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Off-Shoring: Controversy in the Information Technology Field

Thursday, February 16, 2012   (0 Comments)
Posted by: Alan Strong, AITP Western District Director
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As a member of Linkedin's CIO Network group, I recently came across an article that provoked a lot of attention. This particular subject matter has been controversial for quite a bit of time. The question is "Are corporations realizing their savings and effectiveness from Outsourcing?”

The actual question posed was "Some Problems with IT Outsourcing” There have rarely been a question in our industry that has evoked such passion as the question of IT outsourcing.

What this question asked were answers to the following:

  • What are the true costs?
  • Is the Time Factor favorable to the corporation?
  • What happens to the familiarity of the network, systems and applications?
  • Is there retention of Employee Relationship?
  • What are the liabilities?

Even our politicians get into the act, and use this very subject matter to attack corporations who do a fair amount of outsourcing as being Un-American. However, President Obama has selected Jeffrey Immelt the CEO of General Electric as his Job Czar. His selection was meant to help with the recession and putting Americans back to work. Mr. Immelt's firm, G.E., has been one of our country's largest outsourcers of labor for many years, and continues to do so.

Whether the politicians get it right is anyone's guess, and if they do get it right it could be the first time they got something of this magnitude right.

The first question posed leads us to evaluate what are the true costs of outsourcing? We realize that Outsourcing and Off-Shoring are not necessarily the same, but often people use either term to mean the same thing. I believe that the question in this article had more to do with Off-Shoring than it did to do with Outsourcing.

In this particular case it is difficult to analyze true costs. Initially we heard that you could get labor in India at $12.00 per hour and tried to compare that to a cost of about $65.00 per hour in the U.S. This has a lot of appeal if you go one for one and the throughput on person is the same. Perhaps it was, but prices in Off Shoring countries have risen to where today, there does not seem to be an appreciable difference in individual costs to justify going offshore.

We do see more firms that are bringing their work back on shore. IT is not the type of work that you can just throw over the wall and it will come back to you the way you want it. It takes more costs at the home office to manage the project from afar. The turnover in these growing areas is way more than ours, and therefore you can have more starts and stops that delay the project. When that happens the overall costs rise. I have heard from people who have done a considerable amount of work offshore that if you run the enterprise right, your savings could be at the most 20%.

If you have a $3-4 Million dollar project, that could be a significant saving. However, if order to reach those goals, you really have to know what you are doing, and manage the process well. The key question could be: can this be managed well? It does not seem to be something that an organization should jump into without getting some help from professionals who have been through it and don't make their fee only if you decide to go off-shore. This is the world of the unknown; get help where you need it.

The truth is that some attempts to go off-shore have failed and costs millions and still did not get it right. On the other hand others have done extremely well and the organizations continue to go offshore to save even the 20%. Ask General Electric, they continue to send work off-shore, so they must be realizing gains form this effort.

This is not an endeavor for the faint at heart and deserves some study before jumping in with both feet. That is why the controversy continues and will continue in the future.

Alan Strong
AITP Western District Director


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