A report on IT outsourcing
A new global economic study has confirmed that Information Technology (IT) is creating more jobs and driving economic growth better than manufacturing. The most fundamental IT business driver is the outsourcing which requires little cost but larger profits. The study found that in 2011, the U.S and Europe spent approximately $245 billion dollars in outsourcing and created over million new jobs worldwide. As the global economy is recovering, more western companies are willing to outsource due to the critical skills shortage in their countries. The study predicts that the amount could go up to over $400 billion dollars in the next five years with two to three million new jobs created. However some issues have been identified. The number one issue is miscommunication which often leads to misunderstanding and unhappy customers. The study predicts that as outsourcing is becoming more widespread, more customers will be dissatisfied with the performance of some suppliers and many will switch to new suppliers.
The study also found that companies that outsource for the first time often believed that their suppliers were highly skilled, but their views changed rapidly, as suppliers did not meet their expectations. Nearly 92 percent of first time outsourcing companies complained that their suppliers did not have good software project management skills. They often did not meet their expected schedules, had communication problems due to poor command of English language, and poor product quality. Some of the top reasons for outsourcing dissatisfaction include:
1) Suppliers do not understand customers' business: Many suppliers are so hurry to get contracts rather than really understand customers' needs. Their lack of requirements analysis skills limits their ability to provide better supports. Their limited language skills (English) prevent them from building relationship with customers and users.
2) Suppliers do not communicate accurate status but rely more on personal relationships: There is a big gap between supplier representatives and IT workers who actually do the works. Marketing and representatives often make a lot of promises but their IT workers cannot deliver. There is no feedback loops to ensure closure on technical issues and to ensure that defects are fixed after discovered.
3) Suppliers do not understand risk management: Many outsourcing suppliers are unable to foreseen technical risks. Developers do not understand change management and change request processes. Many only react to what happen rather than know how to prevent them. Some do not even understand scopes of work, or have contingency plans when unexpected things happen. Many issues go unaddressed in the rush to deliver product. This often led to additional technical difficulties that were originally unforeseen.
4) Suppliers do not establish relevant metrics that align and reflect the desired outcome and establish reporting procedures to monitor progress. There is no accurate metric performance on cost, quality, skills, and performance information.
5) Suppliers' lack of experience with outsourcing: Many suppliers are small software companies provide services in local markets then expand into global outsourcing. Many do not understand the intent and implications of the scope of work (what's in and what's out). Know the service levels that have been contracted for and how they differ from their local environment. There are no management procedures for handling incidents, changes, problems and escalations, and how these procedures differ from their previous operating environment.
The report is highly critical of decision to do business based on low cost. It concludes; “Low cost does not guarantee quality, especially in countries where education systems are still backward. As technology change quickly and the needs also change accordingly but in some countries, training is still focusing on develop programmers and testers instead of skilled software developers and architects. These countries should understand that outsourcing is a long term relationship that requires trust to ensuring that both sides fully understand the expectations and outcomes. The lack of training of a software engineering discipline in their education system is a major cause for this weakness. Today software is getting more complex and it requires a more disciplined training. Management must understand that IT outsourcing is a partnership or long term relationship not a contract. Usually after the contract is signed, some suppliers are hurrying to seek new customers; new contracts rather than build relationship with existing customers and that attitude must change. To keep customers happy, it is important to maintain good communication to understand the position of customers. Without good communication to take place, it is difficult to build trust and confidence and that is why almost half of the IT outsourcing business is still going to India although the cost of doing business in India has been increasing steadily.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
