippines versus India, it's not very difficult to migrate [that work].The difference might be that you have developed relationships with people in India over time. But we have not found that clients are concerned about being locked in to a certain area.

 

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