Lower Costs, Faster implementation

In general, offshore outsourcing refers to the outsourcing of information technology functions to services providers in foreign countries. These services may include not only application development, but application maintenance, help desk support, data center operations, IT infrastructure, security services, Web site hosting and network and communication services. In addition to IT services, outsourcing basic business functions such as call centers, mail centers and order processing have also become more prevalent in offshore services.

Offshore outsourcing is more than just a fad or a method of obtaining a onetime cost advantage. The use of offshore companies to support IT work is a trend that is expected to continue. According to industry research by Gartner, less than 5 percent of IT jobs in the United States and other developed countries are currently sent offshore. It is expected that during the next 10 years, the number will rise to 30 percent.

Internal software / product team Assessment

Consideration of an offshore option should begin with an honest assessment of the internal IT organization by reviewing its role in the context of the business operation.

  • Is IT predominantly viewed as a cost center to be effectively managed to reduce IT expenditures, or is there a strategic role of IT in fulfilling the mission of the business?
  • How mature is the IT organization relative to defining and following business processes for IT work?
  • What are the capabilities of the IT organization in meeting the demands of the business from internal resources?
  • What IT components could be candidates for offshore outsourcing?

The answers to these questions are not as important as the understanding that comes from their consideration. For example, organizations that lack IT process maturity can successfully leverage the maturity of an offshore organization by adopting the processes and controls of the offshore organization. Recognizing that improvements are needed and then adopting an established mature process is a significant benefit that can come from outsourced services. Proper alignment of IT business needs with offshore capabilities should be the goal.

Business needs and objectives

Once the business needs and objectives to be reached in offshoring are fully understood, the scope of work should be defined. Offshore services may be limited to a single IT project or work initiative or may extend to a comprehensive outsourcing of most IT services. Many offshore providers offer an extensive range of services, from project work to full support of enterprise systems. The scope of work will impact the choice of offshore services provider and dictate the extent of the relationship that will need to be developed and managed. As the scope and complexity of projects and work assignments increase, it becomes increasingly important to manage the relationships as well as the technology projects. The success of an offshore outsourcing engagement depends largely on the ability to successfully manage the engagement.

Although doing more with less is a laudable objective, the ability to realize savings while improving the level of service to the organization by leveraging offshore outsourcing may be elusive. Crossing country borders and boundaries can significantly increase risks by adding additional uncertainty to an already complex problem of either in-house services or domestic outsourced services. It is important that the additional risks are understood and proactively mitigated to improve the probability of successful offshore services.

Risk Mitigation

One important factor to consider in mitigating offshore risk is the maturity and stability of the offshore services provider. Many offshore firms have made significant investments in improving processes maturity and quality through commitments to achieving the highest levels of ISO and CMMI certification. Due diligence is critical in making the vendor selection to assure that the organization is committed to providing quality services and that it has the capability to deliver on the commitments. Careful investigation of potential outsourcing partners can reveal the level of commitment to quality and delivery of services and assure that it is more than sales hype.

Other risk considerations for offshore delivery include geopolitical factors. Changing political landscapes can have an impact on the ability to satisfactorily deliver IT services on an ongoing basis. This is particularly significant in areas of the world where political stability could be an issue, such as China and Eastern European countries. An economic sanction by the US government could have deleterious impacts on a long term relationship.

Cultural differences

Cultural differences may also impact the success of IT services delivery by offshore providers. This is evidenced by differences in communications, work ethics and approaches to problem solving and resolutions. Carefully defining expectations for services along with establishing communication plans and objective metrics based reporting can mitigate cultural risks.

Business value

Business values and ethics often vary in different parts of the world, and assuming that offshore companies follow values that are acceptable in U.S. markets may result in strained relationships. For example, in initiating a project, domestic culture tends to overstate the amount of work effort required to assure that projects can be completed successfully. Some offshore cultures tend to minimize or understate required work efforts, assuming that additional work efforts can be absorbed into the project.

Administrative Practice

Administrative practices related to security of physical and intellectual property assets should also be considered. Physical distances and different legal infrastructure in foreign countries may make it difficult to procure rights to property. Polices and practices related to ownership, protection and management of intellectual property may also vary greatly between service providers and the laws of foreign countries.

One option to a pure offshore solution is to utilize the services of a domestic outsourcing company that maintains an offshore development presence. This increasingly popular business model offers the cost advantages of offshoring while minimizing many of the risks associated with a pure offshore solution. Business is conducted with a domestic firm using contracts governed by domestic laws, with common languages and cultures. The responsibilities for managing the cultural, ethical and geo-political issues are the responsibility of the domestic outsourcing firm. Although costs may be higher than a pure offshore solution, the higher costs may be offset by lower risks and less management overhead managing those risks.
While offshore outsourcing is not a magic bullet, the promises of lower costs and higher productivity cannot be ignored. The development and application support services provided by companies with offshore IT services may be utilized to economically and efficiently meet critical needs for IT services in many organizations. When understood and integrated into the IT delivery services, offshore outsourcing can be an effective component of a high performance IT organization, but as with any potential resource, it must be understood and managed for business benefits to be realized.