June 7, 2005 5:25 PM PDT

Offshore outsourcing satisfaction drops

Offshore outsourcing isn't as gratifying as it used to be, according to a report released Tuesday by a consulting firm.

DiamondCluster International's annual study of information technology outsourcing found that the number of buyers satisfied with their "offshoring" providers has fallen from 79 percent to 62 percent. In addition, the number of buyers prematurely terminating an outsourcing relationship has doubled to 51 percent.

"The blame cannot be heaped solely on the shoulders of providers," DiamondCluster consultant Tom Weakland said in a statement. "Many buyers are now several years into at least one outsourcing relationship, but they still lack effective measures to gauge the success of their outsourcing initiatives, which are critical for knowing and getting what you want."

Despite the declining satisfaction with offshoring providers and more buyers ending outsourcing deals early, DiamondCluster's study found that 74 percent of buyers expect their use of IT outsourcing to continue to increase in the coming year, up from 64 percent in 2004.

The report is based on surveys and in-depth discussions with 210 senior IT executives at "global 1000" companies and with 242 senior executives at outsourcing service providers in the United States, India and other countries. Research was conducted in late 2004 and early 2005.

Outsourcing refers to farming out tasks to a separate company. That company's operations might be in a lower-wage nation, which makes for so-called offshoring. IT head honchos are planning to push more of their tech tasks to low-wage countries, according to a Merrill Lynch survey earlier this year.

Business leaders defend offshoring as ultimately good for the U.S. economy and its workers. Critics of shipping high-wage work to lower-cost countries are concerned about job loss in the United States.

In the short run, at least, U.S. techies may be more the losers than gainers when it comes to offshore outsourcing of IT work. A report last year sponsored by the Information Technology Association of America trade group on offshore outsourcing of software and IT services indicated that sacrifices by U.S. IT workers would result in an improved U.S. economy overall.

Politicians have entered the fray. Recently, the House of Representatives passed "Buy American" legislation that would force the Department of Homeland Security to buy products mostly made in America.

According to the new DiamondCluster report, worries about anti-outsourcing legislation and political pressure have waned, but 88 percent of buyers remain concerned about employee backlash.

The study also found increased interest in sending tech work to China. Forty percent of buyers expect to outsource some IT functions to China during the next three to five years compared with 8 percent last year, the report said.

7 comments

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Let's ask Dell's customers
uh. frustration.
Posted by tukboy8 (2 comments )
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"HellomynameisSamhowcanIhelpyouwithyourcomputertoday?"
Me: "Did I catch a 'Sam' in there?"
Posted by Christopher Hall (1205 comments )
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IT Execs need to realize: Offshore Outsourcing will get more expensive
As the U.S. dollar drop in value, Offshore Outsourcing will likely get more expensive.

Employers thinking long-term on outsourcing tasks need to keep this in mind.

As the dollar buys few rupees (and probably yuan soon), wages in these countries will appear to rise.

Software outsourcing is also vulnerable to the high cost of fuel. Many software engineering tasks require extensive investigation and training. For example developing an interface between a legacy system and a new system may require extensive training with local personnel and systems (that can't be moved). A couple of trips across the ocean and you've eaten up any profit you may have gained from hiring cheap labor overseas.
Posted by (80 comments )
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differentiate between call centers and development
not really. The mad growth is in call centers and bpos. Call centers in India and elsewhere is overall a bad idea. Nobody likes talking to these guys when they call up.So as the backlash increases and businesses pull the plug on these deals the market in cities like bangalore and chennai will tank. the labour pool for IT development will burgeon and we will be back to indian style wages again.
this is bound to happen.
Posted by (6 comments )
Link Flag
Diffrentiate between call centers and IT development
The mad growth is in call centers and bpos. Call centers in India and elsewhere is overall a bad idea. Nobody likes talking to these guys when they call up.So as the backlash increases and businesses pull the plug on these deals the market in cities like bangalore and chennai will tank. the labour pool for IT development will burgeon and we will be back to indian style wages again.
this is bound to happen.
Posted by (6 comments )
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Division of labour is the key
Country expertise is not covered by this report. Sure, DiamondCluster mentions an increase in work to China, but I see a future where the back-office functions split three ways: CRM and direct contact with the internal customer needs to be onshore. For trans-national companies the language intensive processes need to be near-shored (in the EU accession states, perhaps), and the purely transactional, turn-the-handle stuff can be done for lowest cost (and least pain) in India, China or Indonesia.

Division of Labour is the key. Do what you're best at and do it a lot. That is the only way you can drive down cost and drive up shareholder value.
Posted by (17 comments )
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American Mgmnt/Consults Fail at Outsourcing
This should be titled, American Management and Consultants Fail at Outsourcing.

It is no surprise that American Management is displeased with their outsourcing results, but when will we learn as the article suggests that the problem is not the worker but the manager. The article indicates that the source of the problem was incomplete definition of objectives and processes. This is an obvious failure of the managers and consultants.

With Toyota achieving the highest productivity in the Auto Industry with plants worldwide and with Hyundai building the most modern auto plant in the US at $1.5 billion while GM and Ford are reduced to Junk status, it should be obvious that the problem is US management and not the US worker.

Until the myopic, egocentric ass-kissing managers and consultants are fired, US Industry does not stand a chance. How may billions were wasted on overpriced managers and consulting firms such as Accenture and Diamond Cluster in the BPR and ERP days of the 90s with no improvement in performance or productivity. Did we not learn anything from cases like Enron?

As a former consultant and manager, I learned that best ideas and solutions were from the people engaged in the process. However, consulting partners had the open communication channels to senior management through high price lunches and eloquent, flashy presentations. I also saw the blatant kick backs and arrangements between senior managers and consultants that included expensive presents and the hiring of siblings.

Until we learn and apply the lessons of Taylor, Deming, Juran, and Humphrey and until American management re-establishes a bi-lateral commitment and communications with workers, American Industry does not stand a chance. It takes detailed work, trust, and mutual commitment to achieve performance breakthroughs. The high priced Silver Bullets of the ass kissing managers and high price consultants are empty and hollow.
Posted by LapenR (6 comments )
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