What CIOs Need To Know About Doing Offshoring In 2010

by drjim on March 24, 2010

Offshoring Decisions Are A Lot More Complicated These Days…

Offshoring Decisions Are A Lot More Complicated These Days…

The Way That It Used To Be

Remember when using offshored resources as a part of an IT department was such a big deal? These days it’s hard to find an IT department that doesn’t have at least some portion of its work done off shore. When you become CIO, offshoring is something that you’re going to have to deal with. It turns out that things aren’t as simple as they used to be…

When IT departments first started using offshoring there was really only one reason why they were doing it: it provided staffing cost reductions of 40% or more. It all seemed to be so easy: an IT department could move lots of low-value IT work to low-cost locations such as India and the Philippines. Let’s be honest about this: outsourcing was really cost cutting by a different name.

When you become CIO you’re going to be inheriting a different world. The favorite site of IT outsourcing has been India; however, India is changing. One of the biggest changes is that salaries have been going up rapidly. In India, annual raises of 15% have become common. On top of this, in the last year India has suffered from currency fluctuations, terrorist attacks, and financial fraud. When you become CIO you are going to have to be looking beyond India for locations to house your outsourcing.

The New World Of Outsourcing

You’re going to have to do some serious thinking when it comes time to determine how best to use outsourcing with your IT department. Just before the recent global recession the #1 reason that IT departments were using offshored resources was to accomplish cost cutting objectives.

The global recession is going to be your friend in the short term when it comes to offshoring. Over at the consulting firm Gartner, they are predicting that outsourcing prices will drop an average of 10% this upcoming year. However, as CIO you are going to need to be careful here.

It turns out that agreeing to specific IT cost cutting goals isn’t the hard part, maintaining them is. What many IT departments have discovered is that low hourly rates won’t save much money if the total hours needed to accomplish a given task are higher than you estimate.

Another issue for a CIO to consider will be how long your contract with the offshoring firm should last for. The first generation of outsourcing contacts tended to be last for lengthy time periods: 10 years was common. This was being done in order to “lock-in” the cost savings. However, the need to have the ability to adjust to changing market conditions has changed this – CIOs now want shorter-term contracts.

Of course, nothing is ever that simple. It turns out that for certain IT professional services that require a higher percentage of highly skilled workers, the offshore staffing providers will insist on longer-term contacts because the suppliers say that they can’t attract the workers that they need unless you are willing to sign contracts that cover longer time periods.

On the positive side, although with a bit more complexity, you will now have more options for where you can do your offshore work. Some of the most popular outsourcing destinations in a recent survey of firms that were considering it included: United States (22%), China (16%), India (13%). Also on their list was the Philippines, Mexico, Costa Rica, and Jamaica.

What All Of This Means For You

When you become CIO, you will be offshoring some of your IT work. What used to be a relatively simple decision to send some of your low-value IT grunt work over to India has become much more complicated.

India is still an attractive destination for a number of reasons. However, it has become less attractive than it once was and a number of competitive alternatives have now shown up.

It will take time and effort on your part in order to properly evaluate your options and decide what is correct for your IT department. You can’t go wrong with the decision to offshore some of your IT workload, it’s just making the right decisions on where the do the work that will require all of your CIO skills…

What country do you think would be the best place for a firm to offshore it’s IT work today?

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What We’ll Be Talking About Next Time

When you become CIO you will have a number of tools available to you that CIOs never had in the past. #1 on this list is, of course, Twitter. However, wait a minute, is this a good thing or a bad thing? Sounds like you need to figure this out before you become CIO and make a mistake…

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{ 2 comments… read them below or add one }

Ragh March 25, 2010 at 2:45 am

I am a great fan of your writing and I am reading this from India. I don’t agree with you completly on “….looking beyond India …”, the salary hikes are only limited only to specific skills and not to all of them. Also, other apprehensions of security and scandals… guess all other part of the world have similar problems.. else we wouldn’t had this economic disaster over last couple of years.. and other countries in your references are equally insecure.

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Dr. Jim Anderson March 26, 2010 at 6:24 pm

Ragh: you make a very good point. One thing to keep in mind is that the process of offshoring to India is well-known. The Indian firms make it easy to do, and that can’t necessarily be said about other countries. Maybe the current events in India have simply made considering offshoring to other countries easier to consider for CIOs — they may still end up in India, but they’ll think about going elsewhere…

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