Keep the work local and spend the extra money or send it overseas and get near the same value at a lower price? For many budget-conscious CIOs, the latter makes sense. But that doesn’t mean offshoring isn't a panacea for cost-constrained IT department; it can involve risks and potential long-term downfalls when it comes to business agility and innovation.
Scott Watters, CIO of Zurich Australia, late last year set up an IT team in Malaysia as an extension of his IT team in Australia. The offshoring came about when Zurich purchased Malaysian Assurance Alliance Berhad and rebranded it as Zurich Malaysia. Watters saw an opportunity to leverage the resources in Malaysia to support the growing technology needs of the business locally.
The main benefit of offshoring some of his IT, Watters says, was not immediate cost reduction.
“The whole idea was not necessarily about cost savings; it was more about capacity increasing," he says.
"We had a need for more people and we didn’t want to go to market and spend more money in Australia so we basically put in more resources for around the same cost. You can cost cut to a point, but it’s trying to get as much change for your dollar as possible."
Gartner analyst Rolf Jester warns of the hidden costs that offshoring and outsourcing can involve. Additional costs in communication, travel, training, knowledge sharing and management are just some areas that can be overlooked when offshoring. He says if organisations are looking to merely cut labour costs with offshoring, then they are selling themselves short in the long run.
“People are often just driven by costs,” he says. “If you’re just saying, ‘I want to cut my costs by X per cent and therefore I’m going to employ this company in Bangalore or Vietnam, for example,’ then that’s the wrong decision. If that’s your only reason and that’s all you are setting out to do then you will probably fail. If you are just doing it for costs, don’t.”
Sign up for MIS Asia eNewsletters.