The concept of offshore software development is the result of evolving business network paradigm, where a company focuses on its business differentiators while relying on the partner ecosystem to provide the rest of business functions. This enables companies to focus on what they do best and let partners do what they do best.
The outsourcing trend is more pronounced in those domains, where the associated tasks can be executed in virtual, remote locations. The outsourcing of software development and other IT services certainly is one of the primary areas besides manufacturing where outsourcing trend has become quite important.
Certainly cost is another primary reason for IT outsourcing but its important to realize that companies outsource IT function to vendors only when IT function is not a core function of the company. As IT is pervasive across all industries and verticals, and given that a significant part of IT for non-IT companies is non-core, the market size for outsourcing becomes quite big. Only yesterday, I came across this Reuters news article, where a major European banking company is thinking about outsourcing in big way.
The outsourcing trend will continue as it makes economic sense for the customer and vendor and by doing so, both increase the value of their assets. At the same time, it is also important to look at the big picture of outsourcing from risk perspective. It is more than ten years since companies started outsourcing IT functions. What’s the reality?
When any company wants to outsource a non-core function to an external vendor, one of the key aspects is to make sure that the company still maintains the appropriate level of control for outsourcing function. Major risks are inefficient line of sight into vendor’s activities, quality control, and realization not aligned with company’s business requirements.
For a company that has established that outsourcing is the way to go, it becomes critical that it identifies an outsourcing partner that can demonstrate an effective and functional model, which ensures that the company will derive, desired business benefits at most effective cost. The outsourcing partner must ensure the company that the outsourced IT operations will be executed in a manner that truly simulates a business network, where the company can get visibility into all appropriate KPIs (Key Performance Indicators), alerts and deliverables as if the vendor is working just like any other group within the same company.
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