Finding Success Offshore: An Interview with Mary Lacity

FindingSuccessOffshore:AnInterviewwithMaryLacity

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Fifteenyearsofresearch,fivebooksandcountlessarticleshaveearnedMaryLacity,aprofessorofinformationsystemsattheUniversityofMissouri-St.Louis,areputationasoneoftheworld'sforemostexpertsonIToutsourcing.

"MaryLacityhasahistorian'sviewofIToutsourcing,"saysJeanneRoss,thechiefresearchscientistatMIT'sCenterforInformationSystemsResearch."Shehascarefullytrackedthecostsandbenefits,thebestpracticesandthepitfalls,thestrategicpartnershipsandthefailedcontracts-allofwhichhasgivenherextraordinaryinsightintohowcompaniescangeneratevaluefromtheiroutsourcingarrangements."LacityisalsoaresearchaffiliateatOxfordUniversity'sTempletonCollege,andafacultyadvisoratWashingtonUniversity,inSt.Louis.

Togetherwithhercolleague,AssistantProfessorJosephRottman,Lacityrecentlystudiedover25companiesthathaveoutsourcedITtoIndia,thePhilippines,Malaysia,Chinaandothercountries.Lacityisalsoco-author,alongwithProfessorLeslieWillcocksoftheUniversityofWarwick,ofGlobalInformationTechnologyOutsourcing:InSearchofBusinessAdvantage(Wiley,2001).CIOInsightexecutiveeditorAllanAlterspokewithLacitytodiscussthevaluethesecompaniesarefindinginoffshoring,andthestrategiestheyhavefollowed.

Whatisthevalueofoffshoreoutsourcing?

Ithinkmostcustomersinitiallygetexcitedaboutgoingoffshorebecauseofthefavorablelaborarbitrage.TheFortune500customersweinterviewedwereusingoffshoreoutsourcingfortwomainareas:developingnewapplications,andre-platformingoldones,suchaschangingfromPeopleSofttoSAP.Theyprimarilygooffshoretosaveoncosts.Thentheydiscovertherearealotofchallengesinmanagingoffshoreteams-yourtransactioncostsareveryhighinthebeginning,whileyou'reconqueringyourlearningcurve-andtheytendtoshifttheirfocusfromjustcost-savingtothequalityofthecodetheyget,andhowfasttheworkcanbedone.It'snotuntiltheyhavesomesignificantexperiencewithoffshoringthatweseesomemorestrategicusesofit.

Clickheretoreadhowoppositiontooffshoringcouldimpactyourplansandyourbusiness.

Howmanycompaniesmakethistransitionfromfocusingoncoststofocusingonqualityandstrategy?

Almostallofthem.MostofthemwereprimarilyusingoffshoringnottoreplacetheirexistingITstaff,buttoaddressbacklogandnewprojectsthattheywouldn'tbeabletohandlewiththeirexistingheadcount.RatherthanaddingITprofessionalstotheirinternalstaff,theywerelookingatwaysthattheycouldrampupabig,perhapsone-timeproject,andthenrampdownagainoncetheprojectwascompleted.

Canyouprovideexamplesfromyourresearch?

AFortune500financialservicescompanyoriginallywentoffshorebecauseofY2K.Atthattime,theITexecutivestheresaid,"Ohmygoodness,I'mgoingtoneedXnumberofprogrammersforthisone-timebigtask.HowcanIdothischeapandfast?HowcanIrampdownwhenI'mdone?"

SotheywentoffshoreanddevelopedarelationshipwithalargeTier1Indiansupplier.ThentheU.S.companydecidednottocutthesupplierloose,because,astheydeliveredontheY2Kproject,theIndianfirmstartedtoestablishabetterrelationship,andcametounderstandtheirclient'smainexpectations.Thatsamefinancialservicescompanycontinuestohavealotofworkdonewiththisoffshoresupplier,andithasstartedlookingatsourcingmorestrategically.

Theynowhaverelationshipswith16suppliersinAsiaforITandotherfunctions.Becausetheystartedoffshoringearlyon,theywereabletorampupveryquicklywhenthemortgage-refinancingboomcame,andthenrampdownwhenrefinancingdiminished,withoutaffectingtheirinternalheadcountverymuch.SotheywentintooffshoringtosaveonY2Kcosts,andtheysavedmoneylaterbecauseitenabledthemtokeeptheirflexibility.AnothergoodFortune500examplethatwecameacrossisanindustrialequipmentmanufacturingcompanythatisusingoffshoresupplierstobuildembeddedsoftwarefortheirequipment.Thatsoftwareisnowpartoftheproduct,andthemanufacturercontinuestohavearelationshipwiththatsupplier.

Wealsohadsomesmallercompaniesinourstudy.Onehadtheideatodevelopasoftwarepackagetohelprespondtoabiologicalattack.TheyhiredasmallIndiansuppliertodeveloptheapplicationforthem.Thecontractentailshavingthesupplierdevelopthesoftwareontheirdime,inexchangeforintellectual-propertyrights.Oncetheproductisfinished,thecustomerwillmarketthesoftwarethroughtheirchannelsandshareintherevenuesfromthesoftwarelicensefees.It'saninterestinguseofoffshoring,buttheoutcomeisstillunproven.

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