Making the most of the global workforce

While cost reduction remains the single biggest driver for sourcing IT functions overseas, gaining access to skills that are difficult to find at home is an increasingly important motivating factor for many organisations.

EquaTerra, an independent outsourcing advisory firm, recently published its annual outsourcing service provider performance study. It found that more UK firms are looking to offshore than in previous years – 63 per cent in the 2008-2009 survey compared with 54 per cent in 2007-2008.

Significantly, it also reported that of the UK companies polled, 40 per cent cited access to skills as the primary driver for outsourcing.

When looking for access to skills, India is an obvious choice. It was the primary offshoring location for 85 per cent of those questioned.

Moreover, 55 per cent of EquaTerra respondents said the main opportunity brought by increasing globalisation of IT services is access to skilled labour abroad, while 53 per cent cited lower labour costs.

For the most part, the type of IT skills commonly being offshored remain those that companies have been farming out to third-party providers since the earliest days of outsourcing.

Application development, software testing, frontline IT helpdesk support and business process management all continue to figure heavily. According to EquaTerra, application management (76 per cent), infrastructure management (80 per cent), user management (53 per cent) and business process management (34 per cent) are the skills and processes that are offshored most frequently.

And a recent survey published by Roland Berger Strategy Consultants revealed that the use of outsourcing and offshoring is accelerating. More than two thirds of UK companies have already moved or are considering moving some IT support functions overseas, it reports.

Ian Marriott, Gartner research vice president responsible for external service provision, says the range of skills available from offshore providers is growing to encompass wider disciplines than those mentioned above.

“The initial work was application development and legacy application maintenance, but that has extended over time to include business intelligence, data warehousing, enterprise resource planning, customer relationship management and testing services,” he says.

“There is a level of software architecture and design work done overseas now, and in theory at least, about 70 per cent of enterprise infrastructure work could be offshored, as well as knowledge-processing activities.”

There is also evidence to suggest that offshore IT providers themselves are looking to offset falling revenue from cash-strapped UK companies by extending their own skill sets.

According to a report by analyst Datamonitor, many offshore contact centre service providers are now looking to diversify into marketing and sales, technical support and even debt collection services, for example.

“Debt collection and accounts receivable management have been highlighted by many firms recently as a growth area,” writes Peter Ryan, the report’s author and lead analyst for contact centre outsourcing. “This is due to the rising personal indebtedness in Western markets, and the need for creditors to recoup these funds.”

For some organisations, a desire to simplify in-house IT service provision can be as compelling an argument for offshoring as cost reduction. But anyone who thinks managing a relationship with offshore service providers is simple is in for a rude awakening.

Keeping close tabs on IT staff working in different countries and time zones is a challenging task.

According to the EquaTerra survey, fewer than half of respondents believed that their skills in this area were good, while 39 per cent rated them as average, and nine per cent weak.

That said, the job of managing offshore relationships is arguably getting easier thanks to advances in communication technology, particularly software t hat provides shared workspace facilities, enabling remote managers to catch up with what has been happening at the offshore location during the night, for example.

“Videoconferencing is also quite good once the initial relationship is established, and you can use simple things such as instant messaging to keep in touch,” says Marriott. But the most common approach is for firms to place some of their own management people in the offshoring location to provide oversight.

“Some businesses have moved a small number of key people to the remote facility to help with project development and act as a liaison,” he says.

Offshore IT staff who do not have this sort of regular contact with, and supervision by, the parent company often feel independent and not linked to the rest of the business – a dislocation that can cause problems when it comes to making sure they meet requirements, says Marriott.

“Companies need to make some hard decisions about the right people to lead that organisation, either somebody who can be placed there or locally hired, who knows the dynamics of the market they are working in,” he says. “Somebody from the UK on assignment might not understand that particular market, but somebody from outside the business might not understand the corporation. So some companies look for expats who have worked in India, for example, for a number of years and are happy to go back.”

Employing expats with local knowledge is also one way of overcoming the cultural barriers that often trouble offshore relationships.

Martyn Hart is chairman of the National Outsourcing Association (NOA), an industry body initially set up as a forum for companies using outsourced and offshored IT provision, which now offers advice to other companies looking to go down the same route.

Hart argues that firms using offshore contact centre agents need to be especially aware of how cultural differences between staff and customers can affect not only operational efficiency, but also customers’ perception of a company’s brand.

“You and I take it for granted that it is best not to phone people when EastEnders is on, but this is not necessarily so for people from different time zones and geographical environments,” he says.

Marriott agrees that cultural awareness is important. “It is a challenge if you run a contact centre, for example, because you need to have some cultural awareness of the market you are servicing – so people can talk about football, the weather or what they have seen on TV,” he says.

Cultural differences aside, it is vital that the offshore provider has a clear understanding of what is required from it at the outset.

Hart argues that the most difficult part is agreeing what measurements are best suited to particular types of work. For example, offshore service providers can be set specific deadlines to deliver a finished software application. But other projects may demand different key performance indicators.

“The next problem is quality. You can measure so many lines of code written per hour, and accept a certain number of faults within that, but some of the harder things to measure are the eloquence of the code writer, which may depend on the viewer,” says Hart.

“You might find the offshorer is writing brilliant code, but it is so difficult and complicated that you cannot maintain it and have to write it all again or get the advice of consultants, which adds an extra layer of complexity,” he adds.

Gartner’s Marriott believes the key to a successful offshoring relationship is getting the right framework and service level agreements in place from the start, so that operational performance can be measured against a range of criteria.

According to EquaTerra, there is a healthy demand for people with experience in overseeing offshoring contracts, with 39 per cent of the UK companies questioned for its survey saying they intended to employ new staff with governance competencies and experience.

Hart believes that companies looking at offshore relationships should consider formal best-practice procedures to make sure that the quality of the IT services being delivered is up to scratch.

“There are best practice guidelines in terms of outsourcing, which the NOA itself provides, and these can be adapted for offshoring,” he says.

Many experts believe that the use of offshoring accelerates during a recession, but there are signs that the outsourcing market itself is suffering during the credit crunch. IT budget constraints and what Gartner calls “general market consciousness” – a tendency to save money rather than spend it – has led some to forecast that the price of offshored IT services and infrastructure will shrink by between five and 20 per cent by 2010, as clients renegotiate terms and conditions.

So long as offshore providers have the necessary IT skills at their disposal at lower cost, though, UK companies are unlikely to bring those IT functions back in-house.

In the final part of our guide to offshore outsourcing, industry experts provide their insight into the big issues in offshoring, and advise IT leaders on how to create offshoring strategies that pay dividends.

Some affordable skills can be found closer to home

Amid mounting political concern over the exodus of jobs from the UK, Northern Ireland is seeking to position itself as a competitive option for those looking for a pool of IT skills that is closer to home.

Over the past decade, global businesses have flocked to the region – financial services firms Citi and Liberty Mutual, as well as suppliers Fujitsu and HCL have all set up shop there – attracted by its cost-competitive near-shore model.

Economic development agency Invest Northern Ireland is promoting the advantages of setting up operations in the region, which include cost efficiency – typical salaries in the financial services sector are about 40 per cent below the London average – and other benefits such as cultural and language compatibility as well as skills availability.

Such features mean the region offers the possibility of reducing the cost and risk associated with off/near-shoring.

“We do not compete on a pure cost basis, but offer a total value proposition,” says Bill Montgomery, international investment director at Invest Northern Ireland. “I have no doubt that our combination of a smart, adaptable workforce, in a cost-competitive and low-risk location, will be increasingly attractive to businesses given the pressures under which they are operating.”

Despite having a population of a little more than 1.7 million people, the region is still confident it will be able to meet service demands if it gets further investment from major businesses.

“We have a workforce that is well qualified and a good talent pipeline through the universities, further education colleges and professional training courses,” said Montgomery.

In times of increased sensitivity over jobs in the UK, setting up operations in Northern Ireland could be a more “palatable” option for companies looking to outsource, said Jonathan Cooper-Bagnall, head of sourcing consultancy at PA Consulting.