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7 Lessons of the offshoring pioneers

Stephanie Overby | April 22, 2013
The need to remain competitive has kept offshoring an essential part of nearly every company's sourcing strategy.

2. A Single Provider Is Not Enough...

In the 1990s, many of the first offshore outsourcing customers who signed deals with Indian companies to handle application development, maintenance, or Y2K issues expanded their offshoring footprint to include service desk, end user computing, server and storage management, network and voice management, remote infrastructure monitoring and support, and IT service management. But they did it all with a single provider. "Today many of those organizations have revisited the mega-deal structures, selectively pulling services and functions into an onshore or even insourced delivery model," says Craig Wright, principal with outsourcing consultancy Pace Harmon.

3. ... But Too Many Vendors Spoil the Model

Those offshore IT service providers who swung too far in the other direction--inking deals with a multitude of providers for increased competition, redundancy, risk management, or access to skills--also lived to regret it.

"Don't go too crazy on the multi-vendor model," advises Phil Fersht, CEO of outsourcing analyst firm HfS Research. "Too many clients are stuck in complex and slow-moving situations where they are trying to manage too many vested parties and losing site of the broader goals."

4. Invest in Good Governance

Early adopters have developed sophisticated centers of excellence to manage their complex offshore portfolios. "Governance is key to the success of the program, and most organizations tend to under estimate the importance of this dimension," says Everest Group's Arora. "In an outsourcing relationship, the majority of value captured is from execution, not contract design, pricing, or other upstream activities."

The most successful offshore arrangements give careful attention to management personnel who move from offshore to onshore and vice versa, regular meetings between onshore and offshore teams, and tools and procedures for effective communication and collaboration, says Brown.

5. Nobody Saves 70 Percent Offshore

The most successful users of offshoring may not even save 30 percent. "Offshore savings are universally exaggerated," says Adam Strichman, founder of outsourcing consultancy Sanda Partners. "Many retained functions actually increase in cost. Offshoring will save your budget line that involves the labor in IT, but it will increase costs for other budget lines, such as security, communications, travel, and hardware."

"The promised cost savings can be elusive if you look at just wage differentials," says Everest Group's Arora. "Recognizing this upfront is important to avoid surprises later on when the planned savings don't materialize From a pricing perspective it is important to realize that you get what you pay for.

6. Be Kind to Your Offshore Partners

The lure of early offshoring was the promise of lower costs. But, "the lowest cost solution at times is often lowest quality, too," says Arora.

Not only do mature offshore buyers look beyond cost when setting up their offshore partnerships, they realize that beating up their providers--on cost or anything else--will come back to hurt them.

 

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