View from Stanford: 'Offshoring works for us'

On a recent trip to Silicon Valley, silicon.com analysis and reports editor Sylvia Carr spoke to IT leaders at Stanford University about their greatest concerns - including outsourcing and management. Here is the first in a two-part series.(Read part two.)

Given its location in the heart of Silicon Valley and its role in producing big names in tech, from Google and Yahoo! to Sun and Cisco, it's no surprise Stanford University has tended to have progressive attitudes when it comes to the use of IT on its own campus.

Recently it has become a pioneer among US universities by embracing outsourcing. It has outsourced a wide range of work for its internal administration systems to Indian IT services company Infosys - including maintenance and support of Oracle and PeopleSoft applications and databases - in a deal worth about $5m this year.

Robert O'Leary, the executive director of administrative systems at Stanford, who has overseen the outsourcing deal with Infosys, talks to us about why he chose this route, how it's going and the offshoring phenomenon.

silicon.com: What was the situation like at Stanford before you decided to offshore?
O'Leary: When I came here [a year and a half ago], we had a situation where we had about 45 consultants from 23 separate firms. We said, 'Oh my god, this is unmanageable'. We were not strong process people. We were not strong technology people.

We had accountants and payroll people running our departments and they were managing technical consultants on a day-to-day basis. It was not a great recipe for success.

How has the Infosys deal affected your workforce?
They have displaced three-quarters of our domestic consulting staff.

What do you think of Infosys so far?
Their rates are much more attractive [than US-based consultants]. Their process discipline is much better. Their documentation is extraordinary. They've brought a lot of value and our people have learned from them.

Many people say offshoring is all about saving money. How much of a factor was cost in this deal?
The original idea was that we'd save a whole bunch of money. I don't think that's been true. I think you have to have scale to really cut costs.

I think we're cost-neutral right now, maybe slightly ahead. Our focus has been on quality and predictability more than cost. Those have been the drivers. What the team from Infosys has brought is reliable results and predictable outcomes.

How did you integrate Infosys into your organisation?
[Higher education] is very relationship-based so we decided we would err on the side of more onshore people, which costs more money. So we brought more people onshore, had them build relationships, trust, so then our customers could develop this sense of 'Oh, these people are credible'.

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What we were trying to do was seed the whole concept of Infosys. Then once they build trust with the onshore people, we can start to migrate some work offshore - we started small and then migrated more as we optimised the equation.

To push more work offshore, get more savings, build more trust in the community - that's the plan we're working on right now.

What's the situation like when you look for skilled workers in Silicon Valley?
It is generally very difficult to compete in Silicon Valley for highly qualified technical workers. Our brand name offers some help but our environment is not as attractive as something like Google. When we run an ad for a senior technical position, it's extraordinary the number of international candidates that apply.

How many?
More than half in some cases.

This all crept up on us without anyone noticing. All of a sudden we're here before we've realised it even happened. But it's true. The number of qualified international candidates in the computer science field is overwhelming. And the drop-off in domestic interest in this subject is phenomenal as well.

Why do you think there was a drop-off in interest in IT domestically?
I'm not sure why it happened. It was so hot 10, 15 years ago. I don't know what happened. What were the drivers in our society at large that drove this phenomenon?

There's a lot of debate over whether offshoring is the right strategy in the long run - for individual companies and for a country's economy. What's your opinion?
It's just a reality. I don't fully understand the global economic forces that drove it in this direction and I try not to get involved with the politics of it. All I know is that my job is to judiciously invest the institution's funds in this area and get the best return that I can. Obviously, doing things ethically. At this point in time I find this to be an attractive option because it works and it brings better value to Stanford than other options.

Do you think there will be a backlash to this trend?
Some people will react to it, based on short-term disruption, but you have to look at historical precedents. Once an industry begins its migration offshore, it usually moves rapidly and does not return. Did the US ever successfully take back an industry that we gave up as a society? When we gave up making shoes we readied ourselves to move up the economic scale.

Look at all of the manufacturing that has been sent to China. Do you think that any of these industries will come back in the foreseeable future? I can't imagine it outside of some major political falling out. My sense is that we have a higher quality of life today because we have been willing to evolve.

You mentioned the shoe industry - we do design now but not manufacturing.
Exactly. We've moved up the evolutionary pyramid and I think the US takes the lead on that - what is the next great thing? We invented this whole information age and I think that we're looking for the next big thing. And we have to free ourselves of the burden of the past to be able to move up that ladder.

So that's what's happening and it's uncomfortable while it's going on. But I think one thing that history says is that once you've moved to a point, you don't go back. It's too hard to go back and it would constrain growth.