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|In: Industry Commentary|Last Updated:

Why should an IT organization ship work offshore?

Certainly not because the work is “not core,” — the answer offered up by the popular but not-very-useful “core/context” theory that’s too-often used to make this decision.

The core/context theory’s deficiencies have been explored in this space often enough that wary readers might be wondering if yours truly has anything to offer beyond criticism. Yes, I do … while criticizing others is more enjoyable and less risky than offering an alternative, it just doesn’t pay the bills.

So if the core/context theory provides the wrong criteria, what are the right criteria? Here’s the starting point: “What should I send offshore,” asks the wrong question. And when you ask the wrong question, even the best answer is misleading.

What you need, that is, isn’t an offshoring strategy. You need a sourcing strategy — one that takes into account the full range of choices available to you to staff the different kinds of situations you face running an IT organization.

And you have a wide variety of staffing resources to choose from: Employees; consultants (defined here as outside experts brought in because of their special knowledge); contractors (non-employee staff brought in to perform day-to-day tasks); on-shore, off-shore, and multi-shore integrators who provide multidisciplinary teams to execute projects on your behalf; and outsourcers of various stripes to take over ongoing functional responsibilities. Each has its own characteristics, which suits it well to some staffing situations and poorly for others.

So here’s the plan: Make each of these staffing sources a column in a matrix. The rows are the characteristics used to match sources to situations. Score each cell using a ranking ranging from strongly disadvantageous to strongly advantageous. At IT Catalysts we use a –2 to +2 scale for this purpose; others prefer 0 to 5 or High/Medium/Low. Whatever works for you.

  • Immediate economies of scale — sufficient size and scope to spread fixed costs and variations in staffing needs across multiple sources of demand.
  • In-depth understanding of business/IT linkages — knowledge of how your company conducts business and the information technology available to it, so as to be immediately competent in addressing new business situations.
  • Immediate access to scarce expertise — sufficient size and scope to keep experts with scarce skills and expertise busy, and to ensure their availability when they are needed.
  • Ongoing availability of scarce expertise — the ability to staff an enduring need for a particular set of scarce skills and expertise consistently and affordably.
  • Personal investment in the company’s mission and success — “skin in the game,” loyalty to your organization, and a commitment to its success.
  • Need for a role to provide leadership — for others to recognize and respond to the direction and goals established by the individual in a particular role.
  • Low cost, risk, and impact of switching sources — so if you change your mind, either about a specific source or class of source, you can change the source itself.
  • Urgency — how quickly you need to respond to a new opportunity or situation.
  • Riskiness — not of the source, but of the venture your organization is undertaking, and the implications for how certain it is the company will need the staff deployed to it.
  • Criticality — how important the function to be provisioned or the new venture being attempted is to the company’s success.
  • Raw cost of labor — oh, yeah, let’s not forget the need to save a few pennies here and there per hour of effort expended.

    • Different companies will fill out this matrix differently. The cost of internal employees is lower in Altoona, Wisconsin, for example, than it is in downtown Manhattan; if you’re a giant multinational corporation you have economies of scale internally that you don’t have if you operate a half-dozen retail locations. What’s important is that you understand how well each available source scores in each of these characteristics for your organization (and whatever others apply to you that aren’t listed here).

    Then, when the time comes to match sources to the requirements of a specific business situation, you can choose the source that best fits your characteristics and specific situation.

    When you choose a piece of software, you assess its fit with your requirements — it’s a complex, in-depth process that requires serious effort and analysis.

    Why would choosing a source of staffing call for anything less?

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    |In: Industry Commentary|Last Updated:

    There are simple sourcing strategies. There are effective sourcing strategies. But there are no simple, effective sourcing strategies.

    This, at least, was the perspective offered by yours truly at Outsourcing Strategies 2004 the week before last. It is, it appears, the minority perspective. The popularity of the Core/Context Theory — “Keep what’s core to your business and outsource the rest” — appears to be undiminished by the complete lack of any evidence to support it.

    Complete lack of evidence?

    Yes. In fact, that’s being gentle about it. In the past few years, two research teams reported the results of extensive research on what characteristics and practices lead to enduring business performance. The better-known, reported in Jim Collins’ Good to Great, found seven features common to outstanding corporations: A “Level 5” leader — one focused on building a great organization, not on personal recognition (I’m oversimplifying: there’s a lot more to Level 5 leadership than this); a strong, focused, coherent leadership team; a willingness to face the “brutal facts of their current reality”; clear focus around an organizing business goal (the “hedgehog principle”); creation of a “culture of discipline” (as opposed to achieving disciplined execution through close supervision); the use of technology as an accelerator; and reliance on the “flywheel” effect (building momentum for success on ongoing, continual, accelerating change, not on one-time transformational breakthroughs).

    The second research effort was called the Evergreen Project. Described by William Joyce, Nitin Nohria, and Bruce Roberson in What Really Works, the project found eight factors — four primary, four secondary — that separated winners from the pack. While the factors aren’t exactly the same as those articulated in Good to Great, it appears the differences are more a matter of how each research team chose to define its categories than major disagreements as to what’s important. Having a clearly stated, focused strategy as stated in What Really Works isn’t very different from the hedgehog principle. Two other primary characteristics, flawless operational execution and a performance-oriented culture, together look a lot like instituting a culture of discipline and using technology as an accelerator.

    The two studies don’t line up perfectly, which isn’t all that surprising. The Evergreen Project found that a flat, flexible organization was important to success. Collins was silent on this subject. And Evergreen’s list of secondary factors — retain and attract exceptional talent, creating industry-transforming innovations, growing through mergers and partnerships, and keeping leaders and directors committed to the business — have less overlap with Collins’ findings.

    How to account for the discrepancies? When two study teams look at the same pile of raw data, there’s no particular reason to expect them to abstract the same generalities. The process of doing so isn’t purely analytical (Collins is direct on this point, describing lots of discussions and downright arguments over what a bunch of specifics might mean.) And since both pieces of research are correlative rather than experimental, this kind of disagreement is to be expected.

    One point is clear: Keep the core and outsource the rest is nowhere to be found among either study’s recommended practices. Sounds to me like keeping the core and outsourcing the rest isn’t correlated with enduring business success.

    (Keeping a wary eye on the ROI of individual projects or applying any other purely financial perspective on running a company is similarly absent, by the way, as is focusing on the maximization of shareholder value, two very popular points of emphasis among the current crop of business pundits … but that’s another column for another time.)

    Adherence to the core/context theory isn’t among the factors driving outstanding business performance. It’s unsurprising when you look at how most large-scale outsourcing contracts are constructed. Much of their payoff comes from nothing more than the playing of financial games — a transfer of capital assets that front-end loads the benefits and back-end loads the costs. Gee, maybe that has something to do with why client satisfaction frequently runs out of steam just a few years into the average outsourcing relationship.

    So why would a business theory that’s unsupported by the evidence retain such popularity?

    Simple, easy-to-understand explanations are comforting — much more comforting than notions like the need for focus, disciplined execution and persistence. And given a choice between a comforting explanation and one that actually works, many people prefer comfort.

    That’s one of the brutal facts of our current reality.

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