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Offshore outsourcing or domestic process fixes?

Crater Moon Landings- Offshore Outsourcing comments on Market Research Firm Touts Outsourcing’s Cost-Savings.

Question: how much more cost-effective would it be to just fix your processes first?

I’m not going to argue on how 10 people in US are capable of delivering the work of 70 people in India. Last time I checked, programming skills were not proportional to race, nationality, religion or gender.

However, I think the perception of Offshore Outsourcing being a magic wand to fix domestic processes is very inaccurate. In my experience, fixing the domestic processes are easier said than done. Organizations are not getting enough returns on what they spend on IT. IT project management and process management has to be extremely agile, to survive in today’s world. Unfortunately, most domestic processes are completely devoid of candor and hence subject to unnecessary political inertia.

Outsourcing

There are two key factors when considering Offshore Outsourcing. The first one, is outsourcing. If your core business is not IT, there are few reasons not to outsource it. Just like many businesses using FedEx or UPS for courier needs, it makes perfect sense to have vendors taking care of your IT needs.

Succes of an internal IT department depend heavily upon how internal IT projects are funded. Many IT departments do not bill their clients --the other departments. This results in lack of full participation from their clients. From the client’s perspective, they don’t have a choice but to use internal IT department. If IT doesn’t deliver what they want, they have little course of action. They can seldom fire the IT department.

Compare this with having an outsourcer. If the services are not upto your expectations, you can always shop for another vendor. Business application market space is getting consolidated between SAP, Oracle Apps, Baan etc. This has resulted in many different service providers with expertise in such application systems. As long as your internal IT management is empowered to limit customizations, you can freely --well, not as freely as switching a courier-- switch from vendor to vendor, to shop for a better deal.

Unlike the vendor, internal IT project teams may have little incentive in competing for internal projects. They get paid anyway, right? Every organization need to look at the efficiency of their internal IT department.

That said, some IT projects may be of sensitive nature for the continuity of business. Such projects are usually difficult to outsource.

Offshoring

The second part is that of offshoring projects. Some companies choose to hire offshore outsourcers. Some companies choose to have their own offshore subsidiaries. In either case, the reason is simple. Cost.

Managers like to have some safety net. If they can get 50 resources for the cost of 5, and if the internet reduces communication delays, they are definitely going to go for it. Is it because they think 50 people can bring more quality than 5 people? Probably so. Though, I think they are more interested in the fact that there are 50 people available --that gives a high safety net when attrition happens.

Another plus point is the time difference. Properly planned and coordinated, this can mean 24 hour work days. However, such planning is not easy. Till the business masters the need to plan ahead, this can result in 48 hours of waiting instead. Personally, I think this is not a bad mark on the outsourcer, but on the business. If your IT managers can’t plan for even 24 hours, they shouldn't be managing your IT anyway

Another potential hurdle might be that of communication. Cultural differences can play a huge part in ineffective communications. Accent, assumptions and unfamiliar idioms can cause issues. Usually, this results in a situation where everything is written down and goes through several reviews. That typically means a heavy-weight software engineering process. That may not be such a bad thing when you want to switch vendors. Done properly, heavy-weight process can result in adequate documentation to smoothen the knowledge transfer.

I think we will see consolidation towards best of both worlds scenario.

1. Outsourcing to local vendors to ameliorate coordination and communication issues.
2. Local vendors offshoring their requirements to deliver goods on time and on cost.
3. Local vendors working closely with clients of former IT departments --I do think internal IT departments either need to change or face extinction; they simply can’t keep living on a high cost:benefit ratio-- for helping them make sense out of information. Local vendors, business analysis and intelligence is going to be a profitable business for the next 5 years.
4. Offshore and local vendors survive depending on the quality of service and time to respond.
5. Clients finally realize the value and the necessity to measure their returns on services - whether it is from a vendor or from an internal department.

Related: Earlier notes on outsourcing.

1. My girlfriend is working on writing a persuasive essay on why outsourcing is not a good thing for the US. She needs at least 5 may points with facts. I was just wondering if you would be able to help with that in any way. If you could lend some info it'd be greatful. You can e-mail me at tyler_raymo@hotmail.com

   Thanks-

   Posted by: Tyler Raymo on October 16, 2004 11:37 AM