Geosourcing is hot!

If you’re wondering how you can do more for less, consider geosourcing.

Geosourcing in manufacturing is nothing new. After all, we’ve been buying goods made overseas for years. But until recently, getting IS services from across the boarder wasn’t possible. Now it is, because of the confluence of congenial suppliers and credulous customers.

According to the global CIOs we interviewed as part of our Gartner EXP study on geosourcing, on offer are lots of benefits, such as an ability to quickly increase and decrease operational scale, and extending the workday across time zones to get three 12-hour days in one 24-hour period. But the real payoff is cost saving.

Cost savings in the range 20 to 30 percent on a typical development project are achievable, but they are well short of the 70 to 80 percent savings touted by some vendors, thanks to added complexity of management and the fact that some work has to be kept onshore.

It turns out that getting the optimal onshore-offshore ratio is critical for reaping the planned savings. Human nature being what it is, everyone wants to be onshore: your project managers want all their team where they can see them, and your offshore suppliers want to be in your office where they can see you. Allow too much of this and cost savings evaporate.

In theory, the benefits of geosourcing rise the more you do of it. But so do risks. It’s far too easy to slip into the trap of being over-dependent on your supplier or not to notice that you’ve lost your intellectual property (IP) until it’s too late.

Another not-so-public disadvantage with geosourcing is that it has the potential to draw intense media, labor and political pressure to “stop exporting our jobs”.

Choose your partner…

Domestic sourcing is hard enough; geosourcing is far more complex. One CIO said offshore vendors make the same mistakes as onshore vendors, plus a few new ones. “Just because a vendor has CMM Level 5 rating doesn’t mean it won’t over-promise or under-deliver.”

You don’t select the partner first. Instead, you whittle away at the many options. Start with the make-or-buy decision. Next, select the location of the partner, because selecting a good partner in a country that doesn’t support geosourcing is likely to be a bad decision. Once you’ve decided on a location, select a partner.

No guts, no glory

Our members identified several transition challenges.

Paul Carmody, VP at Prudential Financial, synthesized the problem. There’s a lot of implicit knowledge in the workplace. When you’re working offshore, you have to pay much more attention to documentation. The modern day equivalent of ‘loose lips sink ships’ is ‘loose specs and ambiguous language can spell disaster’.

Srinivasan Viswanathan, senior VP at Chase Financial Services, JP Morgan Chase, warns against another problem. “Make sure you have an IT infrastructure that is robust and secure enough to allow the vendor to connect to the network.”

Not so surprisingly, the biggest risk stems from people being different. Staff need training in cultural differences. It might be easy to underestimate the importance of this step. Make sure you don’t.

Staff turnover leads to delivery and process risks. Naming specific individuals in contracts and offering the right terms of employment can help. But the best way to deal with volatility is to build in enough backup people.

The final main risk in geosourcing is legal jurisdiction. If you are based in Canada and your supplier is not, do not assume you will be protected by Canadian law. Don’t give the vendor the home-country advantage. Only sign contracts governed by the laws of your own country.

The decision to geosource is not straightforward. There are many options, with a spectrum of geosourcing opportunities embedded in them.

Andrew Rowsell-Jones is vice president and research director for Gartner’s CIO Executive Programs.

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