Proven Practices for Effectively Offshoring IT Work

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Global information technology networks can lower costs, increase quality, reduce response times and disperse risks. But agile IT networks require an immense amount of hands-on management, and micromanagement can significantly increase transaction costs and erode any potential savings. Much of the micromanagement is a result of the learning curve and the labor-intensive nature of managing budding relationships with new partners. The authors use data derived from interviews with clients and suppliers to identify 15 emerging best practices in dealing with offshore suppliers of IT throughout each of the phases of development. In the early stages of developing an offshore IT network, the authors suggest that it is critical to select the appropriate location for your offshore activities and that it may be best to begin with several smaller pilot programs. As offshoring efforts become more mature, the authors recommend diversifying your supplier portfolio to spread risk and maximize competition. They also discuss how to structure contracts and break up projects in ways that provide incentives and protect intellectual property. The article describes several practices that will allow for more value-added practices once a full and mature global network exists, including how to overlap networks to best facilitate supplier-to-supplier knowledge transfer. Overall, offshore outsourcing can deliver on its promises, but it takes a tremendous amount of detailed management on both the client and supplier sides. When using these best practice methods, most companies have found that the results are very much worth the additional effort.

Joseph W. Rottman is an assistant professor of information systems at the University of Missouri-St. Louis. Mary C. Lacity is a professor of information systems at the University of Missouri-St. Louis, a research affiliate at Templeton College, University of Oxford, and a doctoral faculty adviser at Washington University in St. Louis.

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