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9 IT outsourcing myths, and the outsourcing facts CIOs should consider

When Deloitte LLP turned to IT outsourcing, “the business case was predicated on saving money,” said Larry Quinlan, CIO at the professional services firm.

“But now we stay for the value,” Quinlan continued. “We think we’re getting more out of the deal than we expected.”

Deloitte now has 40,000 employees in the U.S. and 150,000 people in more than 100 countries around the world. Speaking at this week’s Global Sourcing Forum + Expo in New York, Quinlan shared what he’s learned about outsourcing, including what he called nine global outsourcing myths, and accompanying outsourcing facts CIOs should consider:

Myth: IT offshoring is not successful. “That’s absolutely not true,” Quinlan said – if it were, why would so many U.S.-based companies be pursuing it? In its studies, Deloitte is seeing “a significant uptick in global outsourcing activity,” particularly in the Philippines, Mexico, China and Costa Rica.

Myth: Wage inflation negates the sourcing cost advantage. The global nature of this recession has depressed salaries worldwide. “There are very few things a recession is good for, but one of them is it takes away the whole issue of wage inflation,” he said.

Myth: Offshore labor pools have been exhausted. “There are a whole lot of things [U.S. companies] have to do to attract the labor pool we want,” Quinlan acknowledged. Still, as individual countries refine their outsourcing crafts, more and more up-and-coming professionals are seeking the schooling and training to provide needed IT skills.

Myth: There are only a few suitable locations for IT outsourcing. But different countries do offer outsourcing pros and cons, so if you’re starting out or thinking of changing locales, has gathered some information on some outsourcing locations in Asia and Latin America. “You do have to figure out, in a methodical way, where you want to be,” Quinlan said.

Myth: My competitor’s successful location will work for me. “It’s important not just to say someone went to Hyderabad or Sao Paulo, and say ‘That’s where I’ll be,'” Quinlan said. “There are more thoughtful approach factors you should consider.” Conduct your due diligence and really consider your needs as far as pricing and skills sought.

Myth: The risks are too high. The cost savings and skill sets make the case for outsourcing, but it’s certainly important to consider personal safety and the risk of a natural disaster or political instability in the country or countries in which you are considering outsourcing, Quinlan said. You can mitigate accordingly by diversifying your outsourcing base.

Myth: Shared services are difficult to manage. OK, this one might be a little bit true, Quinlan admitted. Time zone differentials, the cost of travel and the quality of staff interaction can be challenging to oversee when outsourcing. But nothing worth having comes easily, he said. “To do this well, you’ve got to put a whole lot of effort in and make sure it’s managed.”

Myth: There’s no need for captive centers – you should outsource everything. “You really have to think about what services you’re providing,” said Quinlan, whose company has two captive centers in Hyderabad and Mumbai, India, facilities that house 7,000 employees. If torn, he recommended considering a hybrid model, whereby firms establish a blend of a captive center (a firm’s own facility abroad) and outsourcing.

Myth: Offshoring is bad for the U.S. economy. Quinlan compared this to a religious debate with no definitive answers, and “religious debates cannot be won.” Yes, outsourcing sends jobs overseas, but it also provides for enterprise growth, which can in turn spur domestic job growth.

Is Quinlan on the mark? Are there any IT outsourcing myths you’d like to dispel? Share your thoughts below!

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When the outsourced job has gone it is not likely that the original employee will be assigned to the better/improved job due to enterprise growth. A programmer does not magically transform into a data modeller/business analyst. The person has gone and the enterprise was not interested. There is not a 1:1 ratio of programmer to Modeller/Analyst job movement but rather N:1 where N is likely an order of magnitude higher. Yes it is a "religion" type debate and it all comes down to personal ethics and how one views local society. Better to have 100 people working than 10 with 90 "under-employed" in my society. The 90 will contribute more to my society if working " normally" as opposed to being replaced by the "outsourced resource" who will contribute very little to my society.
What about Myth #10? [B]Myth: Offshoring is better value than Domestic Outsourcing.[/B] We have seen a huge uptick in domestic selective outsourcing in lower cost US areas that beat offshoring in value and are a lower TCO. You don't have the "difficult to manage" problem or the ethical /religious challenge of "not doing what is best for your country." Plus, there is still a trust and liability situation for security of systems outside your country.
I have over 25 years of IT experience and I've never ever seen outsourcing benefit a company - except maybe to get a manager or two promoted. When I read this article all I see is someone telling a management team somewhere their justification for "cutting costs" is the right choice it's not based on reality. The company, the US, the consumer and certainly the IT people displaced all suffer the only beneficiary is the lucky outsourcing company that gets the work - and produces 10% of what you need at 60% of the cost - and the cost of not getting what you need drives you negative in a hurry. The fundamental problem is communication for any complex IT project the devil is in the fine details and how various teams - QA, development, project managers handle those. It's difficult and challenging to get that communication right with everyone in one place and on more or less the same page - with outsourcing you add to that cultural, time, distance, political, motivational, technical and business knowledge barriers that make an effective project almost impossible. The one point "shared services are difficult to manage" is not a myth in fact it's a massive understatement. As one anecdotal example, one company I know (won't name names) deliberately outsourced a major system precisely because they wanted it dead. That worked.
Markpup hit the nail on the head but I wanted to add a few points myself. Outsourcing, especially in the IT arena, is very popular. Many companies see IT as nothing more than a cost and on paper it is. This is the major factor in companies choosing to go the route of outsourcing - well that and articles like this one promoting the virtues of outsourcing. But you have to take into consideration where all these pro-outsourcing articles are coming from. These pro-outsourcing articles are virtually always produced by the companies that use and promote outsourcing. And often these same companies have some of the best people and means for selling the idea to U.S. corporations hungry for more profitability. It seems the larger the corporation the more out of touch the upper-management is with the details of their own IT departments and thus the easier the sell of outsourcing. There are real dangers of copyright infringement and and trade secret loss, not to mention the outsourcing companiescan use the products they produce for a corporation as a selling point to competitors, so the competitive edge they thought they were gaining with their new systems is lost because competitors will be using basically the same systems. The outsourcing companies will strongly deny such acticity but they can't control the lowly paid employees from jumping ship and taking their working knowledge with them. And just think about trying to pursue legal issues in another country! But the biggest danger, in my humble opinion, is turning the U.S. into a third-world economy! Think about it for a minute (that's the real problem is most people and corporations don't take the time to think things through to the end). IT is one of the biggest decent paying sectors of our economy and that sector is diminishing rapidly due to outsourcing. In time - and that time could be much shorter than most think - high tech workers will be turning into much lower paid workers. Not all will be working at Wal-mart, but most will find they will have to take a cut in pay of 50% or more to compete with offshore IT conglomerates. (think about taking a 50% cut in your own pay!) As average salaries diminish spending will also diminish and U.S. corporations will sell less and less domestically. To increase sales they will have to think globally but to sell globally pricing will be forced even lower because of the increased competition. A downward death spiral. Many years ago my grandfather used to say, "the capitalist will sell the rope that is used to hang him!" I fully believe this is the case with outsourcing (especially offshoring).
Quinlan is quite a ways off the mark. Let me count the ways. First, the quality of offshore IT workers is woefully inadequate - particularly when it's to replace longer term tenured IT professionals. Foreign governments and big business are clearly conspiring to insulate their best interests at the expense of middle class US IT workers. Lets stop to consider the current global economic situation - which is due in it's entirety to a profit motive run amok among the global banking community. The author seems to suggest we take advantage of that - which is kind of like yelling 'fire' in a crowded theater isn't it? We know that fully half of IT outsource engagements fail. Why don't we study the reasons for the failure instead of hyping some philosophical myths? Here are some suggestions for that. 1. Quality of the offshore workers as compared to those they're replacing. 2. Depth of knowledge and familiarity with the technology. 3. High reliance on standardization and processes that zap productivity and innovative nature of IT workers. 4. Difficulties in cultural and language impediments that impact customer service, command and control, timeliness of project implementation, and so forth. There's nothing religious about thousands of global companies arbitrarily relocating thousands of jobs form one country to another to save money. The US economy is 2/3 dependent on consumer spending. What's the impact of radical wage reductions on thousands of those consumers? I suspect the price of goods doesn't come down - on any order of magnitude comparable to the economic impact to any consumer whose spending is impacted by becoming outsourced. There's the rub in the end. What goes around comes around. When we undermine our ability to consume in the west - it has global ramifications on all industry sectors. The only equilibrium that is reached 'naturally' is one that is sought by Industry and Government. We should know that now in the wake of the banking scandal. The only myth here is the presumption that outsourcing is inherently a good thing.