Best Practices for Selecting Onshore, Nearshore or Offshore Information Technology Outsourcing (ITO) Providers

This is the third of a three part blog series on information technology outsourcing

In the Fall of 2010, Fairway Technologies published a white paper on this topic – we detailed 10 best practices for helping IT decision makers decide whether to select onshore, nearshore or offshore IT service providers. As we get rolling into the New Year, I want to share these best practices here on our blog.

Ten is a big number, so let’s get to it. Best practices for selecting onshore, nearshore or offshore ITO services:

10. Begin with the End in Mind. Keep in mind your long-term objectives. Don’t simply chase a lower hourly bill rate overseas if your ultimate goal is to reduce risk of project failure. The less risky choice may be a local service provider. Similarly, if your ultimate goal is to dramatically accelerate time to market, perhaps a blended model of onshore and offshore development is the right approach to take advantage of longer work days.

9. Consider your company’s aversion to risk. Results of our September 2010 IT professionals’ survey showed that 37% of respondents said their offshore ITO project was “not delivered on time” and 16% stated that the “project came in over budget or did not realize anticipated cost savings”. Certain conditions increase risk. For instance, volatile currencies, political instability, intellectual property infringements, distributed workforce, or lack of in-house expertise in a certain area can increase risk. If you cannot afford major missteps, perhaps now is the right time to select a local, onshore provider who is expert in solving your type of business / technical need.

8. Take into account the nature of the IT project. Not all projects are created equal. The most successfully offshored projects are commodity-type initiatives, with detailed documentation that requires little back-and-forth communication. If you are able to turn over requirements and stay mostly hands-off, then offshore ITO may be the right choice. However, if you are undertaking an ambitious IT project that requires high collaboration and creativity, a strong onshore ITO provider will better meet your needs.

7. Buyer beware. This best practice is true for all three flavors of outsourcing, but certainly worth mentioning. Providers may woo you with their top talent, then push the work off to lesser quality resources once the contracts are signed. If all you need are a few experts to help move your project forward, don’t settle for a “team” of marginal people that have been pushed on you by large-scale providers.

6. Put sufficient time and expertise into planning. Once you’ve identified your outsourcing objectives, you must do some homework. Comprehensively evaluate providers, realistically project expenses and clearly define success metrics at every stage of the planning, execution and transition process.

5. Assess countries with an open mind. Just because India boasted $40 billion in exported services in 2008 (65% of the ITO market that year) does not mean that you should limit the scope of your evaluation to that country. You may find helpful the annual Global Services Location Index by AT Kearny that rates 120 nations across three criteria: financial attractiveness, people skills and availability, and business environment. India, China, Malaysia, Thailand and Indonesia rank top five overall. However, the US ranks highest in the people skills and availability category, Ghana as most financially attractive and Singapore ranks number one for best business environment.

4. Go your own way. Similar to best practice number five, above, don’t follow the crowd if the numbers don’t justify your case. Do your own due diligence to make an informed outsourcing decision. Your research can and should include references and testimonials, but ultimately your project is unique and you must consider all the variables. Ensuring the provider has the right expertise and that you have seamless access to that expertise will go very far in helping you achieve your goals.

3. Get it in writing. Perhaps it’s obvious, yet vitally important. Be sure that your service level agreement meets your needs, but offers flexibility in case of environmental changes.

2. Maintain oversight. Oversight is important regardless of service provider location. However, studies have shown that successful offshore projects can require management fees that reach up to 50% of the total contract value; whereas similarly successful onshore projects incur just 5% to 10% management costs. Be sure your cost analysis accurately reflects projected management expenses, and that you allocate sufficient resources to be successful with your ITO project.

1. Emphasize communication. Strong communication and collaboration is vital for onshore, nearshore and offshore IT outsourcing. Whether offshoring or nearshoring, insist on having a local resource to act as a liaison, and take ownership for transferring knowledge. If you select an onshore provider, you will have the benefit of more seamless communication without the added travel expenses or frequent problems with highly technical requirements being lost in translation.

Related post from blogger Derek Singleton at Software Advice provides data showing that domestic sourcing may be gaining in financial attractiveness.

Leave a comment and let the readers know if you have additional best practices to keep in mind when deciding to source from onshore, nearshore or offshore IT outsourcing service providers.

3 Comments

• 
  Data Entry September 27, 2011 at 1:55 am

  Thank you, I have recently been searching for information about this topic for ages and yours is the best I have discovered so far.
  http://www.relyservices.com

  Reply
• The Advantages Of Outsourcing Information Technology | Information Technology November 24, 2011 at 5:48 pm

  [...] #split {}#single {}#splitalign {}#singlealign {}#splittitlebox {text-align: ;}#singletitlebox {text-align: ;}.linkboxtext {}.linkboxcontainer {}.linkboxdisplay {}.linkboxdisplay td {text-align: ;}.linkboxdisplay a:link {text-decoration: none;}.linkboxdisplay a:hover {text-decoration: none;}WSJ: Information Technology Industry Spending SoarsBest Practices for Selecting Onshore, Nearshore or Offshore Information Technology Outsourcing (ITO)… [...]

  Reply
• The Advantages Of Outsourcing Information Technology | Information Technology November 25, 2011 at 9:20 pm

  [...] #split {}#single {}#splitalign {margin-left: auto; margin-right: auto;}#singlealign {margin-left: auto; margin-right: auto;}#splittitlebox {text-align: center;}#singletitlebox {text-align: center;}.linkboxtext {line-height: 1.4em;}.linkboxcontainer {padding: 7px 7px 7px 7px;background-color:#eeeeee;border-color:#000000;border-width:0px; border-style:solid;}.linkboxdisplay {padding: 7px 7px 7px 7px;}.linkboxdisplay td {text-align: center;}.linkboxdisplay a:link {text-decoration: none;}.linkboxdisplay a:hover {text-decoration: underline;} function opensingledropdown() { document.getElementById('singletablelinks').style.display = ''; document.getElementById('singlemouse').style.display = 'none'; } function closesingledropdown() { document.getElementById('singletablelinks').style.display = 'none'; document.getElementById('singlemouse').style.display = ''; } WSJ: Information Technology Industry Spending SoarsCareer advaancements in the health information technology industry are mainly based on?benefits of information technology in business outsourcingBest Practices for Selecting Onshore, Nearshore or Offshore Information Technology Outsourcing (ITO)… [...]

  Reply

Leave a comment

Click here to cancel reply.

Name: *

Email: * (will not be published)

Website:

Comment:

Leave this field empty

CAPTCHA Code*