Canadian CIOs avoid offshore outsourcing model

IT offshore outsourcing is an operation that only 12 per cent of companies currently engage in, according to a recent survey of Canadian CIOs.

The study by IT staffing firm Robert Half Technology was based on interviews with 270 CIOs of companies with at least 100 employees about their offshore outsourcing activities.

The number is neither small nor surprising because offshore outsourcing requires the necessary staff and established process to manage it, said Igor Abramovitch, division director with Robert Half Technology.

“If you have a mature process and the ROI makes sense, then companies are more likely to try it,” he said. And, he added that because an offshore outsourcing operation won’t reap immediate cost savings, companies that are just getting off the ground or are part of an industry undergoing change will likely not outsource.

Among those respondents that do offshore outsource their IT, the majority were companies with 500 to 999 staff. Following suit were companies with more than 1,000 staff.

Larger companies are more prone to outsource their IT because they have the startup capital and they have the advantage of economies of scale, he said.

However, he added, companies with more than 1,000 employees were found to outsource less than companies with 500-999 employees because the former likely has internationally-based offices, in which case outsourcing to another country would be unnecessary.

Also 80 per cent of respondents said the level of offshore outsourcing they currently engage in would not change over the next two years. And, those that foresaw growth in their outsourcing practice were companies who are already engaged in the practice, not those new to the activity. That’s because those companies have the benefit of an established outsourcing operation, said Abramovitch. “They already have the upfront investments in the facilities and the process and the management of it,” he said, adding that new entrants to the practice face the requisite startup costs.

The survey found that IT offshore outsourcing growth would happen in areas like technical support centres for mid to large companies; data centre staff for larger companies; research and development facilities for larger companies; and, programming and development for companies of all sizes. The outsourcing jobs would require entry to mid-level expertise.

Toronto-based Centre for Outsourcing Research & Education (CORE) released a report last week on the state of the Canadian outsourcing market, and although the study focus was slightly different – it didn’t focus on offshore outsourcing exclusively – there were some parallels. CORE also found a growing trend toward application development & maintenance outsourcing. It also listed business process optimization as garnering a bigger role besides traditional IT infrastructure outsourcing.

The CORE report observed the biggest adopters of outsourcing to be financial services, followed by telecommunications, government/not-for-profit, government/utilities.

Although the Robert Half study was based on a balanced sample of industries, Abramovitch said the results were not parsed according to industry, and therefore he can’t say which industry was shown to outsource the most.

But he said he thinks the practice of offshore outsourcing has less to do with industry than it does with company size.

According to Robert Half Technology’s executive director, Katherine Spencer Lee, companies that had discontinued their outsourcing operations did so because of the burdensome management requirements and unrealized cost savings and quality control.

To counter this, she recommended some management strategies including seeking an outsourcing vendor with a good track record for retaining employees; creating a new role or department to manage the operation; providing training to managers to better supervise overseas teams in light of cultural and language differences; mitigating intellectual property risks like those around the enforcement of patents, copyrights and trade secrets by learning from the best practices of others.

CORE also reported that Canadian companies were now better equipped to manage outsourcing relationships given internally-built resources like “stay back teams”, a portion of the outsourced department that stays onsite with the company in order to manage the client-provider relationship.

Abramovitch said he sees such teams as one among several possible tools to manage the outsourcing operations. In fact, he said, “stay back teams” are more often observed in the preliminary stages of an offshore outsourcing operation where companies are generally hesitant to outsource the entire department. “It’s much easier to manage the team here as opposed to managing something in a different time zone and language,” he said.

As with CORE, Abramovitch agreed that team members would possess the necessary soft skills in that they’d be IT professionals who are in tune with the business.

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