Weighing the benefits of outsourcing

Richard Latty's first attempts to work with offshore developers gave him second thoughts about doing it again.

"I saw problems in the '90s with some Indian developers, mainly involving communications," says Latty, CTO of Solutions Engineering, an information systems designer and developer for commercial and government clients in Bethesda, Md.

But having developed techniques for working with offshore developers -- partly through trial and error -- Latty now has a profitable relationship with several other outsource providers.

"With the Romanian programmers, we were saving about 25 percent of what it would cost you otherwise, but that's probably the least significant part of it," Latty says.

Latty, like other IT executives, says offshore services are also attractive for reasons that include getting products to market quickly, the ability to ramp up IT services on an as-needed basis, and the acquisition of project management discipline -- all of which are benefits that engagement with an outsourcer can provide.

Stories illustrating how offshore developers from India to Romania are providing a range of application services for U.S. companies of all sizes and stripes have become commonplace, and no one doubts that the wave of offshore outsourcing is gathering size and speed. The value of IT services provided by offshore labor to the United States, for example, will double to $16 billion this year and triple again to $46 billion by 2007, according to IDC.

Our country's use of offshore services is entering a new phase in which companies have enough experience to use sophisticated management techniques and entrust foreign providers with more complex projects, according to corporate IT executives and industry analysts. Companies are recognizing that rushing into relationships with offshore providers or ramping up use of foreign services too quickly often leads to costly mistakes.

"Using remote resources successfully is not intuitive," says Stephanie Moore, an analyst at Giga Information Group who has authored a number of reports on the offshore outsourcing phenomenon. "Seventy-five percent of the outsourcing deals that fail are due to lack of program management skills on the part of the user."

Companies considering using or expanding offshore services should examine their reasons for doing so and learn from the mistakes and successes of companies who have already tried, say users and analysts.

"There is no reason to enter an offshore relationship today without understanding the factors that are critical for a viable relationship," Moore says.

Spelling It Out

Although there's no single recipe for success that works for every type of company and offshore project, experienced users agree on the importance of guidelines and principles.

"The real secret to successful use of offshore services is that projects must be well-structured," Latty emphasizes.

Solutions Engineering's approach involves processes for project resource selection, a master work agreement, and engineering guidelines. "We don't always give a project to the lowest bidder," Latty says.