VideoHot Spots vs. Hot Sites
To limit their exposure to a crisis, a number of companies are taking a multiple site, multicountry approach to offshoring. That way, if there's trouble in the Philippines, a company can promptly transfer its processing or programming work to another location. "You need two 'hot sites,' not merely a theoretical failover site," cautions Rose, so that processing can be transferred almost instantly. "You also need load balancing across both sites to ensure both sites are truly operational, and each site should be on a separate power and communications grid."
As part of its business-continuity preparation, IBM Global Services, which has major offshoring centers in India and several other countries, can move work around within the host country, move it to another country, or even bring it back to the United States if needed. "We have a transition methodology in place worldwide," says Mike Dawkins, general manager of global operations.
But often the risk issues that end up on a CFO's desk are far more prosaic than the frightening headlines heralding the threat of cyber terrorists or nuclear warheads. "The geopolitical factors are partly media hype," asserts Cognizant's Mahadeva. "The risk has always been there. As an example, the India-Pakistan dispute has been going on for 90 years."
One area of potential concern, says I-4's Gerdes, is what he calls "the inability to control the orientation and social incentives of the people who work for you." Put another way, often after the initial honeymoon year is over in an outsourcing relationship and the vendor is anxious to generate some profits from the deal, it may bring in third- or fourth-string programmers. Or, unbeknownst to you, it may subcontract your work elsewhere.
Before the red flags go up, understand that this is rare, but it has happened. In fact, in several instances the outsourcer's programmers actually dipped their hands into the electronic till. In one case, a European bank had its customers' credit-card numbers stolen, says Gerdes. The same thing happened to a U.S.-based software company, and when its customers discovered what had happened, the uproar was deafening. "That's the kind of issue that a CFO might have to deal with — a public relations and legal disaster."
There's no simple way to bulletproof an outsourcing relationship against this kind of thing, but two measures are mandatory from the client side. "You need a robust governance model in place to oversee the project," says Santoro. And, adds Gerdes, the governance model needs to not only address deadlines and budgetary issues but also see that the outsourcer complies with all the parameters and laws that govern the client company.
Laton McCartney is a New York-based writer and editor. His most recent book, Across the Great Divide: Robert Stuart and the Discovery of the Oregon Trail, will be published later this year.
Offshore Outsourcing: Choices, Choices
When choosing where to outsource, you first have to decide which country's capabilities best meet your needs. Among the factors that come into play here are political stability, the depth and availability of technology talent, cultural fit, and the status of the country's currency vis-à-vis the dollar. "Remember, most outsourcing relationships are from three to five years," cautions I-4's Mike Gerdes. "A country's technological capabilities aren't likely to shift significantly during that time, but you can see a major currency shift in 12 to 18 months." Such a shift could have a dramatic impact on the cost benefits of going offshore.
With Fortune 1,000 companies expected to spend about a quarter of their IT-services budgets in India this year, the Asian subcontinent has become the location of choice for offshore IT work. In part, this is due to its abundance of well-trained programming, software-developer, and systems-engineering talent. Another key factor is English-language proficiency. "I've tried Russia, China, and other countries, but the English support you receive in India is critical with deliverables and documentation," notes Ron Rose, CIO of Priceline.com.
Gerdes, however, points out that wages have increased in India to the point where some of the cost advantages are vanishing. "A software developer in the U.S. with an M.A. and several specialized certifications gets from $70,000 to $80,000 a year," he says. "In India, you used to be able to find someone with the same credentials or better for 15 to 20 percent of that, but now the equivalent job is paying $50,000 over there." And, he adds, if Indian salaries continue to rise, look for China and Russia, among others, to increase their share of the offshore market.
Next, of course, comes the selection of a specific provider. Certainly there's no shortage of options: India alone has a half-million IT outsourcing workers. Among the largest vendors are Tata Consultancy Services, Wipro Technologies, Infosys Technologies, Satyam Computer Services, and Cognizant Technology Solutions. In other countries, competition is often spread across a range of small and midsize firms.
One of the most important criteria in evaluating a supplier, adds Rose, is its bench strength. "The outsourcer has to have a large-enough bench so it can supply the expertise you need when you need it," he explains. "We wanted a supplier with 1,000 or more programmers. With that kind of depth, if you suddenly needed, say, someone with expertise in Oracle databases, or a firewall engineer, there's likely to be a good one available when you need them."
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