Offshoring: Pathway to a Competitive Disadvantage
Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
Companies that have over-embraced offshoring will take back many critical business functions or eventually lose their competitive advantage.
Time-to-Competency. This represents the length of the learning curve. Time-to-competency varies based on the complexity of what has to be learned and the aptitude of the talent. Many business systems are complex to grasp, and if you have ever tried to take over an application and modify it, as I have, you know how daunting it can be to unravel the logic puzzle, and learn the business functions. Some complex systems take years to master. A resource who has become an expert on one of these highly complex systems can navigate the code with ease. That individual is a corporate asset, not an expense. You want to hang on to them, because it is very costly to replace their institutional knowledge. Yet, companies still replace proven, highly experienced teams with junior offshore resources who possess no institutional knowledge. Errors like this just keep on giving.
Turnover. At one time, turnover was a key indicator of organizational health. Leaders worried about it, and asked why people were leaving. They knew experience was walking out the door. But now, leaders negotiate contracts where the turnover is built in. Many IT executives have signed contracts with offshore providers where resources are replaced, by design, after 18 or 24 months. Given the long time to competency on many business systems, these contracts ensure novices are often doing the work. Add to this the high voluntary turnover rates found offshore, and you end up with dangerously inexperienced teams.
Institutional Knowledge. Beyond the time-to-competency required to learn a platform, there are many types of institutional knowledge. Institutional knowledge is only acquired on the job, so it has high productive value. It is also the source of incremental and breakthrough innovation. What are the products and services offered, and what differentiates them? What matters in this culture? How does work get done around here? How are the test and production environments set up? What are the firm’s procedures? Who are the key contacts? And so on. This is everything you need to know to be productive, and it is costly to acquire. New workers are therefore unproductive because they have to find their way around. Low levels of institutional knowledge result in a lack of productivity, innovation and a loss of competitive advantage.
High Aptitude Teams. Someone with high aptitude can master something in six months, while someone lacking the proper aptitude will take two years to achieve mediocrity–or never grasp it at all. This is the mythical man month that Frederick Brooks wrote about 45 years ago. By filtering team members over time, you can build a small, high aptitude team. Nothing in IT is more productive, especially when the team is tight knit. Studies have repeatedly shown that the highest aptitude professionals in this business are 10 times more productive than the average professional. Get one of these individuals on the team, and you really have a home run. But you can only build a high aptitude team by carefully recruiting, retaining and growing talent. You can’t do that with offshoring.
Social Capital. IT is a product of mind and emotion, and requires a deeply collaborative group of professionals to produce anything. These aren’t just coworkers, they are co-creators. Social capital is a measure of the sum total of these relationships. If the workers have strong relationships, information flows freely, and work speeds up. However, when work relationships are weak, social interaction is slow, and the exchange of information required to create shared understanding moves at a snail's pace, driving up project costs. A tightly woven group of professionals represent the social fabric of productivity. When work is offshored, the social fabric is torn apart, and it is very difficult to rebuild this across cultures, time zones and continents. Add in the high resource turnover rates, and you have a disconnected group of professionals that are laboring to get work done.
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