I wrote a blog post last week following a reply from an IT manager to a previous post I did about RBS offshoring work. The IT manager had analysed the costs of offshoring and concluded that it is not that much lower than doing work onshore.
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He said he was concerned that CIOs that were offshoring just to save money might actually be making a mistake.
And there are clearly many reasons other than cost to offshore work, but the person making the decision needs to know what these are.
For example I blogged about Morrison utility’s decision to offshore software development. Cost was an important factor but so too were the ability to flex up and down the number of developers it uses at any one time and access to skills – because its in-house team did not have the cloud and mobile development skills it required.
I posed this question to some LinkedIn groups with members for the offshoring industry: If offshoring IT is not that much lower in terms of cost why bother?
Here are some of answers I immediately received. This is a debate worth having so please contribute.
a. Managing spikes in your business -resource demand
b.You manage your core business and outsource not so important functions so that your “smart” people can be used for more strategic projects
c. Broader skill set you get, which you may not have internally
d. Access to skills from a different geography helps – let’s face it some geographies have smart people in a particular domain- A Japanese may be good mechanic, an Indian a better coder OR an American more creative!
e. You get the flavour of different cultures – which helps in making your people more “global”, understanding what a NO from a Japanese or an Indian or a Chinese means!
f. COST is just the icing on the cake!
a. Limitation on talented resources.
b. Certain industries need round the clock support so a different time zone is complementary
Experience of the offshored destination. If the cost is the same, but the quality and overall offering is better, then perfect. Although, in practicality, what IT offshoring destination does not provide is cost savings.
The first thing to note is that the emphasis in offshoring has shifted from pure cost savings to value. So while you may not make significant savings for high-end software, for example, you can expect to obtain a more scalable solution from a good outsourcing provider than your own team can provide — or even one that solves two or three problems at a stroke, thanks to the ingenuity of offshore developers.
|n reality it truly is much lower when you factor in all associated onshore costs of maintaining a qualified IT resource. The recruitment and logistics costs alone, due to lack of certified staff compared to other global outsourcing regions, are just a few examples of many cost justifications that large scale IT employers factor over and over everyday…..and still…offshoring continues to grow annually at a double digit pace.
One of the major reasons for offshoring is research & development and newproduct development of innovative products.
Have an idea, concept which you want to get developed, test and see it working?
Get it done by outsourcing – offshoring !