CIO Forum: Industry still divided on offshoring

The industry is still split as to the pros and cons of offshoring, but the message coming out of the silicon.com CIO Forum today was that companies, unions and staff need to work out what it means for them and accept that, whether they are for or against it, it is not going to go away.

For many large Western companies offshoring presents great opportunities to grow the business while shaving money off the bottom line -- but embarked upon wrongly, or managed badly it can still be a bad move for companies.

A panel debate on the issue attempted to cut through some of the emotive and subjective issues which surround offshoring and address the key factors which determine whether it is right for all businesses.

Kevin Lloyd, CTO of Barclays, cited cost savings and greater cost-efficiency as being two major drivers of offshoring, especially for financial institutions, as well as benefits where training and retention are concerned.

Mark Kobayashi-Hillary, author and recognised industry expert on the subject of offshoring, said: "India has become the flagship for offshoring." He added that the subcontinent is "leading the world in terms of quality".

The two statements create apparently compelling reasons for outsourcing. Offshore staff can typically be trained to higher levels than Western staff, while companies save on the bottom line due to relative differences in wages and the cost of living they must service. Typically the workforce is easier to retain because the jobs coming from the West are comparatively far better paid than others available in the market.

However, the companies that are offshoring still aren't handing Indian staff "the big wins". Despite the media hype surrounding the offshoring of call-centre jobs in particular, the jobs going to India are either being created anew -- "this is sourcing, not outsourcing", said Robert Morgan of Morgan Chambers -- or are back-office jobs where economics make a compelling argument.

Keith Turnbull, VP of product development at Citrix, said his company has handed over much back-office testing of products to Indian staff.

The panel was also keen to move away from the emotive "jobs to India" arguments from the political right and the knee-jerk reactions of media such as the Daily Mail.

On the issues of job losses, Morgan said he believed that very few companies don't redeploy staff who lose their jobs as a result of offshoring.

Barclays' Lloyd said his own company created 1,000 new branch jobs for retrained staff after they were factored out by his own company's move offshore.

With the trend now underway and maturing, the unions were warned by the panel to join the debate rather that just oppose it and start to work out how they can best serve their members.

This shift towards 'sourcing' owes much to "the Y2K effect" according to Kobayashi-Hillary. With a crunch on workloads leading up to the Millennium Bug deadline many companies were forced to start "testing India and they found it worked for them," he said.

However, the panel warned that it isn't all rosy. Most agreed that geography, management and retention of key skills are always going to be factors which restrict the move towards offshoring.

"Geography will always be an issue," said silicon.com's Andy McCue who has become a voice of authority on the issue of outsourcing and spent time in India on a fact-finding mission earlier this year.

He added that companies will always need certain skills and management 'reach' within the operation which isn't always afforded by virtual conferencing or the benefits of technology. Some operations and operational management will need to remain in the same time zone as the board room.

Cost savings should never be the sole reason a company makes the move, because the work involved in fundamentally changing their business is often not justified by shaving numbers off the bottom line. Similarly offshoring should not be undertaken on a 'following the crowd' basis. Every company must understand their own management issues and the overheads involved or risk being hit hard by hidden unpredicted costs further down the line.

Nor should companies offshore strategy or anything which is immediately business critical.

They must also retain key skills and Barclays' Lloyds said they should all have a "business resumption plan" in place should they need to bring operations in-house once again.