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?

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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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