by Christine Hodgson

What the CIO Needs to Ask about Offshoring Destinations

Nov 06, 20115 mins
IT Strategy

By The last two years have seen a resurgence of interest in moving IT offshore, fuelled by client companies responding to cost pressures, and outsourcing providers looking to offer ever more competitive packages.

At the same time the range of options facing the CIO has become much wider and more complex, especially with the proliferation of locations offering credible IT facilities.

Given the importance of making the right decision, and the potentially disastrous consequences of making the wrong one, it is clearly more vital than ever for the CIO to understand how best to choose, and what factors must be considered.

As the Financial Times reported in June, it seems almost every country in the world is hoping to become the new India and emulate their $76 billion IT and business processing outsourcing industry.

The paper quotes the latest AT Kearney Global Services Location Index (GSLI), a biennial ranking of 50 outsourcing locations worldwide.

It shows China and Malaysia hot on India’s heels, with many other nations, from Brazil and Poland to Vietnam and Morocco, pushing hard for a slice of the action.

It identifies three major factors as key to success:

– Financial attractiveness – Availability of skills – The business environment

The GSLI contains a wealth of statistics that are interesting and useful. But statistics can only take you so far.

I would suggest that for the CIO choosing an offshore destination, is rather like choosing your children’s school. You want to look for yourself behind the statistics.

A personal visit by the CIO to the location of choice can be invaluable before the die is cast.

There are lots of things to look out for and which I would suggest you ask about.

Can the outsourcer explain:

– How do the offshore and onshore teams work together, including their management and financial relationship? – Are they fully integrated as ‘one team’ working effectively together on your behalf? – Is the offshore unit treated as an arms-length contractor? – What governance structure and controls are in place to ensure that you get what you expect? – How much do they use third-party subcontractors?

Subcontracting may work well if highly specialised services are needed, but you will need to satisfy yourself that it is properly managed and controlled.

Your company may already have offshore facilities, in-house or outsourced, whether in IT, manufacturing or business services. In that case you should consider the benefits of co-locating.

A crucial question in my opinion is what impact will future economic variations make on the cost-effectiveness of your choice of location.

Outsourcing contracts can vary from being essentially output-based to input-based, and in the latter case it is important to understand what is happening and the future impact at this location.

Another key factor is what experience this location has of working globally, especially if your company is multinational.

The best match for your needs will likely be an IT partner with:

1 A global footprint 2 Plenty of local expertise wherever you need it 3 Cost-effective offshore centres

For global rollout of packages it is essential to choose an IT partner with all three of these capabilities.

Most important of all, based on my experience, is recognising that success is down to the individuals providing the services.

In the same way that relationships are key to successful onshore delivery, so are they for offshore.

Despite the uncertainties, more and more UK organisations are discovering the benefits of offshoring.

Here’s what two UK companies told us recently about what they looked for in a supplier and what they achieved:

“Effective IT is vital to everything we do, from planning, constructing and maintaining our water and waste management infrastructure to serving and billing our customers”, said Chris Boucher, Director of Information Services at Anglian Water.

“We were attracted by offshoring with its promise of high quality at relatively low cost but were not prepared to take a risk with reliability or consistency of service. However with clear evidence of the track record and professionalism of the proposed centres in India and Romania, excellent references, and contractual safeguards, we decided to proceed, and to sum up we have gained significant benefits ever since. We have no regrets about incorporating offshore into our IT business model.”

Pete Trainer, IT Director of retail leader Matalan, is also a convert to offshoring: “We were impressed by the quality and professionalism of the Mumbai operations we evaluated, and by the way they combined a UK team at our doorstep with highly cost-effective support from India”, he said. “This has already enabled us to reduce costs and boost quality, and we look forward to continuing and accelerating these trends.”

Experience is key. Companies with substantial offshore operations can guide you through the challenges and potential pitfalls to ensure that you reap the considerable benefits of offshoring and enjoy the experience.

Christine Hodgson is Chairman of Capgemini UK

Pic: anappaiahcc2.0