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Ever dial a 1-800 number and have your call routed directly to India? In as little time as it takes to say “hello,” many organizations outsourced their IT functions and projects overseas with high hopes for significant cost-savings. As time passed however, a good percentage of these organizations received a wake up call: “off-shore” does not always translate to “less expensive.” Progressive companies will evaluate the risks and rewards of an outsourcing model to determine the best means of getting their IT work done.
IT leaders are naturally attracted to the low bill rates an off-shore model offers. A skill-set that costs $100 per hour in the U.S. may be as low as $15-$20 per hour in an off-shore location such as India. However, the price of labor is just one component of the total costs of ownership. An off-shore engagement is prone to various risks related to travel, communication and contract management complexities that can drive expenses upward.
For companies that worry about the inherent risks and costs associated with a full-scale off-shore operation, the near-shore model offers comforting middle ground. Near-shoring addresses many of the risks of off-shoring, thus producing an optimal blend of cost savings and operational efficiencies.
For companies that worry about the inherent risks and costs associated with a full-scale off-shore operation, the near-shore model offers comforting middle ground.
To help you select an off-shore model that’s right for you, I’ve listed a few key considerations below:
Under a near-shore model, real-time communication is simplified.
Generally speaking, the IT consultants in off-shore locations such as India are programming wizards; they can punch quality code fast, for unbelievably low rates. Thus, standard issue coding, such as .Net, Java and J2EE, is well-suited for an off-shore arrangement as the work is well-defined and the necessary communication is infrequent. You can simply send the coding requirements to an off-shore firm and it gets done for 10 to 15 percent of the cost an American firm would charge for the same work.
When project management or detailed analysis are critical components to a job — i.e. for work such as high-end QA and testing, custom application development or data architecture — the off-shore option does not work as well. In these cases, high project visibility, individual accountability and frequent collaboration are necessary for success. Therefore, a near-shore model offers a more attractive and realistic option. The similarity in language, time zones and culture, in tandem with the geographic proximity, lead to a more productive working relationship.
Standard issue coding is well-suited for an offshore arrangement as the work is well-defined and the necessary communication is infrequent.
I recommend companies considering an outsourcing model follow these best practices:
1) Perform your due diligence to assess appropriate work model
In the rush to take advantage of a cost-savings opportunity, companies can neglect to adequately perform the “discovery phase” necessary to analyze and understand the work model certain projects or functions require. Some IT activities need to be closer to the business than others. When these areas are outsourced through an off-shore model, the degree of hand-holding is so high that the anticipated cost-savings are swallowed by the total cost to manage the relationship.
2) Don’t pick an outsourcing vendor based on price alone
The highest and lowest bids are typically the most unrealistic. Customers should seek out a vendor that offers a balance of quality and cost reduction. They should also be sure to partner with a provider that has a successful track record in the specific IT work required, as opposed to one in the “experimental” or “testing” phase of its outsourcing maturity.
3) Determine ownership of work up front
Determining who owns the resulting product and all components of the project is key to a successful team model. Ownership should be defined in writing and include: all roles and responsibilities, accountability per role, change management processes, and knowledge transfer expectations surrounding design, coding guidelines, problem resolution and documentation.
4) Define measurable success
Prior to project kickoff, the customer and outsourcing vendor should reach an agreement on vendor performance metrics – and the appropriate method by which these metrics will be reported. Throughout the project, customers and vendors should discuss performance metrics to identify necessary corrective or preventative actions.
5) Select the right Project Managers
Strong project management skills are necessary for an outsourced project to succeed. Customers should invest time to ensure their onsite and offsite project managers are tenured, specialized and in sync with the business drivers behind an outsourced IT engagement.
In the rush to take advantage of a cost-savings opportunity, companies can neglect to adequately perform the “discovery phase” necessary to analyze and understand the work model certain projects or functions require.
Even though many off-shore projects, such as the outsourcing of call centers and helpdesks, spiked some companies’ profit margins, near-shoring is often a better solution. According to Global Delivery Center more than 50 percent of companies that utilize off-shore outsourcing did not earn the savings they expected. Furthermore, a recent AT Kearney study found 60 percent of companies that moved operations off-shore did not reach operational performance targets.
In my experience, companies will ensure they are set up for a successful outsourcing model by investing the upfront time to analyze the direct and indirect requirements to getting a job done right.
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