Outsourcing as a practice remains strong, Larry Quinlan, CIO of professional-services provider Deloitte LLP, asserted during a keynote address at last week’s Global Sourcing Forum and Expo in New York City. Despite his pro-outsourcing bent, however, Quinlan also acknowledged the arguments of those who feel that off-shoring is ultimately detrimental to the U.S. economy.
That conference featured a number of CIOs, including Discovery Communications CIO David Kline, discussing ways in which companies could most efficiently outsource their IT and other assets. While many of those speeches and discussions focused on the more technical aspects of offshoring-for example, Kline talked at length about how virtualization and consolidation were necessary steps to take before a transfer of assets overseas-Quinlan’s speech took a more philosophical bent, focusing in a large part on dispelling what he termed “myths” about the outsourcing industry.
Quinlan’s remarks come during a somewhat transitional time for the offshoring industry. Although the trend of companies shipping work to other countries is unlikely to end in the near future, competitive trends such as in-country outsourcing to U.S. rural states have arisen in recent months.
In a BusinessWeek survey of 100 CFOs conducted earlier in 2009, some 22 percent cited the U.S. as a location to which they’d consider outsourcing in the future, followed by China at 16 percent, India at 13 percent, Southeast Asia at 7 percent, and Latin America at 7 percent.
DbaDirect, an outsourcing company specializing in database administration services, told eWEEK that “a global presence allows his company to compete on price with the companies that are totally offshore, as well as take on U.S.-based projects that need quick turnaround.”
In conjunction with an anemic economy just beginning to claw its way from the depths of the biggest downturn since the Great Depression-forcing many businesses to cut back on their outsourcing spending-and a presidential administration that may impose measures to encourage jobs to stay in the U.S., some traditional outsourcing locations such as India are perhaps justifiably concerned about the future. For their own part, some companies that previously jumped into outsourcing with both feet have evidently been starting to voice concerns about the process.
Quinlan seemed intent on assuring his audience that many of those fears that had cropped up about outsourcing were largely unfounded. Using data he said was internally generated by Deloitte, he offered the following rebuttals to what he said were widespread fallacies about outsourcing:
Offshoring Shared Services Has Not Been Successful
“That’s absolutely not true,” Quinlan said. “We’re seeing significant upticking in global offshoring activity.” With the maturation of the offshoring market, there has been an accompanying decrease in the hype and media attention devoted to the process; but nonetheless offshore continues to grow in scale and complexity.
Adding to the potential appeal for U.S. companies is the economic recession which, Quinlan added, has helped suppress wages outside of the U.S.; meaning that “wages in the offshoring centers are not catching up with U.S. wages anytime soon.”
Offshore Labor Pools Have Been Exhausted
“Offshore labor pools have not been exhausted in any significant way,” Quinlan said. Apparently, he had received complaints from some executives saying that they had a hard time finding suitable personnel in companies such as India and Brazil; Deloitte’s internal research, however, apparently showed a suitable labor pool in most of those locations.
Only A Few Locations Have Been Suitable
A variety of factors influence the selection of an outsourcing location. Because of that, companies need to take a quantified approach to assessing whether a particular country is right for them. “You need to figure out in a methodical way where you want to be,” Quinlan said.
My Competitor’s Successful Location Will Work for Me
“I think we’re encouraging a more thoughtful approach to where you locate,” Quinlan said about this particular myth.
The Risks Are Too High
Every location bears risk, which Quinlan suggests needs to be quantified before any decision about outsourcing can be made; the creation of a workable risk model for a particular location is therefore an essential part of the outsourcing process.
“If a bomb explodes in Mumbai, you are thinking about personal safety,” Quinlan said. “It’s not clear to us, though, that those risks are any higher than in manufacturing; the risks are there, but the risks cannot be classified as too high as long as they’re mitigated appropriately.”
Shared Services Are Difficult to Manage Remotely
This was one myth that Quinlan seemed to concede held a particular grain of truth. In the end, he suggested, mitigating any difficulties in remotely managing shared services is a matter of time-zone management and ensuring a high quality of staff interaction.
No Need for Captive Centers-Outsource Everything
Why invest in a captive center, especially if your competitors are saving overhead costs by outsourcing everything? But what works for one company may not be a suitable model for another. “You need to come up with the right answers for your organization,” Quinlan said. “It’s not a me-too world.”
Outsourcing is Bad for the U.S. Economy
“There are different points of view on this,” Quinlan conceded about the outsourcing debate’s traditional third rail. “Like many religious arguments, perhaps, the issue is really about what’s going to happen; and we see the trend of regional centers and global centers really continue.” By citing the opening of outsourcing centers in the U.S. as well as places such as India and China, Quinlan seemed to suggest that companies would avoid any political fallout from their outsourcing policies by distributing the work within the U.S. in addition to overseas.
Quinlan wrapped up his presentation with a list of “lessons learned” about the steps needed to successfully outsource a company’s operations:
Focus on gaining leadership support
Create a blueprint
Make off-shoring someone’s full-time responsibility
Combat the change management challenge and communicate
Create an employer-of-choice destination
Don’t underestimate the complexities
Learn from others
Invest in process excellence
Focus on quality
Despite the conference’s adamantly pro-offshoring focus, the issue is one guaranteed to invoke an extraordinarily emotional reaction among many U.S. technology workers.