At the risk of overstepping the boundaries of a business technology column in this election year, we’ll compare and contrast the concepts of "outsourcing" and "offshoring." While many use these terms interchangeably, they are two distinct principles. Both outsourcing and offshoring are common in IT, perhaps more so than any other industry.
Outsourcing is best described as the subcontracting of a business function to a third party. In other words, rather than pay its own employees to perform this business function, the outsourcing company hires someone else to do it.
Businesses and government agencies have been outsourcing their IT functions since at least the 1960s. Back then it was common for organizations to buy processing time on mainframe computers, since computers in general were so much more relatively expensive than they are now.
As computers became more affordable and organizations were able to buy their own hardware, many IT functions were still outsourced. This typically included one-time tasks, such as initial setup of a system and/or network, and custom software development. Many folks also outsourced recurring support and maintenance.
The benefits of outsourcing include breadth and depth of expertise and efficiency. It’s difficult, especially for a small IT shop, to get exposure to emerging technologies and new methods. The staff is too busy keeping up with its existing systems and processes to garner any meaningful external experience.
Up until about the mid-1990s, virtually all outsourcing was done using American companies. Around that time, however, organizations began outsourcing IT functions to companies in Third World countries, most notably India. This is the concept known as offshoring. The single driving factor behind offshoring is to save money.
Offshoring of IT functions began with software development. With the advent of the Internet and cheaper telecommunications costs, offshoring migrated into other areas, including system maintenance and customer support. Other countries where English is commonly taught, if not spoken, such as the Philippines, also became popular locations for offshoring.
Now that IT offshoring has been commonplace for more than a decade, its warts are beginning to be exposed. Many organizations, in Hawaii and across the mainland, are reversing their decisions to outsource IT functions offshore. Many continue to outsource, but they do so with U.S.-based companies.
The biggest complaint to offshoring is lack of quality. The fact of the matter is that while there are many talented, intelligent individuals within offshore organizations, the overall level of technical expertise is lacking. After all, if these locales had the same level of technical expertise as developed countries, they wouldn’t be Third World.
Other areas outside of IT are commonly outsourced. These include human resources, accounting and marketing. Rarely, however, are these functions offshored.
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John Agsalud is an IT expert with more than 20 years of information technology experience in Hawaii and around the world. Reach him at johnagsalud@yahoo.com.
