by Craig Wilson, MD of Ciklum UK
Monday, November 15, 2010
Craig Wilson, MD of Ciklum UK, states how organisations, battered by cutbacks, are under more pressure than ever to demonstrate value for money from their IT projects. Yet the tide has turned on traditional off-shore services as a means of deriving substantial cost savings from IT development, because the results simply are not standing up to scrutiny.
Over the last few years, analysts have signalled a growing trend towards ‘backsourcing’. Indeed, Gartner Group* reported that 56% of small-sized business, and 42% of mid-sized business contracts are backsourced following contract discontinuance. Here, disillusioned UK businesses and public sector organisations cut their losses and bring their IT development work back in house, because the economies have not proved worth it. The main stumbling block has been a lack of management control - the result of overly rigid development methodologies and the logistical difficulties of trying to work with a team thousands of miles away.
However few organisations in the current climate can afford domestic salaries, as budgets have been set around off-shore cost models.
It is here that nearshore services have stepped in and interrupted the flow of projects being brought back in-house, offering organisations a viable and attractive alternative to the domestic wage bill. The most compelling propositions combine similar - if not better - cost-efficiencies compared to traditional offshore offerings, with more familiar and flexible working practices and greater management control.
Offshoring - blind leading the blind
According to IAG Consulting*, 68% of ‘waterfall’ (a rigid, sequential software development process, favoured by traditional offshore providers) IT development projects fail. This is because such arrangements are extremely blinkered in their approach. In the ideal scenario, a detailed, functional, step-by-step specification is requested by the outsourcer and, after a cost is agreed, the results are delivered within the agreed timeframe.
However, if there are problems with the steps in the specification, they are typically not flagged to the customer, but instead the process is continued with blindly and an entire project is quickly derailed. By the time the errors are discovered when the final product does not work or the goal simply cannot be reached, it is too late: the work has been done, the time and budget spent.
Even if errors are discovered early, any attempts to redirect the project along the way are likely to translate into delays, the resetting of contractual terms and inflated costs, undermining any anticipated cost and speed benefits of the offshore model.
A closer fit
And so it is unsurprising that the ends of corporate tethers are reached and more and more projects are brought back to the native shores. But while the project stands a greater chance of successful, timely completion when brought home, as greater control and flexibility can be exerted, the costs remain high. Domestic wage bills were after all the reason why the offshoring model was used in the first place.
Eastern European nearshoring destinations are therefore, quite rightly, seeing this reluctant return to in-house activity as a huge opportunity. The low cost and sheer amount of IT-literate talent – since 2005, the volume of the country’s IT market has grown an average of 77 percent per year – and the Europhile culture, combined with all the advantages of outsourcing with none of the detriment, is making the proposition highly attractive.
Craig Wilson, MD of Ciklum UK - http://www.ciklum.net
* Gartner Group, “User Survey: SMB Business Process Outsourcing,” 2004
*IAG Consulting, “Business Analysis Benchmark Study,” 2009