OffShore
Outsourcing
Offshore Outsourcing is one of the hottest IT management practices to emerge in the past few years. Offshore outsourcing promises to reduce IT costs, access quality IT staff, and even improve service. Because of the compelling value proposition, many US firms are offshore outsourcing. For example, GE has 7,000 software professionals offshore in India, Mexico, and China. All research firms predict big growth in this market. For example, Forrester estimates that in 2001, 44% of US companies with more than $1 billion in sales perform IT work offshore and will grow to 67% by this year.
At first glance, the economics of offshore outsourcing are compelling; a US company can pay a fully trained programmer in India $25.00 an hour compared to $80-$100 per hour in US. But US organizations quickly found that they cannot abdicate responsibility offshore--or anywhere else. Offshore outsourcing, like insourcing and domestic outsourcing, must be managed. Your group will focus on the special management issues associated with offshore outsourcing.
The group must extend our knowledge beyond the
assigned readings and my lecture on offshore.
The group may begin by covering the popular press on offshore outsourcing including the role of offshore in the presidential election, presenting statistics on the dollars spent on offshore outsourcing, identifying the major offshore countries and companies, listing major US-based companies that offshore outsource a significant proportion of their IT budgets.
Ideally, your presentation should include one or two case studies of organizations that have adopted offshore outsourcing and how it affected the organization.
If you do a case study, provide the Company Background by including:
- Size of company in terms of sales and profits
- Major products the company sells
- General characteristics of their customers
- Organizational chart--who does the CIO report to?
- How many people work for the IT organization?
- What is the annual IT budget?
The offshore outsourcing project case should include:
- Description of IT activity outsourced offshore
- How US company made offshore decision
- How US company selected its offshore supplier
- Contract overview: duration, costs, service levels, guarantees, etc.
- Degree of success and failure of the project
- Lessons learned by the company
The group should end the presentation on best practices for ensuring successful offshore outsourcing.
You might compare the companies' practices with offshore practices we learned in class:
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Sourcing Challenge |
Practices to Overcome the
Challenge |
Company A |
Company B |
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How can we swiftly move
through the learning curve? |
1.
Create a centralized program management office |
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2.
Hire an intermediary consulting firm |
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3.
Select locations, projects, suppliers, and managers that leverage
in-house sourcing expertise |
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How can we mitigate risks? |
4.
Use pilot projects to mitigate business risks |
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5.
Give customers a choice of sourcing location to mitigate business
risks |
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6.
Hire a legal expert to mitigate legal risks |
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7.
Openly communicate the sourcing strategy to all stakeholders to
mitigate political risks |
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8.
Use secure information links or redundant lines to mitigate
infrastructure risks |
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9.
Use fixed-priced contracts to mitigate workforce risks |
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How can we effectively
work with suppliers? |
10.
Elevate your own organization's CMM certification |
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11.
Negotiate which CMM processes for which you will and will not pay |
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12.
Cross-examine, or replace, the supplier's employees to overcome
cultural communication barriers |
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13.
Let the project team members meet face-to-face |
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14.
Consider innovative techniques, such as real-time dashboards, for
workflow verification, synchronization, and management |
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15.
Manage bottlenecks exacerbated by substantial time zone differences |
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How can we ensure cost
savings while protecting quality? |
16.
Consider both transaction and production costs when calculating
overall savings |
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17.
Size projects large enough to receive total cost savings |
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18.
Do not establish an ideal 15/15/70 in- house/onsite/offshore ratio
until the supplier relationship has stabilized |
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19.
Develop meaningful career paths for subject matter experts, project
managers, governance experts, and technical experts to help ensure quality |
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20.
Create balanced scorecard metrics |
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If you have other creative ideas, please feel free to discuss them with me.
Be sure that your group extends our knowledge beyond the assigned readings and my lecture on offshore.
Some helpful references:
Morstead, S., Offshore Rising, Insani, USA, Press.2004
Morstead, S., and Blount, G. Offshore Ready: Strategies to Plan & Profit from Offshore IT-enabled Services, Insani, USA, 2003.
Robinson, M., and Kalakota, R., Offshore Outsourcing, Mivar Press, 2004.
Davies, P., What's this India Business? Offshoring, Outsourcing, and the Global Services Revolution, Nicholas Brealey International Press, Yarmouth, Maine, 2004.
IS Sourcing Issue of the Journal of Information Systems Management, Summer 2004.