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Top Five reasons why offshore deals go bust

Business entities will spend more than $50 billion on offshore and near-shore outsourcing by 2007, but many offshore projects will fail because of poor planning, according to a recent report from Gartner Inc.Some organizations are rushing into deals expecting to gain a competitive advantage, often through cost-cutting or by boost in productivity. But the expected gains can be severely affected by many factors. Gartner's report identifies five areas where outsourcers should apply deep thought before taking the plunge:

 

Unrealized cost savings: Most businesses push work overseas in the hope of cutting several costs mainly labor costs. An application maintenance professional in India earns about $25 per hour, compared with app $85 per hour in the U.S., according to Gartner. But business entities make a mistake by looking at salaries alone. Other hidden expenses for areas like infrastructure, travel, communications and cultural training take a share out of the wage differential. What's more, planning and start-up costs are very high, therefore, offshore deals lasting less than a year may not pay off at all, and savings from longer-term deals will emerge at slow pace.

 

Loss of productivity: Staff at an offshore service center in all the cases won't be as productive as internal staff at outsourcing country, at least not initially. Garner offers several reasons: Staff turnover is very high in competitive off shoring markets such as in India, which in other words mean programmers there may be new and inexperienced. And service providers overseas struggle with ambiguities in the work they are assigned. Sending jobs overseas will also lower morale of employees at home, creating a drag on output.

 

Poor commitment and communications: Senior executives often drag out of the scene once a deal is signed. But they need to stay committed and engaged to keep morale high and strategy on track. Projects, goals, expectations etc.have to be defined clearly and in detail. On the home front, managers should explain precisely why work has been sent overseas and what benefits are expected.

 

Cultural differences: Communication styles and attitudes toward authority differ from region to region and the said differences can cause problems. In some systems of functioning, questioning authority is considered disrespectful.In such instances, a team may push ahead with a given plan even if they see a better approach. Offshore should get clear advice about a local culture and system, provide required training and even arrange exchanges among staff on both sides.

Lack of offshore expertise and readiness: Some organizations jump into the fray before they are ready. Offshore need to get everything in order internally and secure the support of key persons and stakeholders in the company before launching a project. Garner also advises outsource to figure out their IT process maturity and ensure that they have standardized methodologies, detailed service-level agreements ,established mechanisms for managing change, and strong skills in project and portfolio management.

 

Weakness in above stated areas can translate into poor results from outsourcing projects, Garner said.

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