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Thursday, April 20, 2006

Offshoring & Three Year Itch

Courtesy of Vinnie saw this article on offshoring titled, Offshore Outsorcing :The Three or Four-Year Itch. Obviously Vinnie has strong views on the costs of offshoring.

Clearly, Joe Drouin & Jonathan Beyman are getting it mostly right – they are demonstrating how to make the offshore model work. While the article captures the general views about offshoring demanding attention and why it needs constant attention, it in my view sounds hollow on multiple fronts – in particular its perspective on captive option. While captive option may look attractive for some software product vendors in a limited way – see my note on offshore product development. In reality, we see that captive option falls short on one most important dimension – arresting turnovers, repeatedly cited as a matter of concern, The ability to support a wide range of operations may also be doubtful with captive models.
Those who look at offshoring as just a means to shave off some costs and hope to improve on savings with passing time would definitely fail to achieve their goal measured over a period of time, unless they manage to work on ability to manage it in a concerted way. In my experience that includes a case repeatedly referred to in the article, I find that maximizing productivity & minimizing risk - seems to be the most prudent option that enterprises choose to pursue while attempting Offshoring. The process of offshore outsourcing may be more evolutionary and a determined pursuit to engage more wide and deep would be a sure way to reap consistent benefits.Conventional ways of measuring productivity may be slightly spotty and hence the emphasis on specific prodictivity metrics for different type of operations. Obviously, different enterprises are taking different routes towards offshoring services.Some keep the differentiating core processes insourced and the commoditized context elements outsourced and offshore and some companies look at retaining high value-add activities onshore while offshoring low value-add activities. Even while offshoring, some enterprises ponder about having captive units while most look at outsourcing partners and a few manage by balancing these options. But increasingly the drivers of offshoring centered on cost, productivity, speed, risk all can be addressed only by collaborative and concerted management attention. Like managing any business, constant attention and means to improve on the results are permanent in the agenda of offshoring. The pioneers and major beneficiaries of offshoring have understood this and are benefiting adequately. Look at the ever increasing numbers of offshore vendors outsourcing multiple millions of work every year - that number is showing a consistent upward trend for several years at a row - one best source of data could be the quarterly/annual reports of Top Tier India headquartered vendors to study this. Like well managed companies managing to reap better returns in business, well managed offshoring strategies shall fetch better returns.

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