Cost control is in bringing offshore contracts back in-house


Cost control is in bringing offshore contracts back in-house

Repatriating roles that had previously been moved offshore - or back-shoring as it has become known - is receiving increased coverage, both in the popular press and business journals. But such stories need to be put in context. Studies suggest that for every £10 of work offshored, only £1 is back-shored. And despite savings often not being as large as initially predicted, the economics remain compelling and growth in offshoring will continue.

That said, the reasons why roles have been brought back onshore - cultural misunderstandings, unexpected management needs, high turnover in the offshore workforce, low skill levels and work that's too complex - need to be factored into future outsourcing decisions.

The primary driver in IT development offshoring is the degree of interaction required and length of project.

Taking business intelligence projects as an example, areas such as data analytics and reporting are best kept onshore as they have short to near-term or even unplanned demands for rapid response, complex analytics such as providing information and assessments focused on customers and marketing campaign management. However, the data can be hosted and managed offshore, so long as there is access to onshore specialist IT database management and development resources supplied.

Both database tuning and data cleansing are activities which can be easily offshored, though the relatively low scale of tuning activities requires bundling with other activities to make offshoring feasible.

Intermediate options

In response to this, increasing market sophistication has led to a number of intermediate options - the decision is no longer binary: as is or offshore. These would start with the creation of an on-site competency centre (either in-house or outsourced). Next would be an onshore low-cost location where government grants are available and universities provide a steady stream of graduates. A further option is a hub in another developed European country which can provide the scale necessary to deliver the cost savings, flexibility and quality sought. Next on the spectrum is a near-shore location with travel times of less than half a day such as North Africa. The final link in the chain is the traditional offshore locations such as India.

Overlaying the location decision is an organisational one: should this process be managed in-house with the creation of an insourced service or competency centre, should it be outsourced to a third party or some hybrid of the two? The right organisational decision will be a function of scale and criticality of activities in scope; also organisational design, culture and competency levels.

The opportunity for businesses looking for both quick wins and continuous improvement is making decisions on the location of activities as they mature, not waiting until they are ripe for offshoring. Developing the capability, or partnering appropriately, to manage the location where different activities are performed not only increases the likelihood that offshoring decisions will be successful, but it provides a roadmap for delivering the cost savings, increased flexibility and consistent quality demanded of IT functions.

Ian Huckle is CEO of Business & Decision UK

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This was first published in July 2010


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