Eye on Offshoring: Aligning IT Strategy With the Business Strategy

The forces driving U.S. - and more recently European - businesses to move back-office and other strategic functions to offshore locations include, of course, lower costs. But some argue that through offshoring, businesses can also access more skilled labor markets, currently for selected functions such as software development, but soon to expand to other areas once thought the exclusive domain of countries with advanced economies. The following quote by Roy Terry, an associate professor of finance at Fort Hays State University, exemplifies this thinking:

"Our labor force is not better trained, harder working or more innovative than our foreign competitors. The argument that we will create jobs in highly paying fields is simply not true. We have no comparative advantage or superiority in innovation. To assume that we are inherently more creative than our foreign competitors is both arrogant and naive. We are currently empowering our competition with the resources to innovate equally as well as we."

Take special note of the last sentence of this quote. If Terry is right - and the composition of the student bodies of major business and engineering schools in the West indicate that he is - developing an offshoring strategy is something that businesses need to start now. Waiting for others to lead the way will only lead to eventual cost disadvantages and competitive suicide.

What impact does this have on an IT organization? The first is the need to modify the IT strategy to reflect the offshore dynamic. Tasks that can be offshored fall into two broad categories:

• Low-skill, low-salary jobs, which typically include call center and help desk staffing, as well as manufacturing.
  
  
• Higher-skill, higher-salary jobs, which include mathematicians, accountants, financial analysts, engineers, computer programmer/developers, IT infrastructure administrators, architects, physicists, chemists, biologists, legal analysts and human resources professionals.

Addressing this first issue is the most difficult challenge of all for IT leadership. When business executives ask for an offshoring strategy, we in the IT world need to stop thinking about the potential macroeconomic impact of large-scale layoffs and come to grips with the fact that successful offshoring engagements are, in fact, better for the business. (If you are interested in reading a report on the economic impact of offshoring, read Government Accountability Office report No. GAO-04-932 on "International Trade." One of the findings was that the layoffs attributable to overseas relocation represented a small fraction of the total mass of layoffs.) If offshoring can lower costs and increase margins, profitability and ultimately shareholder value, then IT needs to get on board, not be a roadblock.

A few proactive IT leaders have already recognized offshoring's potential benefits and have moved their business in this direction. But for the majority who are still wrestling with the moral and ethical issues of moving jobs offshore, it's better to plan for and control the inevitable, rather than become a roadblock. Roadblocks eventually get tossed aside, and the people they were trying to protect are no better off for it.

Successful offshoring must always begin with an alignment of the IT strategy to the overall business strategy. When developing an IT strategy in support of offshoring, the following steps should be taken into consideration:

• Adapt the current IT strategy to reflect an offshoring component. If you don't have an IT strategy, start there first and then add an offshoring component. This can be done by creating a horizontal strategy across all of IT or a vertical focus within all of the segments of IT.
  
  
• Match the time horizon for the strategy to that of the business. Simply stated, if the business plan covers three years out, then the IT strategy should be a three-year plan.
  
  
• Create a blueprint of architecture and services to be provided in support of the IT strategy. The blueprint must be updated at least annually to reflect changes in the IT marketplace, accommodate new systems needs and unique technology, reflect changing business requirements and respond to changes in offshore suppliers' capabilities.
  
  
• Create an offshoring "domain" model. This requires a realization that technological capabilities are different across the globe. Companies may have a technology model for their U.S. operations and then have a different technology model for each country and even each location where they have personnel and services. This is largely driven by availability of infrastructure and support services.
  
  
• Develop a series of principles that govern how IT supports offshoring. One principle could use the International Telecommunications Union's Digital Access Index to establish a threshold for selection of countries in which to place offshore services. Another could be to work only with offshore vendors with a multicountry or multicontinent presence in order to reduce risk. A third might be the creation of a standard set of processes and procedures to be used across all offshoring activities. A fourth might state that no customer data is stored offshore.
  
  
• To augment and support the principles, create a series of guidelines. For example, model the architecture to the geography and sophistication of the business function to be offshored. Another could be to select only those service providers that adhere to and support industry standards.

One question you might be asking is: How long does it take to develop an offshoring strategy? From experience, mid-to-large-cap firms will require approximately four months of dedicated effort just for strategy creation. Execution of the strategy is a question to be dealt with in a future article. But don't wait for the whole picture to emerge; start looking now at your business goals and how offshoring can move them forward.