Back to news & views

Are the hidden costs of off-shoring destroying your business case?

Global off-shoring revenue exceeded $20bn in 2008, and it’s either a reality or on the agenda for most CIOs, particularly in a cost-cutting environment.  While it has the ability to transform your organisation, if you approach off-shoring incorrectly the hidden costs can end up destroying your business case.

From the start, ensure you are fully briefed on the potential costs in procurement, due-diligence exercises and transition.  Recognise that your existing documentation will not be sufficient for most vendors and that they will invest a considerable amount of your, and their, effort in bringing this up to date. Ensure you accept and plan for a productivity dip in your ongoing delivery as you go through the transition process at the same time.

Think carefully about the retained reorganisation that you will use to manage the off-shoring organisation. It’s likely this will be larger than you originally envisaged. If you aren’t careful you will end up abdicating responsibility rather than delegating to your off-shoring provider and over time you will lose the knowledge of the off-shored components.

Don’t believe that you can manage the relationship on the basis of monthly dashboards and SLAs;  this can be a very blunt instrument that misses the way your customers expect the service to be executed and can result in undesired behaviours from all parties involved.

Beware also the “chase to the bottom” on day rates; if you push your supplier too hard you will inevitably not have access to the cream of their staff.  Recognising that your suppliers are experiencing significant upward wage pressure in their local markets and allowing room for this day rate inflation will allow the best people to be staffed on your work.  The cost of poor quality will quickly outweigh any day-rate savings. Incorporate a tough-but-fair reward model to bring about improvements also.

Overall, a partnering mentality will yield better results than a focus purely on the financials. The consequent improvement in service delivery will lead to happier users and a better return on your business case.