Managing IT Outsourcing: Onshore, Offshore and Nearshore

Worldwide, outsourcing is growing at double-digit rates. While IT outsourcing has been the most predominant form of outsourcing to date, outsourcing of key business processes, such as human resources (HR), logistics and shipping, or procurement is increasingly being considered by large companies worldwide. Outsourcing is being driven by a desire to reduce the cost of operations, the need for business flexibility to respond quickly to changing markets, and requirements to mitigate business and technology risks or to obtain specialized knowledge or skills.

Even though outsourcing continues to grow in importance within the enterprise, more than 40 percent of these relationships will still fail to deliver the business value originally envisioned by the parties when the contract was signed. These outsourcing failures will cost US companies between $30 billion and $40 billion a year in lost time and expense.

One of the ways companies can improve the success of their outsourcing relationships is by aligning their outsourcing management and organization structures with a type of outsourcing transaction. Offshore applications outsourcing, for example, requires a very different management structure than an on-site facilities management deal, yet it has been found that most companies only consider how they will manage their outsourcing relationship after the deal has been signed.

Outsourcing models are changing rapidly as advancements in technology and networking improve. Companies can choose an on-site arrangement, off-site processing in the outsourcer’s facility, nearshore processing in a contiguous country, or an offshore model in which the processing is done in a country with a very low-cost structure. Each of these models has very different benefits and risks, and each requires a very different approach to management and organization.

Choosing the appropriate outsourcing model involves more than looking for the lowest cost option. For example, an on-site outsourcing model allows the customer to exert the most control, since processing is located within the customer’s facility. The trade-off, of course, is that this model will usually cost more than the other outsourcing options available. This trade-off of control vs. cost is one of the fundamental truths of outsourcing. In every outsourcing option, customers will always have to decide whether to trade better cost savings for less direct control.

Companies that fail to appropriately manage their outsourcing relationships will not only spend more money than is necessary, they will also obtain fewer benefits, customer satisfaction will likely be impacted, and more importantly, these companies increase the risk of outsourcing failure.

In this comprehensive report, Giga provides advice and guidance on managing all aspects of outsourcing as it looks at how an enterprise can optimize its IT sourcing strategy and align its management techniques to the outsourcing model chosen – two areas that need to be considered before a decision to outsource is made and a vendor is selected, not after.

The report provides practical advice on how to create the RFP and SLA for an outsourcing engagement, and how to organize internally to manage an outsourcing relationship, including the need to establish a Chief Sourcing Officer or Chief Relationship Manager position to focus on achieving the goals set for outsourcing. Also included are detailed looks at three specific areas in which outsourcing is being used: Desktop Outsourcing, Help Desk Outsourcing and Outsourcing Learning.

And, importantly in today’s evolving outsourcing environment, the report considers all aspects of offshore and nearshore outsourcing, including an extensive look at the increasing use of India as a source for a growing variety of IT outsourcing uses, and a consideration of the viability of other locations such as China, Russia, Mexico or Canada.

Making the best IT outsourcing decision – whether it is o