Is This The Death Of Offshoring?

by drjim on January 21, 2015

Offshoring As We've Known It May Be Dead

Offshoring As We’ve Known It May Be Dead
Image Credit: Vitor Lima

Once upon a time, offshoring was the answer to every CIOs dreams. It offered a great way to significantly grow the IT department while at the same time reducing the total costs of running the department. What make it even better was that somebody else had to deal with the real-world issues of managing people and the person with the CIO job could just focus on results. However, that magic never seemed to work out. CIOs are only now starting to learn to deal with reality of life after the death of offshoring…

Why The 80/20 Rule Never Worked Out

So back in the day when outsourcing was all the rage, CIOs needed to make some judgment calls. They knew that they could never outsource 100% of their IT department, but they needed to figure out how much they could offshore. The driver here was that the more of the department that they were able to offshore, the lower their costs would be and therefore the more work the IT department could accomplish for the same budget. This sure sounds like a problem that we’d all like to have!

I’m not sure where this split in responsibilities came from, but for some reason CIOs everywhere decided that if they could achieve an 80 / 20 split between offshore and onshore resources, then they would have optimized their IT department. As you can well imagine, as the CIOs worked to achieve this magical goal, the IT department underwent a great deal of change.

One of the big questions that still needed to be answered was just exactly what the 20% that would remain onshore would be doing. The thinking was that all of the development work would be done offshore and the onshore team would spend their time managing the offshore team. Great plan. Too bad things didn’t really work out this way.

What Went Wrong With Offshoring

What might have been seen as good plan at the start of the whole offshoring craze quickly started to fall apart for CIOs. There were actually several different reasons for this, but together they’ve lead to the downfall of outsourcing as we knew it.

The first problem that the person in the CIO position ran into when they jumped into outsourcing is that it turns out that due to the importance of information technology, having IT development talent onshore within the IT department is very important. What this means is that the IT department needs to be able to react quickly to requests from various parts of the company. Just having a big development team in India is not enough, you need to have a “fast response” team on shore to handle emergencies and special requests.

The other thing that contributed to the demise of offshoring as we had known it was the arrival of agile software development methodologies. This form of software development requires teams to rapidly create code in an environment that provides them with immediate feedback. When your development team is located on the other side of the globe this can be very hard to do.

In the end, CIOs have changed their minds about offshoring their IT development teams. Yes, the cost savings are attractive. However, the loss in IT functionality is not worth the money saved. A new model in which the team is split 80 / 20 between onshore and offshore assets is what is starting to emerge.

What All Of This Means For You

As a CIO, you and everyone else is always looking for that “silver bullet” solution that will magically make all of your IT problems go away. At one time, offshoring seemed to be that solution. However, time has shown us that it is not the solution to all of our problems.

Instead, what CIOs have discovered is that as IT has become a more and more valuable part of how the company competes in the marketplace, how IT is done has changed. The adoption of agile software development methods has required retraining of offshore assets and in many cases has required offshored work to have to be moved back onshore.

Offshoring still has a role to play in every IT department. However, the most important IT work that is going to have the most immediate impact on the company’s bottom line now appears to have to be done onshore. This is going to require CIOs to spend some time thinking about what the right balance of onshore and offshore assets will be going forward.

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: What do you think the right percentage of onshore / offshore is?

Click here to get automatic updates when The Accidental Successful CIO Blog is updated.

P.S.: Free subscriptions to The Accidental Successful CIO Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

Back in the golden days of outsourcing, CIOs could just pick up the phone, get in contact with the head of their outsourcing contractor in India or China, and scale their team up or down as conditions required. However, times have changed and now that everyone is starting to understand the importance of information technology, the world of outsourcing is getting more complicated. CIOs have to understand the changes that are occurring and need to adapt.

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Even the best laid plans can run into a stall if you don't plan correctly

Even the best laid plans can run into a stall if you don’t plan correctly
Image Credit: roger g1

Every CIO has heard about the Cloud by now – computing services provided by a vendor that your company can lease and access via the Internet. All of the articles sure seem to indicate that moving enterprise applications into the cloud makes good economic sense and can enhance the importance of information technology to the company. However, before you make the leap, you need to do some planning so that you are able to avoid the dreaded “cloud stall”…

The Real Cost Of Moving To The Cloud

If you were to read one of the many articles that has been published recently on the benefits of moving your IT shop into the cloud, then you might believe that you’ll save a lot of money. The real answer to this question is actually, like most things in life, just a bit more difficult.

“Cloud stall” is what can happen when a CIO decides to move some or all of the IT shop’s enterprise applications into the cloud only to discover that he or she has not properly budgeted for this project. In the case of the cloud, it can be very easy to focus your cost estimates on just exactly how much it is going to cost you to spin up virtual machines: starting costs and monthly costs. It turns out that there are a number of additional costs that have to be accounted for.

In the case of moving to the cloud, the person with the CIO job also has to take into account infrastructure costs. These can include such things as security, storage, and networking. CIOs who have made the move into the cloud recommend that for every $1 that you plan on spending on virtual machines, you budget another $11-$12 to spend on infrastructure costs to support that virtual machine. Accounting for these additional costs will prevent the project from running out of money before it is done.

The New Role Of IT In A Cloud World

In addition to transforming where a company’s applications run, a move into the cloud will also transform how the IT department is run. Many of the tasks that the IT team is currently doing will no longer have to be done. Likewise, there will be new sets of tasks that will now have to be performed.

All too often CIOs think that by moving their IT shop into the cloud they’ll be able to downsize or even eliminate their IT department. The reality is quite different. What is actually going to happen is that the focus of the IT department is going to change from just maintaining a set of boxes to monitoring how the entire IT infrastructure is operating.

Once you’ve moved into the cloud, your IT teams will have to adjust to the new reality. This means that they’ll be spending their time keeping the company’s networks up and running, security services up-to-date, and performing any integration that will be required

It will be the integrating of various enterprise applications that will probably occupy a great deal of your IT department’s time as you move forward. With a little luck the cloud service provider that you have selected may be able to help. If they have the tools that you will need, the application integration tasks may become easier for your team to perform.

What All Of This Means For You

Cloud computing has arrived and everyone in the CIO position has an obligation to evaluate the value of using the cloud for their IT department. The cost savings are undeniable; however, a great deal of planning needs to go into any move into the cloud in order to avoid having a “cloud stall”.

Moving to the cloud will save the company money over time. However, CIOs need to realize that there will be expenses associated with making the move. For every $1 of cloud based virtual machine that will be used, CIOs should count on $11-$12 in associated infrastructure costs. Once the move to the cloud has occurred, the IT department’s roles and responsibilities will change. The new focus will be on integration, security, and keeping networks up.

The good news about moving your enterprise applications to the cloud is that the company is going to save on both IT infrastructure expenses as well as staffing. Plan your move to make sure that you have your cloud based expenses and new IT roles mapped out and you’ll be able to avoid having a cloud based stall in your IT department!

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: What will be the best way to identifiy the new tasks that you’re IT department will have to perform in a cloud world?

Click here to get automatic updates when The Accidental Successful CIO Blog is updated.

P.S.: Free subscriptions to The Accidental Successful CIO Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

Once upon a time, offshoring was the answer to every CIOs dreams. It offered a great way to significantly grow the IT department while at the same time reducing the total costs of running the department. What make it even better was that somebody else had to deal with the real-world issues of managing people and the person with the CIO job could just focus on results. However, that magic never seemed to work out. CIOs are only now starting to learn to deal with reality of life after the death of offshoring…

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