You can have outsourcing without the offshore element, but did you know you can have offshore without the outsourcing element?
Offshore outsourcing may be the hot topic in IT right now -- Gartner Inc. predicts that the offshore business process outsourcing (BPO) market for this year will be nearly 40% bigger than last year -- but offshore insourcing should not be overlooked, according to analysts with the Stamford, Conn.-based firm.
Offshore insourcing has a pretty straightforward definition: It's when companies set up their own "captive" process centers overseas, taking advantage of their cheaper surroundings while maintaining control of their back-office work and business processes. It's an especially good option for companies that adhere to The X Files' "Trust No One" policy and don't want third parties getting their mitts on sensitive data.
Gartner says that companies looking to take some of their IT work offshore should look at both the outsource and the insource paths -- and maybe think about using a combination of the two.
"No enterprise will fully insource or outsource offshore," said Sujay Chohan, a research vice president for Gartner, in a statement. "Most will use a combination of delivery models as they climb the learning curve to BPO."
That learning curve could pose one of the most frustrating obstacles for firms looking to insource offshore.
Amit Maheshwari does offshore insourcing for a living. He's the founder of Cambridge, Mass.-based i-Vantage Inc. and helps firms establish their own global delivery centers in India. After a year or so, i-Vantage lets go, and its customer takes over.
"This model is highly advantageous if a company's core competencies reside in technology products, services and business process outsourcing," Maheshwari told SearchCIO.com last month in an interview. "Setting up one's subsidiary in India enables these companies to retain intellectual property within the global four walls of their company.
"It also allows companies to develop a long-term relationship with [their] resources in India as employees, not as contractors."
Drawbacks to the offshore insourcing approach include not having a "throat to choke" if things go wrong (that is, you can't blame the outsourcer if something fails) and a steep learning curve that could eat up so much time that the project takes forever to get off the ground.
Gartner analysts have a list of questions your firm needs to answer before it offshores any IT work -- either with a third party or through the insourcing model.
Why consider outsourcing the function? Is it to focus on our core business, to improve service levels, to benefit from industry best practices, or to reduce transaction costs?
Right now, cost savings is the fire that feeds offshore BPO, but analysts say that you can save money with an insource operation if your company has a large quantity of transactions.
What processes are being evaluated for outsourcing? Gartner says that repetitive processes with loads of transactions are the best bets for offshore outsourcing. If your firm isn't keen on giving up control of the process for strategic and security reasons, offshore insourcing may be the way to go.
How well is the function being performed today? You've got to measure the performance of your functions against an industry benchmark. If your function outperforms the industry benchmarks, then offshore insourcing is a good idea, Gartner said.
If the performance is sub-par, it may be time to let a third party take over.
FOR MORE INFORMATION:
Offshore with a twist -- 'do-it-yourself' outsourcing'
Offshore outsourcing hits IT pros in the paychecks
Offshore outsourcing the summer's hottest topic