Enterprise Initiatives

This blog focuses on Enterprise IT topics such as Enterprise Architecture, Portfolio Management, Change Management, Business Process Management, and recaps various technology events and news.



I read this article today about outsourcing that claims that outsourcing is not just about cost anymore. The author points out these four reasons for outsourcing:

-Accessibility to right talent
-Geographic expansion
-Reinvention of their business model
-Promote innovation
After I finished choking on my cornflakes I decided I must offer a different opinion on this matter. First I want to differentiate between outsourcing and offshoring. Offshoring is obviously when you send work to other countries. Outsourcing is when you send work to companies outside of your corporation that may or may not be in the same country. Since the article was based on this link from The Times of India I know that they are really talking about offshoring.

Here is my take (from a US point of view). Offshoring is a cost savings exercise, period. There is a lot of overhead involved with offshoring due to language barriers, cultural barriers, and time zone challenges. To successfully offshore development, the paying customer must provide a maximum amount of oversite and process to overcome these barriers. Outsourcing is different. With outsourcing, I can bring a team of consultants on site for any amount of time without paying the expenses of flying them in from the other side of the planet. You still need oversite and process but not at the same level because the language and cultural barriers do not exist and the time zone differences are manageable (if there even are any).

I wrote this article a while back about agile development and consulting. In summary, if you want to be agile, don't engage with an offshore partner. Agile development requires face to face interactions and loosely defined requirements due to the iterative nature. The requirements get nailed down over time by cycling through requirements and protoyping. This model is a recipe for disaster if you are using offshore resources. For offshore to work you need to have a more waterfall type approach were the requirements are fairly static.

The article that I came across did not link back to the original research provided by PWC. If you read the PWC article you will see that over 50% of the service providers surveyed are US companies like PWC. So the findings in the research make a lot more sense to me because we are really talking about outsourcing and not totally focusing on offshoring. US companies are definitely leveraging consulting companies like IBM, Accenture, and others to foster innovation, reinvent their business models, and access the right talent. They don't use these companies to save money (they cost an arm and a leg). Saving money is all about offshore development.

The lesson learned for me is be careful what you read on the net. The PWC article is a very good analysis of what is happening in the marketplace. The problem is all of the offshoring blogs are using it to say, "See we are more then a cheap alternative", which does not represent the facts of the PWC research. For those who just read the headlines and don't take the time to read the details, beware!

2 comments

  1. David Carr  

    I note the original post simply lists the four points but doesn't explain them.

    Geographical expansion? I can't see many businesses expanding in the direction of a far-away country because there is some cheap talent there!

  2. David Carr  

    http://david-carr.blogspot.com/2007/08/response-to-outsourcing-its-not-about.html

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