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Offshore Outsourcing: On Target or Off Base?

I’m not a big Bob Dylan fan, but lately I can’t help thinking of the second verse from "Blowin' in the Wind" in which he questions man’s inability to confront what is really happening all around him.

Dylan’s lyrics come to mind whenever the media starts hyping yet another new “business imperative.” In the early 1990’s business reengineering was all the rage. Anyone hesitating to reengineer their business processes risked quick consignment to the dustbin of history. Or so it was believed. But most companies expecting “10 X” performance improvements were severely disappointed.

In the late 1990’s, “e-business” took the world by storm. Companies raced to get digital or get dead. But the astronomic market growth predicted by research and investment analysts never materialized. Billions of dollars of investments in new e-businesses and their electronic infrastructure had to be written off.

Today’s management trend du jour is offshore outsourcing of knowledge work. Pundits refer to it as an “irreversible mega-trend.” Offshore outsourcing is seen as particularly attractive because it allows companies to tap into huge pools of inexpensive, highly skilled talent based outside the US. The “experts” warn that any company moving too slowly or refusing to embrace offshore outsourcing will soon be at a competitive disadvantage. As a result, corporations from just about every industry and even some government organizations are now shipping everything from a few backroom-programming tasks to entire business processes overseas.

But haven’t we heard this song before? Is offshore outsourcing really a competitive “must-do” or are the same disappointments awaiting shortsighted executives desperate to pump up earnings per share to make this year’s bonus?
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While there are undoubtedly cost and quality advantages to sending knowledge work to cheaper locations overseas, there are also many good reasons for caution. Reports from companies with offshore outsourcing experience are mixed. Performance is highly variable depending on the activity, country and service provider involved. Savings of 20-25% are possible – but only if you execute flawlessly. Companies like Dell and Lehman Brothers have discovered that highly educated and inexpensive workers alone don’t guarantee quality. Both recently moved help desk and customer support activities back to the U.S. because of customer complaints about poor service.

There are numerous hidden costs and risks that need to be taken into account as well. Information security and privacy issues can have significant downsides. Managing work and relationships long distance with people from different cultures requires added time and overhead. Perhaps the biggest unseen consequence is the negative impact on the rest of the organization. Top executives, particularly American managers, seem oblivious to this risk in their obsessive pursuit of cost reduction through flexibility. Many unquestioningly believe that their companies can be organized to be infinitely reconfigurable – like so many interchangeable Lego parts. But corporations are more than collections of assets and resources – they are also complex networks of people with interdependent social relationships and knowledge connections. When people are eliminated from the organization through tactics like offshore outsourcing, working relationships are often seriously disrupted and critical company-specific know how is lost.

The blow to staff morale is another overlooked cost of offshore outsourcing. Long term damage to employee commitment, productivity and performance is a real possibility, especially if employees view outsourcing as something unfair that is being done to them, rather than a strategy they are comfortable with or at least recognize is unavoidable.

So before sending work (and jobs) offshore think twice about whether it is really the right thing to do for your business in the long term. Do the cost and quality benefits outweigh the operational and strategic risks and the organizational impacts? Are you blindly following conventional wisdom or thoughtfully doing what’s right for your company?

The answer is my friend is blowin’ in the wind, the answer is blowin’ in the wind.

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Tony DiRomualdo is a business researcher, writer, and advisor with Next Generation Consulting. He works at the intersection of people, business strategy, and information technology to help companies create a committed and high performance workforce. Tony can be reached at td@nextgenerationconsulting.com.

Comments

Offshore Outsourcing responded 5 years ago: #1

We can absolutely trust offshore outsourcing as a winning offer, which has widened its horizon to ITO, BPO, Software R&D and KPO. No doubt offshore outsourcing is a win-win game! We advise everyone related to IT field to bump into the magnetizing world of offshore outsourcing to maximize the gains.

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