Indicators of when it’s best to off-shore and when its not…
Background
When people talk about off-shoring their IT function, usually the reaction is one that includes visions of a call centre or code-writing shop abroad providing cheap tech support or cheap software development. “Off-shoring” means different things to different people. For some, it is a godsend that alleviates problems associated with high costs for carrying out specific tasks or functions. For others, it is a plague that besets a country by losing jobs to cheap labour on foreign shores.
What It Means
According to Wikipedia, “off-shoring” means “relocation of business processes from one country to another. This includes any business process such as production, manufacturing, or services.”
So, “IT off-shoring” typically refers to off-shore IT services delivery. The main reason for off-shoring is to source adequately skilled IT workers who will work more cheaply than their counterparts in other market regions and countries.
When it Makes Sense
There are as many cases when it does not make sense to off-shore, as those when it does make sense. Priocept has worked in the IT industry for some years providing UK based development services, but also working alongside off-shore development firms where this is appropriate. Based on our experience developing internet-based solutions for companies such as Panasonic, Lloyd’s of London and the London Stock Exchange, we can share a perspective on off-shoring that can help you make the right decisions for your business and your IT projects.
Off-Shoring is Good When…
You will find off-shoring advantageous when your company needs to do one or more of the following:
- Produce large but well-defined IT systems where the need for large amounts of resource is a critical factor in the success and cost-effectiveness of the project.
- Deliver “execute only” projects to re-engineer existing systems that are functionally fit-for-purpose, and so clearly illustrate the business requirement, but which have a poor technical implementation, or which need redeveloping for a different technology platform. Migrating your VB6 and Access database solution to a like-for-like .NET and SQL Server solution is a commodity task where project cost is really the only factor in the decision on how to move forward.
- Secure supplementary resources for activity that is peripheral to core development work. This can include testing resources, delivery of documentation, development of technical tools which support the development process, and other low-risk technical activities which will have limited impact on the quality of the end product itself.
Off-Shoring is Bad When…
You will likely find off-shoring detrimental when your company is looking to:
- Build a highly innovative product by starting with no more than a core idea and then applying some “R&D” type activity. As opposed to performing structured analysis, design and development tasks in the style of a more traditional (and less creative) IT project lifecycle.
- Work with a partner who will be highly proactive in identifying the business and functional requirements of a project, rather than just working “to spec” to execute a well-defined piece of work under close supervision from the client. Most off-shore solution providers have, so far, failed to move up this part of the value chain and are unable to demonstrate a track record of truly partnering with the clients in this way.
- Work with a partner who will take a high degree of responsibility for delivering the right product and the right end result for your business, not just take responsibility for building what was asked of them. This type of high-value consultancy requires close relationships between client and supplier, and this is something that the logistics and cultural challenges of off-shoring do not encourage.
Summary
Off-shoring has its place within certain categories of IT services, software development and operations. The primary driving factors for your off-shoring decision should be:
- Innovation – the degree of innovation in a new business system, or a new product development, can make the difference between commercial success and failure. If a high level of innovation is critical, then the cost savings of off-shore development may quickly become false economy.
- Internal resource constraints – expect that your own people will have to work harder to make off-shore based projects a success. Analyse the hidden costs of using your best resources in this way, and be sure that it does not offset the cost savings that attracted you to off-shoring in the first place.
- Return on investment – cheaper development costs do not equal better return on investment if your project does not succeed and the investment provides no return. Be prepared to accept higher costs for premium consultancy services, where you can show that a higher level of investment will also lead to proportionally higher returns.
- Intellectual property protection – whether or not you decide to off-shore, don’t compromise on retaining ownership of the assets that you have paid to be developed. Low cost is not low cost if you don’t end up owning what you paid for.
If you are considering off-shoring then you need to make certain these factors are part of your business decision process. Priocept works with its clients across a whole spectrum of project configurations from on-shore to off-shore, and combinations of the two and we also provide consultancy services to help clients coordinate programmes that use a combination of delivery models.