Friday, August 17, 2012

Outsourcing vs. Offshoring, by Jag Dalal, COP

As we approach the U.S. election day, the "outsourcing" rhetoric-meter will be rising rapidly. From presidential to the local council, candidates will be talking about "outsourcing means losing jobs to workers offshore" and "eliminating tax benefits for corporations who outsource - or send jobs abroad." Although it is their right to get on the soapbox (of course, made in the U.S.), as a COP (Certified Outsourcing Professional) I wish they would understand the difference between outsourcing and offshoring and take a stand accordingly (as always, they can still plunge ahead and confuse the issue and not let the facts get in the way).  

Outsourcing is when a company turns over a function (process) to another company and has them perform it according to the contract. The company taking over the function can do that work on site, in the U.S. at another location or overseas - again, most contracts put restrictions on alternatives.  So, as you read this blog, you may be sitting in a building outsourced and managed by CBRE, on a computer network supported by HP, eating in a cafeteria managed by Aramark or Sodexho, while waiting for a package to be delivered by UPS. Those are all outsourced functions where all jobs remained in the U.S., and in many cases, on site. In fact, most of the outsourcing ends up in keeping jobs in the same country and not moved off shore.  There may be a job loss and a potential job loss in the community where the company was located.

Offshoring is when a company has a function performed at a location outside of the country, either as a captive subsidiary or outsourced to a provider located there.  Obviously, there are "employment" implications depending on the form of offshoring . In a future blog, we can talk more about offshoring's impact on employment and taxes.

So, Mr./Ms. Politician, before you confuse the public (although it is your right) about the evils of outsourcing, make sure you are not in California (HP and CBRE), New York (IBM, Xerox), Pennsylvania (Aramark) or Georgia (UPS), whose outsourcing business keeps hundreds of thousands, if not millions of people, employed and contributing to the economy.
Jag Dalal, COP, is Managing Director of Thought Leadership for IAOP


  1. I've seen many debates lately about dropping the term "outsourcing." While the word still has a negative connotation, I don't necessarily agree with dropping it and replacing it with words like "sourcing," "managed services," and "right sourcing." You've made an excellent point that outsourcing isn't always offshoring - but to those not in the business I feel they will never understand or agree. I've been doing this for close to 20 years and it hasn't changed.

  2. The connotations of "outsourcing" have changed many times through the years and the bottom line is most of the time they aren't correct, but the one common they have is that outsourcing is always perceived as an evil. You have made a great case for enlightening those who really don't know and in differentiating between the two big terms "outsourcing" vs. "offshoring," and I look forward to your further discussion on these topics.

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  5. Stay away from 'Yes men'
    It is not hard to find stories of offshore software development firms over-promising and under-delivering. With increasing competition among offshore vendors, some of the companies would go to any length to land contracts. In a desperate attempt to keep up the volume of work, they tend to start telling the clients exactly what the clients want to hear, all the time. They end up saying Yes to everything that comes their way. '
    Get involved, stay engaged
    Some people still think that you can put a bunch of software developers in a room, feed them project specifications, pizza and soda, and the complete product magically appears in a few weeks or month, only to discover upon delivery that project has gone way off-track. Not being passionately involved with your offshore team is a recipe for failure. Your team is not addressing a technology challenge; they are addressing your business challenge using technology. And no one knows your business and your vision better than you.
    Communication is key
    It's easy to underestimate this, but communication failures are the biggest IT project killers; whether they are onsite or offshore. Putting good communication frameworks in place is ever more critical while working with global teams. One of the most important things you should do is to demand a seasoned project manager located offshore who works directly with the developers. This person should manage all communication since developers are not the best communicators and should provide you daily status reports. I
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