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The headline in a recent SearchSAP.com article parses the claim very carefully: Outsourcing SAP Basis administration offers savings, flexibility. That it does—offers being the operative word.  The article goes on to suggest that companies “stand to” benefit, which is to say, they might benefit and might not.  I thought this caveat was pretty telling: “If a company’s SAP implementation is large and complex enough to support a two- or three-member SAP Basis team, the economics of outsourcing no longer make sense.”  Perhaps that explains a lot about the very large SAP shop where I used to work, with its outsourced Basis team of over a dozen constantly rotating resources, who frequently ran afoul of procedures and controls.

In another recent SeachSAP.com article, my friend and fellow SAP Mentor Jon Reed was quoted as offering cautionary advice about some risks in offshoring.  “When you turn all of that stuff over to someone else, you’re really divorcing yourself from the process of cultivating internal management skills,” Reed said. “There is something to be said for taking IT seriously as an area for competitive innovation.”

Then again, if the decision makers in your executive suite are not truly convinced that IT can be a strategic advantage, if all they see in IT is costs, it is not surprising when they jump hastily onto the offshoring bandwagon. This is why I was not terribly surprised by the findings of a Duke University study reported in a  recent article on CIO.com, that average cost savings achieved by offshoring (both third-party outsourcing and captive center operations) has declined consistently during the last five years. The study found that many companies continue to be caught unawares by so-called “hidden costs,”  which in my estimation are not really all that hidden to anyone willing to take an honest look at the risks as well as the rewards.

Another factor in the equation is the failure of American companies to continually invest in their technical workers, also reported in the recent CIO.com interview. Quick poll: how many of us have not been to a formal multi-day “training class” in 5 or more years? Yes, I thought so; it seemed that training budgets were one of the first things to go in the downturn.  Then when the layoffs come, the people sent packing were the few who actually got trained way back when and understood both the technology and the business processes; those left in house struggle to keep the lights on using offshore resources that turn over just about the time they come up to speed with the business processes and requirements and start being reasonably productive. If it seems that your internal people are not up to speed on the latest releases and technologies, let’s be honest: it was an inevitable consequence of draconian cost cutting in training and postponed upgrade projects. So do you want to pay, one way or the other, for the training of someone else’s resources, or do you want to invest in what used to be known as your human capital, the people in your community who keep your spouse’s sporting goods shop and your neighbors’ businesses in customers?

It is a gloomy picture: failure to invest in development of internal resources, replacing them with offshore resources but failing to put in place adequate oversight and knowledge retention. The lesson seems pretty straightforward to me: regardless of any rosy picture painted by its advocates, offshoring offers opportunities, not guarantees. Whatever short term gain might be realized with the quick win of cutting internal headcount, the long term benefits are only realized when careful consideration is made of all the tradeoffs. If making this quarter’s numbers and getting that bonus is all that matters, hasty offshoring decisions will continue, with predictable long term consequences.

I’d like to close with an observation that Jon Reed shared with me:

“I think the companies that break the cycle of outsourcing indiscriminately and not investing in internal employees will come out ahead. The idea that workers are no longer loyal, thereby justifying cut-throat fire-and-outsource tactics, doesn't ring true to me. Investing in someone's skills development does breed loyalty, and whatever turnover you lose by cultivating rock stars is almost always offset by attracting more of the same who are looking for a place where they can invest themselves without worrying about getting dropped off at the curb at the first opportunity.”

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