Straw Man Arguments of Offshoring

Today's guest blog comes from Paul Duckham, Senior Advisor, TPI.

Should a U.S. bank spend another US$2-3 million tweaking its mature IT systems to squeeze another 5 percent productivity gain out of its U.S. operations, or just move the processes offshore, with the potential for 40 percent saving?

The above surely sounds like a straw model argument; obviously the better business case wins out every time, doesn’t it? Well, not always.

The portfolio of IT projects often takes on the characteristics of ancient law – it must not be questioned or changed. Most of the time this is good since constant churn in the project list causes a huge waste of resources as people start and stop project work.

But when considering BPO opportunities and whole processes outsourcing, shouldn’t everything be fair game?

For example, I have recently seen a significant offshoring project in the financial services industry delayed for months because of an IT project that could not be questioned. Considering that the IT project dealt with processes probably going offshore, not letting the prospective suppliers weigh in on the IT solution seemed odd.

After all, shouldn’t the experience disparity between a client and service provider in handling comparable processes matter? And what about outsourcing a process that can be eliminated? These might sound like soft-ball questions, but project estimates and risk analysis can be key.

A recent TPI client made a tactical decision due to the existence of a “killer app” project that had just started. In the decision-making, the short-term partial IT outsourcing project was assumed to follow the allotted three-year timeframe. But three years in the financial services industry is a long time, and project history offers insight. Regardless, the IT project was “already approved” and there was little discussion on expenses and prior attempts made to eliminate the loan origination process.

So what is the right approach?

An obvious step is to ensure that a governance regime exists, perhaps a Project Management Office, which will consider the IT and BPO projects within a single portfolio view and ideally with a combined budget. It has long been agreed that IT serves the business, while IT argues that the business gets itself into trouble without IT guidance. So choosing a steering committee where both are represented seems to be the answer especially if all projects have the same hurdle rates and approval steps.

But senior management must also promote a culture in which an occasional, well-justified change in direction is acceptable and following up is always done to ensure that expected results are obtained.