The problems of outsourcing offshore

Dr Graham Oakes looks at offshoring and asks where all the managers have gone

The offshoring debate is dominated by numbers with 500 IT jobs having moved to India and salaries becoming 75% lower.

Thousands of high-quality graduates come onto the market every year and a 75% reduction to the salary bill for 500 people is a lot of money.

Managers have a duty to their company's owners to explore such cost savings because our pension funds depend on it but the headline figures don't tell the whole story.

Here are some considerations that the debate often skims over.

Offshoring creates jobs - Take a ten person team (say a project manager, architect and eight developers) and ship them to India and the odds are that you need at least two or three people onshore to support them; You need an onshore project manager to co-ordinate requirements gathering and acceptance testing and someone technical to help introduce the systems to the users' environment such as a business analyst.

These are almost always additional to the original team which is the main reason that 75% lower salaries translate to perhaps 15% overall cost savings: the overheads of offshoring are enormous and many of those jobs are highly skilled because it takes a lot of skill to manage a team across cultural and time zone boundaries.

You need to ask questions in the right way (different for every culture) and you need to manage complex communications across less-than-optimal bandwidth.

You also need to set clear goals while building the flexibility to accommodate change.

No-one comes out of college knowing this stuff and poorly managed offshoring breaks the skills escalator.

Most of the jobs going offshore are for junior people and simple programming tasks require limited communication, so they move easily.

Relationship management, business analysis, architecture and the like stay onshore, close to the people they need to talk to.

So where does the next generation of these management roles come from? The escalator that brings people into the organisation from college and builds up their skills is broken and, over time, the risks of offshoring will begin to dominate the cost savings.

Many offshore locations are experiencing rampant wage inflation and it won't take many years of 20-25% inflation for the overheads to outweigh the salary savings - at this point, the additional risks come to the fore.

Add all the videoconferencing, instant messaging and email in the world and one thing remains: the communication risk for globally distributed teams is always higher than for co-located teams.

How many organisations have the management depth to manage these risks? Managers do have a duty to explore cost savings.

They also have a duty to build organisations which will survive for the long term.

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