by CIO Executive Council

IT Offshoring Still Works, If You’re Careful

Jan 30, 20134 mins

Three CIOs say that the benefits of offshore outsourcing still resonate—if you learn from previous missteps and manage the risks

Keep Frontline IT People In-House

Larry Pickett, CIO, Purdue Pharma: We continue to send development and infrastructure management work offshore because, in addition to the usual benefits of lower costs and scalable resources, our vendors act more like strategic business partners than mere IT service providers. They offer suggestions on improving our IT operations, and we bounce ideas off them to tap their industry experience.

Our success with offshoring has much to do with our conservative approach. We never outsourced our frontline IT activities, we retained system design and architecture in-house, and we protected our internal business-domain knowledge. We even kept help-desk operations local because our end users like to run into their help-desk guys in the cafeteria or have them physically come to their desk if they have a problem.

We also have a strong governance model to manage vendor performance, led by Vicki Heber, our manager of offshore services. She ensures that project requirements are sufficiently documented, including the performance levels we expect to see, and she leads conference calls with the vendor to ensure everyone is on the same page. Lastly, we established measurable service-level agreements and regularly review them with the vendor. This frequent communication ensures we identify and resolve problems quickly.

Treat Vendors Like Employees

Marie Lee, CIO and SVP of U.S. Operations, Interval International: We have learned over the last few years how to manage the inherent challenges and mitigate the risks of offshore outsourcing. For example, we have found it difficult to offshore support for legacy systems due to limited documentation. It is challenging enough to communicate within our own onsite team, let alone one halfway around the world.

The secret to our success is two-fold. First, we established processes and rigorous standards to better communicate our expectations. Second, we expanded our vendor relationship to include quality assurance and testing services.

The challenge for a mid-market company is to choose the right outsourcing partner both in terms of size and culture. This helps ensure we are heard and our priorities are met.

Our blended rates have certainly gone up in the past few years, but this is by design. We pay for experience and compensate the vendor to minimize turnover. We have set up a rotation program to bring offshore personnel to the States to immerse them in our business and culture and reinforce the team experience. In addition, we periodically adjust our hours so that meetings fit their time schedule (in China). This gives our offshore resources the motivation and confidence to participate fully in our projects.

Gain Insight Into Emerging Markets

Dean Haacker, CIO at large: The quality of offshore resources has improved dramatically over the last decade. Granted, traveling around the world to visit these teams can still be an adventure, but continued investments in better roads, airports, and hotels make it much easier.

One of the best reasons for engaging offshore resources is the insight they can provide about the needs of their local markets. If your company is trying to grow in the same places where you employ offshore teams, these firms can be a great source of market intelligence.

Offshore outsourcing is not an all-or-nothing proposition. As the saying goes, figure out what you do best and outsource the rest. For many companies, customer-facing roles like enterprise architecture, program management, and business analysis are not good candidates for offshore outsourcing.

That said, it would be a mistake to position your vendors as mere service providers; instead, look for ways to involve them as strategic business partners. I do not recommend relying on a single provider. Rather, consider a 70-30 split, where most of the work goes to a single provider, and a few other vendors provide niche skills and maintain competitive balance.

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