Eye on Offshoring: Aligning IT Strategy With the Business Strategy

By Scott Warren, INS

May 23, 2005 12:00 PM ET

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Computerworld - The forces driving U.S. -- and more recently European -- businesses to move back-office and other strategic functions to offshore locations include, of course, lower costs. But some argue that through offshoring, businesses can also access more skilled labor markets, currently for selected functions such as software development, but soon to expand to other areas once thought the exclusive domain of countries with advanced economies. The following quote by Roy Terry, an associate professor of finance at Fort Hays State University, exemplifies this thinking:
"Our labor force is not better trained, harder working or more innovative than our foreign competitors. The argument that we will create jobs in highly paying fields is simply not true. We have no comparative advantage or superiority in innovation. To assume that we are inherently more creative than our foreign competitors is both arrogant and naive. We are currently empowering our competition with the resources to innovate equally as well as we."
Take special note of the last sentence of this quote. If Terry is right -- and the composition of the student bodies of major business and engineering schools in the West indicate that he is -- developing an offshoring strategy is something that businesses need to start now. Waiting for others to lead the way will only lead to eventual cost disadvantages and competitive suicide.
What impact does this have on an IT organization? The first is the need to modify the IT strategy to reflect the offshore dynamic. Tasks that can be offshored fall into two broad categories:

Low-skill, low-salary jobs, which typically include call center and help desk staffing, as well as manufacturing.

Higher-skill, higher-salary jobs, which include mathematicians, accountants, financial analysts, engineers, computer programmer/developers, IT infrastructure administrators, architects, physicists, chemists, biologists, legal analysts and human resources professionals.

Addressing this first issue is the most difficult challenge of all for IT leadership. When business executives ask for an offshoring strategy, we in the IT world need to stop thinking about the potential macroeconomic impact of large-scale layoffs and come to grips with the fact that successful offshoring engagements are, in fact, better for the business. (If you are interested in reading a report on the economic impact of offshoring, read Government Accountability Office report No. GAO-04-932 on "International Trade." One of the findings was that the layoffs attributable to overseas relocation represented a small fraction of the total mass of layoffs.) If offshoring can lower costs and increase margins, profitability and ultimately shareholder value, then IT needs to get on board, not be

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