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Offshoring Must Meet Benchmarks - A Responsible, Ethical Approach is Essential

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Tuesday 23 March 2004

EDWARD MANDLA

When Buzz Lightyear tried to prove he could fly in the movie Toy Story, Woody the cowboy derided his efforts as simply "falling with style". As it happens, Woody was right, but Buzz's acrobatical display and depth of conviction were so impressive that everyone believed him.

When it comes to offshoring, we face a similar situation. Few of the organisations currently engaged in offshore contracts have actually tested and benchmarked whether the promised benefits and savings are being delivered.

Are the offshoring suppliers really flying, or are they simply falling with style, and do we face a scenario where gravity will inevitably take its course, with predictable results?

Let me state up front: I am not opposed to offshoring. I believe that corporations have the right to determine their own destiny and run their organisation as they see fit, within acceptable ethical constraints.

My concerns arise from the apparent lack of rigour being applied to offshoring decisions, particularly in light of the significant number of jobs that are potentially affected and the implications not just for the organisation, but also for the ICT sector and Australia as a whole.

Economic rationalists argue that offshoring is inevitable; an impact of globalisation forcing companies to reduce their costs to remain competitive. They also claim it delivers flow-on benefits for the broader community and point to instances where Australia has been the beneficiary of offshoring decisions from other countries who send work here.

I see offshoring as the latest trend - the new ICT panacea. In the past, we've seen that any ICT panacea initially gets hyped up and takes off, with inevitable corrections when market reality comes into play. At the point of reality, adoption is based on board decisions with return on investment calculations based on fact and data.

The ACS believes it is irresponsible to offshore any ICT project without pilot programs, benchmarking and an analysis of medium and long term business impacts.

While research firm, Gartner, estimates that only around 2.4 per cent of Australian ICT spending has been offshored to date, that figure is expected to rise as more companies explore the potential cost savings. Unfortunately, the human cost of these lost jobs represents a personal tragedy for each one of those affected.

The ACS has been the focus of intense debate on this issue for months now, with members and industry stakeholders putting forward a wide range of views on the subject. The only common element has been the level of passion.

Frustrated by the lack of data on this issue, the ACS decided last year to commission the first in-depth study into the extent and impact of offshoring. We recently took delivery of a substantial report and are currently considering our response to it, along with the official position to be adopted by the Society.

We have formed an expert working group under the mentorship of Professor Kerryn Phelps to assist the ACS in establishing a considered policy, and plan to announce this at our National Council meeting at the end of May.

Regardless of our final position, the ACS is committed to taking a leadership role in this debate and encouraging a responsible approach to offshoring.

We are developing guidelines for responsible offshoring, which include a requirement that any decision to offshore Australian jobs must be made in the boardroom, with full awareness by C-level executives of the economic and social implications of such a move.

Organisations that make these choices on the basis of short-term savings alone may be setting themselves up potential negative publicity and unpredictable customer service levels.

An offshoring investment decision requires analysis and an understanding whether short-term savings can be sustained. Any cost saving alternative has a risk that in the medium and long term may cost more than expected, takes longer to deliver any benefits and may be delivered with less customer satisfaction.

There is also the morally questionable situation where senior executives are being paid substantial bonuses to reduce their ICT expenditure, resulting in decisions that involve sending the jobs of their colleagues and employees offshore.

We applaud the attitude of IAG, whose CIO David Issa has embarked on a comprehensive piloting and benchmarking process as an integral element of his company's exploration of offshoring.

If IAG chooses to continue down that path, it will be able to justify its reasons for doing so, and have a clear understanding of any potential cost savings and negative implications for the organisation.

IAG will know whether it is flying or falling with style, and other enterprises considering offshoring would do well to follow its lead.

More important than any decision to offshore or insource or outsource, is whether the organisation is using ICT to enable business growth or as an opportunity to cut costs. We know from history that any organisation that keeps ICT in a cost cutting mode too long suffers. The high costs of delayed upgrading quickly diminish previous savings, employees leave to join more innovative environments and it's difficult to change an ICT culture to proactive from a reactive one. Often you need a "new broom" at Board and/or CIO level.

Coca-Cola Amatil is an example of an organisation which has announced its decision to bring its ICT functions back in-house after identifying the competitive advantage its ICT systems represent in streamlining its operations and distribution. Tremendous customer innovations do come from ICT and it is difficult to obtain competitive advantage from ICT environments that are "cut back to the bone". Edward Mandla is national president of the Australian Computer Society.

To contact the ACS, call (02) 9299 3666, email: info@acs.org.au or visit the ACS Web site