If we look at the number of organisations outsourcing their software development, IT service desk or WAN support to India and other cheap-labour countries, offshoring nowadays seems not only convenient and straight-forward, but as easy as abc. But what the media doesn’t seem to cover is an issue that is not at all uncommon: it hit Barclays, Quark, Dell and a large number of other companies – what happens if all is not well and you have to take the offshored back in-house?
The phenomenon has already been dubbed ‘backshoring’ in the US, where 30% of Fortune 500 companies have experienced it, according to Oxford Analytica. As for the UK, a survey conducted by the National Computing Centre found that 14% of the respondents who have used offshored facilities for their IT have switched work back to the UK, and another 24% are considering the move. This means that nearly 40% of organisations haven’t found offshoring satisfying.
However, the problem is that once you decide to reverse the decision, the process is not trouble-free. Of those who have taken services back in-house, 30% say they have found it ‘difficult’ and nearly half, 49%, ‘moderately difficult’. When we talk about IT, in fact, we are dealing with the pulsating heart and veins of a modern business, where everything seems to rely on technology. So the costs of reversing an offshore operation do not only cover the facilities and assets – it extends to data security, staff skills, system disruptions and inefficiencies, low user or client satisfaction, client loss, and maybe much more. What happens to the CIO who proposed or supported the offshore move?
Let’s look at some examples. Barclays’ recent ‘divorce’ from Accenture appears to be peaceful and grievance-free, just the best answer to their present needs. When the application development and management of their banking systems were assigned to Accenture in 2004, around 900 employees were transferred to the provider. But only 230 are expected to be taken back. What happens to the various development, support and maintenance staff and their skills every time they are shifted to the other side? Some are taken on by the new employer under TUPE arrangements - the Transfer of Undertakings (Protection of Employment) Regulations preserve employees' terms and conditions with the previous company - although the majority will be lost, either voluntarily or forcefully made redundant. Unfortunately, when you lose people you lose their acquired skills as well, and to that there is no remedy.
An organisation which decided to openly talk about their failure is Everdream, which provides customers with remote desktop management services, and that in 2003 decided to outsource their Californian help desk to Costa Rica to aid scalability as their business was growing. Fifteen people were sent to the provider to train the call centre employees ‘the Everdream way’. It turned out to be an ever-nightmare when trainers found themselves dealing with a completely different business culture where the idea of customer service was “move ‘em through”, clashing with the hands-on approach of the firm. The strong foreign accent also failed to impress the customers, who started to complain almost immediately. The ‘shallow talent pool’ led Everdream to pull out, as happened to Dell the previous year: customers unhappy with their Indian technical support launched in 2002 made the company decide to re-route calls back to the U.S. In Everdream’s case, the pull-out was spread across six months, making the transition softer and minimising the damage, and many employees had their jobs back. However, it did take some extra financial effort to take the work back in-house and the long-term damage, the relationship with customers, is difficult to measure.
Bad customer service and poor product quality is what brought many Quark clients to switch from their software to Adobe’s InDesign during the Indian experience, never to return – 60% of their customer base, it is claimed. When work was brought back home, the C-executive who decided and led the offshore move was fired without hesitation.
Finally, a mixture of reasons have brought many offshored Oracle projects to fail for a number of US companies, it was reported a few years ago. Communication problems, poorly skilled and trained developers and enormous cost over-runs were topped with the previously unconsidered difference in the Indian law system. Oracle jobs were re-shipped back to the US, but the unrecoverable financial loss left many organisations strained.
These examples confirm the findings of research in the area: the most popular reason for failure is the lack of preparation and execution not on the provider’s but on the client’s side. An organisation needs to be prepared and know what they want from the provider and if offshoring is the right move, to avoid disappointment. Poor joint planning is also often at the root: if the client does not clearly outline and clarify roles and responsibilities, expectations, performance metrics and flexibility prior to signing contracts, there is not much to be expected. Service Level Agreements have to be clear for both sides and have realistic metrics and targets. Experts also suggest defining an exit strategy for contract end or for under-performance, as in fact poor vendor performance is another important reason for failure. Problems related to communication between the in-house and offshore team and to their different culture are often the cause of poor execution, as highlighted with the case of Everdream.
It is important to note, nonetheless, that not all outsourcing projects end up in failure. There are plenty of instances where they do deliver real benefits, both in terms of cost-reduction and improvements in service. However, the success stories tend to involve the use of a partner closer to home, able to understand the client’s environment while allowing easier monitoring of their performance.
So in the case of offshoring gone wrong, what should a CIO take into account when considering the costs of its failure?
The most obvious, and often largest, cost comes about when taking down the offshored department and re-installing it elsewhere should things go wrong, either in-house or with an IT partner nearer to home. Then there are the costs related to lost skills: organisations are unlikely to be able to re-employ previously fired staff so it will be a case of starting again from scratch. New staff will have to be found and trained, and it will take time before service levels are sufficient to deal with business demand – meaning costs could quickly run to seriously damaging amounts.
Technical issues like data security are also not to be overlooked. Different countries have different laws, and might not be so respectful of the privacy of your data. It can be lost, stolen and leaked by redundant employees abroad, legal protection from whom might be weaker than in the UK.
Finally, one last consideration for any CIO is the cost to them as an individual. Should a project as controversial as offshoring fail the responsibility is likely to rest squarely on the shoulders of the person in control. This means ensuring offshoring is really the right path for your organisation is key, as is making sure you are able to clearly demonstrate that it was the partner, not the process, that was at fault should things go wrong – both of which being easier said than done.
Adrian Polley, CEO at Plan-Net plc.
About Plan-Net
A specialist in transforming IT operations into high-performance, cost-efficient platforms for business success, Plan-Net works with clients of all sizes and needs to help them maintain high levels of service while still meeting demands for a reduction in IT spending.
Celebrating its twentieth anniversary in January 2010, Plan-Net has helped to enhance performance, flexibility, security, cost-efficiency and, ultimately, user productivity at clients large and small for the two prosperous decades of its existence.