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March 02, 2007
Surprising findings on off-shoring
I got an early look this week at a new study from A.T. Kearney: "Execution is Everything: The Keys to Offshore Success." It's only 21 pages but is one of the most cogent pieces of analysis I have read in quite a while--and, for me, full of surprises. Late last year they company conducted an online survey of leaders of America's top 500 companies. About 50 of the companies provided detailed responses. Here are some of the most interesting findings:
--The companies are consolidating their offshore activities to fewer countries, with the leading candidates being India, China, and Eastern Europe. I thought companies were hedging their bets and parceling out their jobs to even more countries.
--As a group, the 35 surveyed companies that had completed offshore program implementations had succeeded very well. Combined, they saved 49 percent of baseline costs and had net improvements across all six of the study's operational performance measures, including organizational capacity, flexibility, and process maturity. I had been hearing all sorts of stories about off-shoring disappointments.
--In spite of the fact that they succeeded as a group, 60 percent failed to meet their operational performance expectations and 34%filed to meet their savings expectations. So a few of them did so well that they brought up the average.
--The best-performing companies focused on execution. And their primary target was operational performance improvements, rather than savings per se.
--Another key to success was adopting an "ownership mindset"--which means a high degree of focus, of commitment from executives, and persistence.
--Surveyed companies that chose the captive model rather than the third-party model averaged better savings. But those who used third parties and adopted the ownership mindset did well, too.
For people considering off-shoring work to India, China, and elsewhere, I highly recommend this report.
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The responses to the survey came from the same people who initiated or executed the offshoring projects. Of course most of them would answer positively. When the media conduct polls on the Iraq War, they don't take answers from George W. Bush, Donald Rumsfeld and Dick Cheney. Why then would you ask the corporate executives to rate their own projects' successes, especially when their bonuses are on the line? Do you honestly expect a truthful response from them?
Posted by: Jordan at March 2, 2007 05:56 PM
I recently created a new Outsourcing site on Ning at http://rationaloutsourcinggroup.ning.com where I included links to the most recent posts on your blog. I have been looking for a single site where I can get a quick update on outsourcing related news and opinion. I am trying to make this new site fulfill that role. It already includes the 3 to 5 most recent posts/articles from about 25 blogs and newspapers. I also included an open discussion board. Please take a look and let me know what you think. Also, if you do not want me to include the links to your site, please let me know. Thank you,
Posted by: Arijit at March 4, 2007 05:18 PM
It is an interesting study, but appears to be so biased that it loses some of its relevance. As a BPO provider located in the Philippines servicing SME companies, our experience is quite different, but then we cater to specialized IT projects--a boutique approach, that is not even on the radar of this study of the megas.
One thing is clear enough: there is a dearth of data about the industry. But I really like his opening.
"One thing about offshoring is certain: If an issue arises offshore you can bet it will get five to 10 times more negative attention than it it had occurred onshore." Precious.
Too bad he doesn't develop the idea in a little more detail.
Anyhow, thanks for reporting the article...much food for thought.
Jerry C for icatchit.com
Posted by: Jerry C at March 7, 2007 03:17 AM