Whether onshore outsourcing or offshoring, all successful businesses have reaped benefits of partnering with experts. A lot of outsourcing is focused solely on cost savings. But research shows that companies who outsource IT development are looking for more than cost savings. They’re looking to augment internal capabilities and expertise. They want to speed time-to-market.
95% of the firms considered to be Fortune 1000 firms, are using an offshore strategy. The success and savings through offshore outsourcing depend on your approach and thorough work on offshore strategy.
The economic benefits of outsourcing are real and significant. While cost reduction is the primary strategic focus of most companies that are offshoring, though it is not the only strategic advantage to offshoring.
In some industries, IT offshoring is beginning to be viewed as a strategic necessity. Some call it “offshore or die.” When one company’s cost efficiencies allow it to lower prices or expand its competitive options, then other companies must match their competitor’s strategy, or fail. Offshoring is becoming part of the larger context of hyper-competition: companies are swept into faster and faster cycles of competitive responses and reactions in order to remain financially viable and cost competitive.
The strategy most companies miss out on is the ‘focus’. Each organization needs to identify its niche and core competency. They need to let go other functions by partnering with other services. This enables them to concentrate resources on growing the business and being ahead of the game. This is just not for big fortune 1000 companies; this very well applies to start up companies.
IT offshoring has been driven primarily by executives’ desire to lower operational cost.
Why are these savings taking place? Technology outsourcers (application service providers and managed service providers) have developed excellent economies of scale. Providers become experts at implementation, configuration, customization and operation.
Providers bear the costs of the recruitment and training of new staff; as well as the costs of purchasing new software, hardware and infrastructure. Recent advances in communication have drastically reduced the costs of off-site software development and improved the comfort of long-distance negotiations.
Along with work you outsource hiring, training, infrastructure, benefits and management needs! This is huge. Some organizations do not reap enough advantage of offshoring because they spend time micromanaging these activities. What’s needed is active involvement and not micromanagement.
Speed, agility and flexibility
The first strategic lever is the increase in speed, agility, and flexibility. This means that companies that offshore can rapidly ramp-up, so shorter kick off process and reduce project duration that is time-to-completion. The abundant supply of labor offshore gives companies greater agility: to assign a large number of engineers to a problem; to forge ahead in several directions instead of just one; to ramp-up (scale-up) and respond to a business need within days instead of months.
What is one of the major pain points in software development, it is constantly changing requirements. With limited resources – talent and time at hand and changing requirements, most time is spent internally fighting about what goes into the product and constantly changing priorities, scheduling and rescheduling project over and over. Having larger pool of professionals with very little cost certainly facilitates flexibility..
Companies that develop software products benefit from the strategic advantage: accessing talent. For these companies, their success stems from innovation and their innovation capabilities come from their talented resources, by offshoring companies have access to wide range of brilliant and creative engineers.
If your challenge is time to market and staying ahead in the competitions, access to diverse talent would be the important benefit more than just the cost aspect.
Stories about offshoring often mention follow-the-sun, also known as round-the-clock. Along with low costs, follow-the-sun is another allure of offshoring. It is often mentioned by those who seek to make offshoring sound unique. Follow-the-sun, as the name hints at, exploits time zone differences to speed up project work. For example, a team in United States can hand off its work at the end of its day to team members in India or China, who can then continue the work while the US team members sleep.
Nevertheless, follow-the-sun can be effective for some activities and for certain phases in software work. Startups in US have been excited about rapid prototyping of new software products in which the coding is done in India, and then sent back to the US for comments and refinement. Activities, such as bug-fixing (in the maintenance phase), or call-centers (e.g. technical support), are better suited to follow-the-sun, because they are usually small tasks (low granularity), of low complexity, and can be routed between the time-separated sites.
Process and Quality Improvement
Research shows, the leading driver for cost savings in an offshore outsourcing engagement to be process improvement along with the lower vendor resource costs and cost predictability.
Outsourced companies make performance reports and measurements available to their clients.
As a byproduct of offshoring, inter-departmental communication improves at all levels. Outsource staff tend to drive planning and budgeting improvements. Also, you can establish Service Level Agreements (SLAs) with the vendors that are not possible with internal staff. Since the work is being done at a different location, the proactive communication and clear thinking about what you want is automatically forced.
Facilitate Reallocation and Liquidity of Resources
Your valuable resources are freed because of outsourcing. Your managers and executives can spend time saved in outsourcing, to
• Focus more on strategic planning with line managers.
• Spend more time on measurements and analytics.
• Spend more time planning and budgeting.
• Evaluate new technologies and approaches for greater efficiency and effectiveness.
The money saved by software outsourcing can be poured into other important projects.
In the economy of 2008-2009, it makes more sense to identify the core; focus on that and partner with other companies to drive the growth and success. It is no more a local economy and we have experienced, one industry can impact the entire world’s economy. So we all need to think “Global”.
Economists believe that if one job was outsourced, another job is created. Each outsourced job can generate work for more many other people as the money flows around the national economy. Every dollar saved is dollar earned which when invested appropriately will bring you twofold benefits.
