Q: In an economic downturn, some people will undoubtedly come to view the offshoring industry as meaning, in essence, sourcing former UK jobs more cheaply from overseas to a cheaper labour force. Is this any merit in this view? – it is one being whipped up as an election issue in the US, for example. More importantly, how can this be handled internally within companies who seek to offshore parts of their operations?
A: This is not entirely fair. Offshoring does not necessarily mean that UK jobs are being directly replaced and domestic workers are being made redundant. It is true in some cases, but the IT skills shortage in this country has been well documented by the likes of the British Computer Society, and many UK organisations are using offshore resources to fill in the gaps in their labour requirements. These gaps are appearing around both high-end skills – around high demand areas such as SAP and SOA – and also around legacy programming and management positions, where some senior workers are being lost through retirement.
It is also worth noting that offshoring is not just something that UK companies turn to when the economy starts to bite. The country has enjoyed a strong period of economic growth during the last five years, during which time the leading Indian outsourcers have enjoyed annual growth of 40% or more from their UK operations.
The decision to source skills from an offshore location is something that must be communicated clearly as soon as possible to all interested parties: management, shareholders and most important of all, employees and relevant workers’ unions. Even if the move will not lead to internal redundancies, it is much better for the board to be up-front about the decision and engage directly with the relevant groups. Recent history tells us that news of the decision will leak out soon enough anyway, and this will have a potentially damaging effect on the morale and productivity of the existing internal IT team. Unions and the UK business press will be quick to criticize those companies that try and push offshore programs through under the radar. It is much better to be open and to explain the thinking behind the strategy.
Q: Can the UK still compete on skills, given that IT graduate numbers are apparently falling here, whereas destinations such as India, China, and Vietnam, are producing more and more skilled graduates with good English skills. Skills were a problem at the turn of the millennium in the UK. They are surely a greater problem now...
A: Yes, the UK can remain competitive, but it will have to pick its battles more carefully. For example, there is little point in UK colleges and universities churning out thousands of entry-level legacy programmers in the future as India and China have a big cost advantage in handling the maintenance of ageing systems, and the risk of managing this type of work offshore is relatively low.
Where the UK needs to concentrate is on producing the type of skills that cannot readily be offshored, such as project managers and vertical industry experts – people who really understand the requirements of SAP or Oracle for the UK banking or transport sectors, for example. To illustrate this point, many of the larger Indian services vendors are currently recruiting these skills locally in the UK.
Q: As technology costs fall, the relative cost of technically expert staff rises, is it inevitable that many types of companies will become more widely distributed globally, with smaller strategic teams located in the UK, and technical and production departments increasingly located offshore. Is remote infrastructure management a likely major growth area, for example? What are the risks of this?
A: Yes – most large UK organisations take a global approach to IT sourcing, and it is no longer about simply using a partner in India to handle some small projects.
Large UK organisations want to offset the risk of relying solely on the overheating Indian labour market by tapping into emerging offshore sourcing locations such as China, Latin America and Eastern Europe. The disruptions caused to some of the Indian services vendors last month by faulty undersea communications links in the Mediterranean also highlighted the potential risk of solely relying on India.
Remote infrastructure management is definitely going to be one of the big growth areas in the IT services space in the next five to 10 years. We are going to see a lot of UK companies that have realized cost savings in sourcing applications management and development work from places like India, look to apply the same delivery model to supporting their datacentre infrastructure.
Functions such as remote network and security monitoring and infrastructure helpdesk support can be readily offshored, but one of the challenges that customers will face is to make sure that these remote services are seamlessly integrated into the functions that need to be handled onshore such as onsite break/fix services.
Q: UK executives will gradually become extremely expensive relative to other parts of the organisation. What might the implications be of this? Surely if countries such as India will be able to supply good management as well as technology expertise, then offshore executive power is also likely to be sought from overseas?
A: The CIO at most UK-based multinational companies is already one of the best-traveled executives within the organisation, racking up a huge number of air miles to check on the status of offshore sourced projects and overseas partner relationships.
While we are unlikely to see the location of the UK CIO’s office shift to a permanent base in India or China, we will certainly see end users look to attract some of the best management talent from these locations – particularly as the successful management of global sourcing becomes an increasingly key component to the role of the CIO.
