Last month I heard from two separate CIOs that the outsourcing of development (one off shore and one near-shore) had produced neither same quality nor decreased cost. What they experienced was end user frustration due to longer lead times.
Over the past 10 years I have seen a dramatic increase in the amount of outsourced development at our customers and in my network. Over 60% of our customers have 1st degree (they deal directly with outsourcing companies) outsourcing, over 80% if we include 2nd degree (their primary IT suppliers use off-shoring).
There are some obvious benefits to this that are no longer purely cost based. With the increasing complexity of IT systems, there is an increased need for highly skilled resources and demand in our part of the world is insufficient.
This is not a new trend, nor is it a surprising development. However, we are seeing some companies reach a critical mass – a tipping point, where they can no longer within any reasonable time insource development or even ‘back-shore’ development.
While the dominant trend is indisputable, it remains to be seen what standard frameworks will emerge to handle the entire governance of outsourcing more efficiently. Recent studies in the field indicate that 70% of failures of in global companies are due to poor requirements gathering and planning.
I often meet professionals in my network that are frustrated with the lack of benefits from benefits. Several problems arise from basic cultural differences. Those are to be expected and will naturally decline over time.
However, other problems are very basic: lack of a proper framework for governance and supporting tools.
There is a huge potential for realizing outsourcing benefits. There must be, if my two meetings this month with CIOs is any general indicator. If off-shoring can result in developer hour rates at 23% of our local cost (based on comparison of India to Denmark salaries) – then something is not being executed well if it results in same cost and more frustration.
Governance of outsourcing – and tools to support the entire supply chain from strategy to product, definition, design, development and test is crucial to bring outsourcing into the next maturity level.
It is this problem that IBM’s new Outsourcing Accelerator addresses – a concept where the entire food chain from strategy, business needs, requirements specification, development, testing and reporting is supported by Focal Point as a ‘hub’.