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Offshoring: A Failure to Communicate

July 13

We recently parsed the results of a large survey conducted by consultancy Ventoro to identify the whys and wherefores of successful offshoring. The study polled 5,231 executives (60% of them US-based) and found some surprises, at least to us:

1) The average cost savings associated with offshoring labor were only 10% when taking into account project failures. In 28% of the cases, offshoring actually increased costs, while 25% reported no savings. (Of course, even when failing to reduce costs, an offshore relationship can add value via increased quality and speed, or technology and skills transfers to the client.)

2) While 70% of the respondents entered into an offshore project with the intention of saving money, it was how they did so that was interesting: 46% saw costs reduced through process improvement, with 45% experiencing vendor execution savings, and 9% enjoying lower employee costs. So simply carefully reviewing how current activities are carried out and improving upon them contributes nearly half of all instances of offshore expense reductions.

3) In post mortems of project failure, the client -- not the offshore vendor -- is mostly to blame. That is, in only 15% of the cases examined was the failure due to offshore vendor performance. Much more common were problems with client preparation and execution (28%), joint client/vendor planning (21%), client team morale and support (10%), communication and cultural problems (9%), and the startling fact that offshoring was found to be “the wrong answer” (14%). So over half the time, projects failed due to problems unique to the client.

Some takeaways:
* Offshore project fail frequently
* When they do so, it’s usually due to lack of preparation, commitment and leadership on the client’s side.
* A low-risk alternative to the complications of offshoring may be to focus at least initially only on state-side process improvement. Of course, you may need an offshore firm’s expertise to conduct such process audits.

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