Offshore your way out of the credit crunch

The much-hyped credit crunch and general economic uncertainty of recent times has had an impact at every level of every type of business, and IT is no exception. Even at the best of times IT is cost sensitive, and when the bottom-line of the business is under direct threat it is often to the IT department that the board look for "quick hit" savings.

The much-hyped credit crunch and general economic uncertainty of recent times has had an impact at every level of every type of business, and IT is no exception. Even at the best of times IT is cost sensitive, and when the bottom-line of the business is under direct threat it is often to the IT department that the board look...

for "quick hit" savings.

When margins are under pressure it is often the support services in a business that suffer, and so the forward-looking IT professional needs to be thinking now about their response before the call comes.

The response to this call for efficiency is bound, in many cases, to lead to a further push towards offshoring. Long a popular option in industries such as financial services, the current economic uncertainty is going to mean that firms of all types will continue to develop global IT service delivery models incorporating a significant offshored component to drive down unit costs and maintain competitiveness.

Improved offshore quality

Offshoring as a practice has been around for some time now, but it is only in recent years that it has really reached a stage of development where it has become relevant for the broader market. Concerns in the early days of offshoring centred around quality. Although offshoring should be about accessing low-cost, high-quality resources overseas, in the past reducing costs was frequently the primary or sole driver. These days, however, the story has changed - established providers in locations such as India and Eastern Europe can increasingly match or even beat domestic competition on quality and delivery. Indeed, a client of mine was recently forced to quietly request that their offshore arm slow things down a bit so as not to make the in-house team look bad.

Another brake on the take up of offshoring has been a general unwillingness among IT decision-makers to take the leap. Whether through fear for their own positions or through confusion about the negative perception of offshore call centres, many firms have tended to stay away from offshoring on principle. This, however, is set to change. As well as the moves towards improved quality of offshore service provision detailed above, the global spread of offshoring increasingly means that any firm that is serious about its competitiveness needs to at least consider the option.

Global IT delivery

At princeOMC, it is our belief that the current economic situation is going to lead to a far greater openness in global IT service delivery models than has been the case previously. This is going to be particularly true in Europe, long an offshoring laggard, where so-called "near-shore" locations in Eastern Europe are offering a new and compelling offshoring argument for IT decision-makers. In the US, where offshoring is already very much a reality, multinational firms are going to be further leveraging their existing offshore arrangements as a protection against dollar depreciation.

Also, it is not just the geographical spread of offshoring that is going to increase as a result of these turbulent financial times. For firms with a toehold in the offshoring space, any margin pressure is going to push towards a deeper offshoring engagement in an effort to further optimise IT spend. Whereas in the past some basic helpdesk or maintenance tasks might have been passed to an offshore provider, firms can now look offshore for full service remote IT infrastructure management and other seemingly mission-critical tasks. The capabilities of some of the more advanced providers are hugely impressive and, given the right agreement and relationship, there are few aspects of an IT department that could not be considered for offshoring.

A positive future

So what does this mean for the UK-based IT worker? If offshore providers can increasingly service what were once core IT tasks, is there a role for a domestic IT industry? From our position as dedicated sourcing consultants we can safely answer that question with an emphatic yes.

Although offshoring does remove some of the day-to-day tasks once dealt with by an IT director, it opens up a whole new array of challenges and opportunities for the forward-looking technology professional. As well as the strategic thinking required for the establishment and building of an offshoring arrangement, there is also an important role to be played in the day-to-day management of any such relationship.

An offshoring engagement is not like a software purchase which can be bought, installed, then forgotten about. It needs to be actively managed as a partnership to ensure your business is gaining full value. Indeed, many offshoring veterans now see the removal of mundane, day-to-day IT tasks as a real benefit allowing senior IT staff to focus on the higher level, more engaging aspects of modern technology management.

The opening up of the world's economies, the ubiquity of high-speed international data connectivity, and the increasing spread of high-quality IT training in low-cost markets means that offshoring can only become ever more prevalent. For the IT director faced with a harsher than usual demand for cost cutting, offshoring represents a unique opportunity to optimise their department while maintaining or improving service levels - a promise that its hard to ignore when the sound of crunching credit is nearing.

Prior to founding princeOMC, Ian Prince was IT director at Deutsche Bank and JP Morgan.

This was last published in January 2008

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