Off-target offshore outsourcing

Few IT industry trends have been as controversial as offshore outsourcing . By not only offloading their IT functions to third parties, but also turning to remote low-cost outsourcers to gain the greatest savings, corporations worldwide have accepted the notion that many aspects of IT are merely commodities despite the business risks associated with outsourcing. While few firms are equipped to handle all of their IT functions on their own, all companies should be cautious about a new round of opportunistic outsourcers trying to win a piece of the market with increasingly offbeat business models.

One of the most bizarre is SeaCode, a venture that will place software engineers and application developers on a cruise ship off the coast of California, where they supposedly will have a competitive advantage over more remote outsourcers in India, China and elsewhere (see story ). Although this premise seems laughable, many corporations are so desperate to reduce expenses that the idea of using almost any means to cut IT costs has become plausible-despite the fact that even the most conservative forms of IT outsourcing can be fraught with problems.

For instance, the benchmarking firm Compass recently released a report saying hidden "self-support" costs that arise when companies outsource desktop services can triple previous in-house support costs. This is because many outsourcers impose strict policies that discourage end users from submitting desktop support requests and force them to try to fix their own problems.

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Few IT industry trends have been as controversial as offshore outsourcing . By not only offloading their IT functions to third parties, but also turning to remote low-cost outsourcers to gain the greatest savings, corporations worldwide have accepted the notion that many aspects of IT are merely commodities despite the business risks associated with outsourcing. While few firms are equipped to handle all of their IT functions on their own, all companies should be cautious about a new round of opportunistic outsourcers trying to win a piece of the market with increasingly offbeat business models.

One of the most bizarre is SeaCode, a venture that will place software engineers and application developers on a cruise ship off the coast of California, where they supposedly will have a competitive advantage over more remote outsourcers in India, China and elsewhere (see story ). Although this premise seems laughable, many corporations are so desperate to reduce expenses that the idea of using almost any means to cut IT costs has become plausible-despite the fact that even the most conservative forms of IT outsourcing can be fraught with problems.

For instance, the benchmarking firm Compass recently released a report saying hidden "self-support" costs that arise when companies outsource desktop services can triple previous in-house support costs. This is because many outsourcers impose strict policies that discourage end users from submitting desktop support requests and force them to try to fix their own problems.

There is no question that outsourcing is a good idea for many firms that need to reduce operating costs and improve IT operations. However, many companies will be hurt by hastily following the herd down the outsourcing path without thoroughly evaluating the growing array of new outsourcing providers. Given that various research reports contend more than half of traditional outsourcing agreements to date have been terminated or substantially restructured because they failed to meet their original business objectives, firms shouldn't plunge into new outsourcing arrangements without carefully examining the latest market entrants.

As the labor costs of established offshore outsourcers in India and elsewhere escalate, many are searching for lower-cost locations and trying to create less-expensive service delivery methods to remain competitive. Unfortunately, the new offshore locations tend to be even more remote with fewer skilled workers.

The greatest concern about the latest round of opportunistic outsourcers is that many of these providers openly admit they are relying on temporary workers who have little incentive to provide reliable, quality services. While some offshore outsourcers offer valuable IT skills and services, companies shouldn't entrust any part of their IT operations to outsourcers with short-term success strategies based on untested delivery schemes or transient, uncommitted workers.

Kaplan is managing director of Thinkstrategies, a consultancy in Wellesley, Mass. He can be reached at jkaplan@thinkstrategies.com.

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