Strategic CIO // IT Strategy
News
11/2/2007
00:00 AM
Connect Directly
RSS
E-Mail
50%
50%
Repost This

The Second Decade Of Offshore Outsourcing: Where We're Headed

Execs now prefer to call it 'globalization.' Whatever the name, it's gaining steam and bringing new risks and requiring new strategies.

Offshore outsourcing of IT has changed everything about Scott McKay's job at Genworth Financial, right down to what time he gets to the office. McKay, CIO at the provider of life and mortgage insurance, now arrives between 6 and 6:30 a.m. so he can spend the first two hours of the day dealing with IT teams--employees and outsourcers--in India and Europe before the U.S. workday starts. The first thing McKay does is click on a feed customized to deliver summaries of major news stories in India, plus other happenings around the world directly related to Genworth's business.

InformationWeek Reports

In 10 years, Genworth has gone from offshoring just a few IT projects to having about half of all its IT work done outside the United States. But McKay avoids the word offshoring--he, like many a CIO, prefers the "g" word. "The concept of offshore outsourcing will continue to dissipate," he says, "and we'll focus on globalization."

globe art INSIGHTS
Scott McKay, CIO, Genworth Financial


Genworth Financial used to have 80% of its work in India done at night, to serve U.S. customers. Contractor turnover soared. Says Genworth CIO Scott McKay, "The night shift was designed for short-term cost savings, rather than designing your company to be a truly global business."
OK, so what does that mean exactly? As companies head into this second decade of offshore IT outsourcing, globalization is starting to be more than a polite way to say "dirt cheap foreign coding." Cheaper is still important. But businesses in North America and Western Europe, at least those with any track record of success with their offshore providers, are getting closer than ever to those vendors--for example, trying to help them deal with employee retention, treating those problems as their own. Companies also are holding their offshore providers more accountable for costs and outcomes, with shorter contracts and more incentives tied to business results. And they're trusting their offshore providers with more-critical work.

Two-thirds of companies on the InformationWeek 500 list of business technology innovators say they do offshore IT outsourcing, up from 43% in 2004. Consulting firm NeoIT estimates that 75% of the world's 2,000 largest companies are engaged in offshore outsourcing, with 20% of their IT budgets spent on offshore contracts; it predicts that could rise to as much as 40% of budgets in the coming years.

Cost cutting is usually the main driver, but as companies rely ever more on foreign markets for revenue growth, they're rethinking where they want their employees, including those in IT. For Genworth's McKay, it makes sense that globalization of the IT workforce follows globalization of the business: About 30% of the company's revenue now comes from outside the United States, and that's projected to grow to 50% by 2010. About one-fourth of InformationWeek 500 companies say they're expanding their IT operations in China, India, or another part of Asia.

As offshore outsourcing heads into its second decade, it's bringing new risks. CIOs must figure out how they'll nurture the next generation of IT leaders if, with greater outsourcing, there isn't the same career ladder that gave today's IT architects and project leaders both hands-on system work and deep company knowledge. U.S. companies that are putting ever-more strategic projects and processes into the hands of offshore outsourcers must be even better at vendor management, or they'll repeat last decade's offshoring problems--unexpected costs, code that doesn't meet business needs, vendors without the skills to meet a contract, delays implementing critical new systems--on a bigger scale. With costs in India rising, and employee attrition rates of 12% or more common among IT service providers, they'll need to fight for top talent with every bit as much energy as they do at home.

Previous
1 of 5
Next
Comment  | 
Print  | 
More Insights
Transformative CIOs Organize for Success
Transformative CIOs Organize for Success
Trying to meet today’s business technology needs with yesterday’s IT organizational structure is like driving a Model T at the Indy 500. Time for a reset.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Elite 100 - 2014
Our InformationWeek Elite 100 issue -- our 26th ranking of technology innovators -- shines a spotlight on businesses that are succeeding because of their digital strategies. We take a close at look at the top five companies in this year's ranking and the eight winners of our Business Innovation awards, and offer 20 great ideas that you can use in your company. We also provide a ranked list of our Elite 100 innovators.
Video
Slideshows
Twitter Feed
Audio Interviews
Archived Audio Interviews
GE is a leader in combining connected devices and advanced analytics in pursuit of practical goals like less downtime, lower operating costs, and higher throughput. At GIO Power & Water, CIO Jim Fowler is part of the team exploring how to apply these techniques to some of the world's essential infrastructure, from power plants to water treatment systems. Join us, and bring your questions, as we talk about what's ahead.