Beware of overseas outsourcing
Businesses spend billions of dollars on IT outsourcing for obvious reasons:
- To lower the cost of IT development and maintenance;
- To improve service and free up internal IT stuff for more strategic work;
- To raise the skill level of internal IT staff thru the transfer of knowledge from outsourcing providers;
- To free up in-house staff from IT services and focus on the core business competencies.
According to analyst firm Aberdeen Group, reducing IT costs remains the main driver
behind outsourcing for 82% of companies in the US that engage vendors in developing countries.
But how much do you really save when you outsource? Surprisingly, companies report only a
26% average cost savings on outsourced projects, with nearly half of outsourcing projects
failing outright, or failing to meet expectations. According to Aberdeen:
- 76% of companies said that vendor management effort and costs were much higher than expected.
- 30% reported ongoing issues with outsourcer management processes (e.g., inadequate governance and conflict resolution procedures).
- 51% reported that outsourcer was not performing to expectations.
What are the main barriers that reduce the success of outsourcing down to such numbers?
A lot of companies fail to recognize that $25/hour in India versus $100/hour in the US
for IT development work doesn’t simply translate into a linear 75% cost reduction for the
overall project. Since a successful project goes beyond writing code that compiles, it has
to include a set of other important factors and processes that have to be managed, at least
partially, in the US:
- Thorough understanding of your business, your competitors’ strategies and your industry in general.
- Proper communication of your business goals. Is it speedy and cost-effective time-to-market and adding more functionality later? Or is it building a full-functioning product from the start? What functions are less relevant and could be sacrificed now in order to get the best value for your dollar?
- Properly set service level agreements that clearly define expectations and responsibilities
- Detailed Discovery phase and proper documentation throughout the project
- High commitment on the home front to keep the strategy and processes on track
In many cases a special set of management skills is needed, since the development team is
located abroad and is out of your sight. Apparently the “out of sight – out of mind” approach
doesn't work too well.
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American
Project Managers. This ensures you get the commitment, service level and professionalism you expect.