Offshoring: Pathway to a Competitive Disadvantage

Companies that have over-embraced offshoring will take back many critical business functions or eventually lose their competitive advantage.

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Culture and Leadership. Nothing is more effective than a caring culture, where management protects everyone’s back, and employees operate in a productive state of mind. When leaders and workers embrace prosocial behaviors and shun socially corrosive and antisocial ones, the work environment is safe, and it creates an atmosphere where creativity can thrive. By contrast, offshoring creates a culture where protective behaviors predominate, and levels of trust are low. It is an inherently unproductive work environment.  

Human Factors. There are other human factors, like meaning, control, mood and so forth, that contribute to productivity. These factors matter a lot, but in an organization where people are regarded as mere parts, the human factors of productivity remain a blind spot. According to recent Gallup studies, most workers are disengaged. The productive loss of human capital is enormous, not unlike an eight cylinder engine running on just two cylinders.

Given the above factors, when does offshoring work? If you have a platform that is in maintenance mode because no new products are being added, go ahead and hire a cheap team offshore to maintain it. For overnight production support, offshoring works very well. Your teams can sleep, and refresh themselves, as the business is kept running. Also, functions with short time to competency, like configuring a Windows or Unix server, is a commodity, and it can be done cheaper with commodity labor. The key is to differentiate between which roles are expenses (short time to competency) and which roles are assets (long time to competency). Companies should reduce expenses and grow assets.  

Put simply, the reliance on commodity labor with limited institutional knowledge is slow and unproductive. Companies that have over-embraced offshoring will eventually take back critical business functions as the loss of control, and the damaging lack of innovation, leads to a competitive disadvantage. Offshoring is a tool that will eventually be used the right way. In the meantime, the race to the bottom will continue.

About the Author

Frank Wander, a former CIO, is founder and CEO of the IT Excellence Institute, and author of Transforming IT Culture, How to Use Social Intelligence, Human Factors and Collaboration to Create an IT Department That Outperforms (Wily, 2013). For his previous CIO Insight article, “How Corporate Sociopaths Affect IT Productivity,” click here

This article was originally published on 08-21-2013
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