Unforseen Business Problems in Outsourcing? - The Orange Mane

epicSocialism4tw · 07-07-2005, 01:41 PM

Outsourcing flops blamed on tunnel vision

By Andy McCue, Silicon.com
Published on ZDNet News: June 22, 2005, 12:21 PM PT

Hidden costs, high staff turnover and poor cross-cultural communications are the key causes of offshore outsourcing failures, according to new research from analyst house Gartner.

The analyst report predicts global spending on offshore outsourcing services will top $50 billion by 2007 but it warns too many companies are rushing into deals on the promise of unrealistic cost savings.

The biggest mistake that is common to all offshore outsourcing failures is to base the business case solely on reduced labor costs.

"Many hidden costs--including expenses associated with infrastructure, due diligence, communications, governance, overseas travel and cultural training--will offset the cost advantage of wage differentiation," the report said.

Organizations are also warned that a disproportionate amount of costs are incurred during the planning and start-up stages and that any savings will take longer to materialize.

"As a result, long-term offshore deals do not realize the projected savings until the 'steady state' stage 12 to 24 months into the engagement. For the same reasons, short-term offshore deals lasting less than one year are unlikely to realize any cost savings," the report said.

The high turnover of offshore staff, particularly in countries such as India, also has a negative impact on productivity.

"Such turnover contributes to productivity loss because new staff must be trained and overcome the learning curve for dealing with customer applications and relationships," said Gartner.

Poor communication between the onsite and offshore project teams as well as between management and employees is also picked out by Gartner as a critical failure factor.

"Effective communications are critical in offshore outsourcing projects. The reason many offshore deals fail is because of the propagation of misinformation and confusion due to inadequate communications among the project team and its contacts, as well as within the general employee population, executive ranks and local community," the report said.

epicSocialism4tw · 07-07-2005, 01:49 PM

You know...I have several ancient U.S. - made products from several different companies that are nearly 50 years old that still work flawlessly ( a kirby vaccuum, polaroid cameras, etc.). Outsourcing has slighlty reduced the cost of these products (relative to competition) while dropping the customer's return on their investment in the product. In other words: there products are poor and cost only a slight bit less.

I as an informed customer would much rather buy a vacuum for $100 more for an American made product that would last me 20 years longer and be backed by quality customer service by Americans. Of course, I am concerned about the middle class and lower class maintaining their wages so that their quality of life increases or remains stable.

I guess that our companies are more concerned about the bottom line than maintaining the well-being of our communities.

Rock Chalk · 07-07-2005, 01:54 PM

I read this article like 6 months ago in ComputerWorld magazine. Well, not THIS article, but one with exactly the same content.

footstepsfrom#27 · 07-07-2005, 02:02 PM

Unfortunately, outsourcing is not the main problem. The real problem is that the same countries that have major supplies of cheap, technilogically advanced labor, are working with an integrated technology base that now rivals or in some cases surpasses ours. Outsourcing will take more jobs in the long run than the short because in the same way that the .com era took a while for the market to compensate, so will the outsourced market. But direct competition from other countries, especially in Asia, will drain more US jobs than outsourcing by far.

epicSocialism4tw · 07-07-2005, 02:10 PM

Quote:

Originally Posted by footstepsfrom#27

Unfortunately, outsourcing is not the main problem. The real problem is that the same countries that have major supplies of cheap, technilogically advanced labor, are working with an integrated technology base that now rivals or in some cases surpasses ours. Outsourcing will take more jobs in the long run than the short because in the same way that the .com era took a while for the market to compensate, so will the outsourced market. But direct competition from other countries, especially in Asia, will drain more US jobs than outsourcing by far.

You're from arlington? I grew up there. Have you worked with Mission Arlington at all?

bendog · 07-07-2005, 02:12 PM

oh, I was hoping this would be funny thread about porn or something.

footstepsfrom#27 · 07-07-2005, 02:17 PM

No...mostly I work with start up organizations to create business revenue engines and collaborate with other non-profits on projects. Mission Arlington is pretty much locked into doing things the way they've always done them. They draw a lot of support from churches and public works grants. My focus is on non-profits that want to organize businesses that support their operations. Mission Arlington does good work. Do you know Tilly?

epicSocialism4tw · 07-07-2005, 02:19 PM

Quote:

Originally Posted by footstepsfrom#27

No...mostly I work with start up organizations to create business revenue engines and collaborate with other non-profits on projects. Mission Arlington is pretty much locked into doing things the way they've always done them. They draw a lot of support from churches and public works grants. My focus is on non-profits that want to organize businesses that support their operations. Mission Arlington does good work. Do you know Tilly?

Yeah, like anyone else who's been through there, she's like a grandmother to me. I spent a good 6 years volunteering some serious time there.

footstepsfrom#27 · 07-07-2005, 02:23 PM

The woman's a saint.

epicSocialism4tw · 07-07-2005, 02:28 PM

Quote:

Originally Posted by footstepsfrom#27

The woman's a saint.

Gotta love Tillie. She's in there at 3:30am every day and works until 7 pm. She really doesn't need to be doing that at her age, but she keeps on truckin'. She's got real compassion for the people that that organization cares for. She has often said in our prayer meetings that we needed to weep for our people (not figuratively). She's cool. She's also as shrewd as they come and knows how to keep her thing going.

footstepsfrom#27 · 07-07-2005, 02:30 PM

She's sort of a Texas version of Mother Theresa...very inspirational person to be around.

orinjkrush · 07-07-2005, 02:33 PM

to all those firms who outsourced (really offshored) to the hilt...enjoy the poetic justice you penny pinching jerkoffs

y'all come back again, hear?

07-07-2005, 01:41 PM	#1
epicSocialism4tw Tebowing the long haul all the way to the title Join Date: Apr 2004 Location: TX, USA Posts: 37,072 Adopt-a-Bronco: Champ Bailey	Unforseen Business Problems in Outsourcing? Outsourcing flops blamed on tunnel vision By Andy McCue, Silicon.com Published on ZDNet News: June 22, 2005, 12:21 PM PT Hidden costs, high staff turnover and poor cross-cultural communications are the key causes of offshore outsourcing failures, according to new research from analyst house Gartner. The analyst report predicts global spending on offshore outsourcing services will top $50 billion by 2007 but it warns too many companies are rushing into deals on the promise of unrealistic cost savings. The biggest mistake that is common to all offshore outsourcing failures is to base the business case solely on reduced labor costs. "Many hidden costs--including expenses associated with infrastructure, due diligence, communications, governance, overseas travel and cultural training--will offset the cost advantage of wage differentiation," the report said. Organizations are also warned that a disproportionate amount of costs are incurred during the planning and start-up stages and that any savings will take longer to materialize. "As a result, long-term offshore deals do not realize the projected savings until the 'steady state' stage 12 to 24 months into the engagement. For the same reasons, short-term offshore deals lasting less than one year are unlikely to realize any cost savings," the report said. The high turnover of offshore staff, particularly in countries such as India, also has a negative impact on productivity. "Such turnover contributes to productivity loss because new staff must be trained and overcome the learning curve for dealing with customer applications and relationships," said Gartner. Poor communication between the onsite and offshore project teams as well as between management and employees is also picked out by Gartner as a critical failure factor. "Effective communications are critical in offshore outsourcing projects. The reason many offshore deals fail is because of the propagation of misinformation and confusion due to inadequate communications among the project team and its contacts, as well as within the general employee population, executive ranks and local community," the report said.

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07-07-2005, 01:49 PM	#2
epicSocialism4tw Tebowing the long haul all the way to the title Join Date: Apr 2004 Location: TX, USA Posts: 37,072 Adopt-a-Bronco: Champ Bailey	You know...I have several ancient U.S. - made products from several different companies that are nearly 50 years old that still work flawlessly ( a kirby vaccuum, polaroid cameras, etc.). Outsourcing has slighlty reduced the cost of these products (relative to competition) while dropping the customer's return on their investment in the product. In other words: there products are poor and cost only a slight bit less. I as an informed customer would much rather buy a vacuum for $100 more for an American made product that would last me 20 years longer and be backed by quality customer service by Americans. Of course, I am concerned about the middle class and lower class maintaining their wages so that their quality of life increases or remains stable. I guess that our companies are more concerned about the bottom line than maintaining the well-being of our communities.

07-07-2005, 01:54 PM	#3
Rock Chalk Cheeky Bastards Laus Deo Join Date: Oct 2001 Location: The Backside of the Internet Posts: 29,942 Adopt-a-Bronco: Chris Harris	I read this article like 6 months ago in ComputerWorld magazine. Well, not THIS article, but one with exactly the same content.

07-07-2005, 02:02 PM	#4
footstepsfrom#27 helmet to helmet hitter Join Date: Apr 2005 Location: Arlington, TX Posts: 16,126 Adopt-a-Bronco: Joe Mays	Unfortunately, outsourcing is not the main problem. The real problem is that the same countries that have major supplies of cheap, technilogically advanced labor, are working with an integrated technology base that now rivals or in some cases surpasses ours. Outsourcing will take more jobs in the long run than the short because in the same way that the .com era took a while for the market to compensate, so will the outsourced market. But direct competition from other countries, especially in Asia, will drain more US jobs than outsourcing by far.

07-07-2005, 02:12 PM	#6
bendog Marginally Continent David Bowens, he'd be an upgrade Join Date: Jun 2001 Location: Folsom Prison Posts: 19,935 Adopt-a-Bronco: David Bowens	oh, I was hoping this would be funny thread about porn or something.

07-07-2005, 02:17 PM	#7
footstepsfrom#27 helmet to helmet hitter Join Date: Apr 2005 Location: Arlington, TX Posts: 16,126 Adopt-a-Bronco: Joe Mays	No...mostly I work with start up organizations to create business revenue engines and collaborate with other non-profits on projects. Mission Arlington is pretty much locked into doing things the way they've always done them. They draw a lot of support from churches and public works grants. My focus is on non-profits that want to organize businesses that support their operations. Mission Arlington does good work. Do you know Tilly?

07-07-2005, 02:23 PM	#9
footstepsfrom#27 helmet to helmet hitter Join Date: Apr 2005 Location: Arlington, TX Posts: 16,126 Adopt-a-Bronco: Joe Mays	The woman's a saint.

07-07-2005, 02:30 PM	#11
footstepsfrom#27 helmet to helmet hitter Join Date: Apr 2005 Location: Arlington, TX Posts: 16,126 Adopt-a-Bronco: Joe Mays	She's sort of a Texas version of Mother Theresa...very inspirational person to be around.

07-07-2005, 02:33 PM	#12
orinjkrush ... Prospects for the future... Join Date: Jan 2003 Location: DistrictOfCorruption Posts: 4,919 Adopt-a-Bronco: Ben Garland	to all those firms who outsourced (really offshored) to the hilt...enjoy the poetic justice you penny pinching jerkoffs y'all come back again, hear?