Offshore: The Third Time's the Charm

Computerworld - In every recession, corporations cut costs by moving repetitive jobs to lower-cost countries. In fact, manufacturing jobs have been moving offshore since the 1950s. The first round of offshore IT efforts began 10 to 15 years ago as a way to reduce the cost of maintenance for legacy systems. In those days, companies set up operations (or used outsourcers) in Ireland and Canada. The really adventuresome went to India.

The second round of offshore IT was focused on fixing the Y2k problem. Offshore activity boomed, providing a way to obtain hard-to-find skills (like Cobol) and reduce the cost of tedious work.

Rounds 1 and 2 of offshore IT outsourcing had mixed results because of telecommunications difficulties, immature systems-development methodologies and cultural differences.

But now offshore IT work is becoming increasingly popular in the executive suite. Most companies are at least experimenting with sending IT offshore, and a few have jumped in with both feet. Research indicates that these efforts will grow rapidly over the next few years, for the following reasons:

• Budget pressures. Although some IT budgets are starting to rise, most organizations will continue to experience budget constraints. Some CEOs believe that IT budget cuts over the past few years have not hurt their businesses. Budgets will likely remain flat, and most companies will continue to pursue cost reductions.
  
• "No-win" functions. Some parts of IT are always expected to work, much as you expect a dial tone when you pick up a telephone. The CIO isn't complimented when the network is running (but will hear about it when the network is down). Smart IT organizations are shedding these thankless functions.
  
• Specialized service providers. Specialists often deliver better service. Without the huge scale, it's very difficult for in-house IT departments to match the skills and specialized technology of an outsourcer's well-run help desk or server center, for example.
  

Will offshore IT succeed this time? Yes, this round is likely to be more successful because of the following industry changes:

• Telecommunications quality has improved dramatically. International calls are often indistinguishable from local ones. And costs have plummeted. Long-distance calls to India can be as low as 2 to 3 cents per minute, if purchased in bulk.
  
• Offshore companies are trying to make geographical distances transparent. Recently I received a call and follow-up fax from the administrative assistant of a Chicago-based sales rep. I later learned that the assistant lives in India but works the rep's hours. I never suspected she wasn't in Chicago.
  
• Offshore software-development processes are improving. Indian firms in particular have focused on getting Capability Maturity Model Level 5 certification. Our research indicates that India has two to three times more CMM Level 5 centers than the U.S.
  
• Offshore companies are expanding their offerings. Most have moved beyond being mere body shops and are taking on project management responsibility. Others have vertical industry experience and/or business process outsourcing capabilities. They've grown rapidly and are winning contracts with major U.S. customers.
  
• Several lower-cost countries are taking steps to protect intellectual property and data. For example, India is now debating data privacy legislation modeled on the European Union's Data Protection Directive. The legislation's effectiveness won't be certain until several cases have been tried under the statute, but the direction is clear.
  
• Culturally, companies have adjusted to working with team members who aren't physically located in the building. Telecommuting paved the way; teams comprising people in multiple locations are now commonplace.
  
• IT is maturing. Deliverables and service levels are emphasized as IT becomes more of a science and less of an art. In the early days, one programmer defined requirements, wrote code and provided user support, all without specifications or documentation. Today most large-scale projects are highly defined, easily segmented and well documented. Many development and support functions that require little user interaction can be performed virtually anywhere, without sacrificing efficiency or effectiveness.