Posted on 10/19/2004 9:29:27 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
One in five IT execs claims to have been "forced" into offshore outsourcing due to pressure from the board and shareholders and over a third say their offshore projects failed, according to new report.
Out of the sample of 5,231 IT users across the US, UK, Canada and Europe, quizzed by research firm Ventoro, 19 per cent said they have an offshore strategy. Out of these 45 per cent said it was a success and 36 per cent claimed it had failed.
One in three also admitted to moving work from the offshore team back to the onshore team because of "performance problems".
Cost remains the main driver for offshoring, although a fifth cited pressure from the board and shareholders. Security, intellectual property issues and quality of service were the main reasons given for not moving services overseas.
Interestingly, however, while one in 10 firms admit to suffering IP theft on an offshore project, in two out of three cases the source of the problem was a member of the onshore team.
The main cause of offshoring failures is a lack of preparation and poor execution by the user organisation, although Ventoro admits that some offshore vendors can try to "steamroller the initial engagement process" in a rush to get the contract signed.
The Offshore 2005 research also warns against unrealistic cost saving expectations. When the successful and failed offshore projects were taken into account the average saving was found to be less than 10 per cent, although when the just the successful projects are taken into account the average saving is around 19 per cent.
"If you are anticipating offshoring savings of 50 per cent or more, you are not being realistic," the report said.
The potential for a customer backlash must also be taken into account by firms looking at offshoring and the research suggests firms ask customers if they are willing to pay a premium to have the service done locally. "If the answer is yes, reconsider moving offshore," said the report.
But it also claims the backlash has yet to materialise. "While customers are passionate about the offshore debate, their purchasing patterns do not indicate they are serious about the issue."
Interestingly, however, while one in 10 firms admit to suffering IP theft on an offshore project, in two out of three cases the source of the problem was a member of the onshore team.
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The Offshore 2005 research also warns against unrealistic cost saving expectations. When the successful and failed offshore projects were taken into account the average saving was found to be less than 10 per cent, although when the just the successful projects are taken into account the average saving is around 19 per cent.
Assuming the credibility of the source, I wonder what the savings would be if both the failures and the thefts were taken into account. Less than 10% is already a thin pie to slice; accounting for the loss of intellectual property might well bring "savings" to 0 or less...
And they wonder why this happens, when in every single one of these posts the word "quality" never appears by those advocating outsourcing.
My theory on IT outsourcing has always been that it will decline as soon as the crappy results come in. If we just let the free market process take its course, all will be worked out. As it should be.
The study polled companies in "US, UK, Canada and Europe" about offshoring. I'd be interested in knowing whether European projects offshored to the US were more or less successful than vise versa.
That, and the fact that there's a whole bunch of lawyers who are going to get rich in the emerging litigation market overseas. While there may be a flood of outsourcing now, you just wait until the lawyers and insurance companies sink their teeth into them overseas countries where labor is so cheap. Just as we export technology and jobs to cheap labor markets, we'll export our labor laws , unions, insurance regulations and health care programs. That'll prove to be the great equalizer.
It's an on going process. I had a lawyer friend that flew to Bhopal (way back when) so he could sign up clients to sue Union Carbide.
You can run to India but you can't hide.
If you are having specific things done by the right people the comparative cost for some coding, web services for example, can be as low as 6% of domestic costs.
Software projects have high failure rates. Even the ones that aren't offshored.
Good question. I think all important software projects should be done inhouse or with a trusted vendor. Failure for software projects is a subjective term. I think something like 90% slip dates. Some projects are doomed from the start. An executive wants it done, or some company is willing to pay a vendor, the reason being internal political reasons even though they know it's not going to work.. I imagine many of these are offshored. If a project is going to fail you want it done at the cheapest price, right?
the executives read this as - "2 of 3 succeed", so they just keeping sending it all over.
Offshoring just means you can fail cheaper than fail onshore.
Most projects fail due to poor management, not the quality of work being done by line-level developers and testers.
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