A Shore Thing

A Shore Thing

More CIOs will say “Sure” to offshoring

It is inevitable that there will be more IT offshoring in this country. That was my conclusion after a recent series of roundtables on the topic with local IT executives. I suppose there's one quality you must have to be a CIO, and that is pragmatism. Local CIOs can read which way the wind is blowing in business. In that very week Australia was engaged in talks to establish an Asian equivalent to the EU and Blundstone was shipping the manufacture of its iconic boots to Thailand and India. From a CIO's point of view, offshoring is all part of this globalization debate and increasingly more companies will seek IT services from a supplier in the region.

That said, what was made plain in these roundtable discussions was that this was not about cost saving. Most recognized the inherent hidden costs that would arise from offshoring, especially the transition costs of utilizing it. In fact, one senior IT executive at these roundtables thought that it might take three years before his company even recovered its initial offshoring investment. Another advised that the Indian offshore vendors he deals with are no longer leading their sales pitches with cost savings. Instead they are promoting their service capabilities and their skill sets availability.

Many CIOs present felt that they had, at least, to put their toe in the offshoring waters

In this regard there was strong concurrence with the offshoring rationale of St George Bank CEO Gail Kelly, who described her motivation as "competitive advantage". To the delegates this did not mean doing it cheaper. Instead this was about agility of response. In a turbulent and uncertain market they understood how offshoring gave the bank the ability to resource up or scale down depending on the circumstances. However, to get there required some relationship with an offshoring supplier that could be leveraged to meet these needs. This was why many CIOs present felt that they had, at least, to put their toe in the offshoring waters.

The other attraction with offshoring was that it was an opportunity to upset the apple-cart of complacency. One delegate spoke of the challenges of being dependent on a group of middle-aged programmers, many of whom believe that they have a job for life, maintaining and supporting a key business system half written in assembler and for which little documentation exists. To this organization offshoring was a solution that would, at the very least, bring a fresh perspective on other ways that this functionality could be provided.

Those that had gone to India to investigate offshoring were certainly impressed with the calibre of supplier they had encountered. It seems the Indian tier one vendors have made a concerted effort to reach Level 5 on the Capability Maturity Model (CMM). Several concurred with one attendee's wry observation that most Australian IT departments would struggle to get beyond Level 1. In particular, delegates advised that this maturity was very much evident in security procedures. One CIO who had visited a number of Indian tier one offshoring vendors shot down the claim that outsourcing to these companies would be undermined by a supposed lackadaisical approach to IT security in India.

Clearly there will be occasions when offshoring can — and will — provide a solution for CIOs. However, CIOs should also remember multinationals like Deutsche Bank, UBS and IBM Global Services that recently moved IT operations to Australia. Offshoring may well grow but, just as we learned from globalization, Australia does have much to offer the world and there's no reason why IT here could not benefit from this trend.

Peter Hind is a freelance consultant and commentator with nearly 25 years experience in the IT industry. He is co-author of The IT Manager's Survival Guide and ran the InTEP IS executive gatherings in Australia for over 10 years

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