There's More to Consider Than Cheaper Labor

Computerworld - There's much more to offshore outsourcing than lower labor rates. Industry experts and CIOs with offshore experience caution would-be customers to carefully examine all of the risks, including the hidden costs. It's also important to protect intellectual property, examine the geopolitical risks in the region where the work will be done and effectively communicate the company's overall outsourcing strategy to stateside workers.

Offshore outsourcing "creates some stressful situations, some motivational factors and some confidence factors with your own people," says Rick Greenwood, CIO at GMAC-RFC Residential Capital Group in Minneapolis. Greenwood addresses those issues, in part, by keeping his company's most important IT work in the U.S.

"We're very careful not to give away what I would say is a core competency and core business knowledge," he says. Instead, he and other IT managers at the company try to maintain those competencies by providing IT staffers in the U.S. with continual training and moving them to high-impact projects.

Scrutinize Political Risks

Curtis Robb, president and CEO at Delta Technology Inc.

"We're trying to manage the risk of the political environment," says Curtis Robb, president and CEO of Delta Technology Inc., the IT services arm of the Atlanta-based airline. The company has awarded IBM a contract to provide offshore IT services because IBM has 16 regional centers worldwide.

More than 90% of outsourced application maintenance, help desk and desktop maintenance work and a limited amount of call center and customer service work is currently being sent to India, according to Avinash Vashistha, a senior adviser at NeoIT, a San Ramon, Calif.-based offshore services advisory firm. That figure excludes IT work outsourced to Ireland and Canada but includes other countries such as Israel, says Vashistha.

Experts say outsourcing to India can reduce IT labor costs by up to 50%, but most customers underestimate the indirect project and program management costs.

"When you send your people overseas to visit these sites frequently, your costs go from $42 an hour to $85 an hour," says Steve Andriole, a senior consultant at Arlington, Mass.-based Cutter Consortium and a professor of MIS at Villanova University. Andriole's calculation includes travel costs plus the cost of lost productivity that occurs when a U.S. IT worker is removed from his daily tasks and sent overseas for a few weeks.