March 12, 2007

Five reasons why Outsourcing may not work

Few days back,I had a small article on outsourcing and when we talk about outsourcing,the first thing which comes to mind is "Cost cutting".But is outsourcing only about cost cutting and what precautions should be taken when work is outsourced? Gartner had a good analysis about this whole outsourcing scenario.Keep on reading...

Five reasons why Outsourcing does not work:

a. Unrealized cost savings:
Most businesses push work overseas in the hope of cutting labor costs. An application maintenance worker in India, for example, earns about $25 per hour, compared to $87 per hour in the U.S, according to Gartner. But businesses make a mistake by looking at salaries alone.Though there is a lot of saving here,the hidden cost includes in infrastructure,communication,travel,training etc.

b. Loss of productivity:
During the initial phase of outsourcing,staff at an offshore service center probably won't be as productive as internal staff back at home.Gartner has the follwing reasons for the loss of productivity:Staff turnover can be high in competitive offshoring markets such as Bangalore, India, which also means programmers there may be new and inexperienced. And service centers overseas struggle with ambiguities in the work they are assigned and shifting directives. Sending jobs overseas can also lower morale at home, creating a drag on output.

c. Poor commitment and communications:
Good communication is very important for the success of any project.Projects,goals and expectations should be clearly defined.Also,at the home side,the managers should explain its employees why the work is getting outsourced and what would be its benefit.

d. Cultural differences:
Culture differs from one region to another.As per Gartner,"In some cultures, questioning authority is considered disrespectful, so a team may push ahead with a given plan even if they see a better approach. Offshorers should get expert advice about a local culture, provide cultural training and even arrange exchanges among staff on both sides"

e. Lack of offshore expertise and readiness:
Organizations should first see whether they are ready to take up the outsourced work,do they have the right set of people , have the right team composition,have the right competency etc.If they do not have the right competency,plan should be made to build the competency among the existing set of people in the organizaion so that taking the outsourced work would be simpler.

You can read the complete article here

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