This is part 1 of a 5 part series.
According to Wikipedia (the largest encyclopedia in the world), outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the product or service will be sold or consumed.
In the last 5 years, outsourcing has been a source of controversy in the USA as thousands of jobs have migrated offshore. Employees have been alarmed and felt their jobs threatened, whilst employers have had no choice if they still wanted to compete in the world marketplace. And this trend is accelerating and is inevitable. The world as we know it has changed, there is no going back.
Buckminster (“Bucky”) Fuller coined the term “spaceship earth” more than 40 years ago to indicate the fact that we are all interdependent of each other. No country can exist as an island. With the explosion of the Internet, telecommunications and affordable travel, that truth has become increasingly obvious. Practically, this has evaporated the barriers to optimizing a business - by going where the resources are cheapest.
Here is a Statistic that shocked me:
Two out of every five human being on the earth today is either Chinese or Indian.
Or stated another way: 40% of the world population is either Chinese or Indian.
With the average monthly salaries of Indians being between $100 – $200 and China being a bit less, it is no surprise that local labour cannot compete.
Being in the SAP industry, I first started to see some outsourcing in the year 2000. There were a few companies that began outsourcing some of their ABAP development work offshore. In most cases, it was a spectacular failure. Although the concept is sound, the actual business processes, best practices and infrastructure to support this offshore development was lacking – simply put: nobody really had any experience doing it.
Today, in 2007, there is rarely a project that does not outsource to some degree. Many time it is dictated by the CFO as a way of saving costs. Many times it does not because the code has to be re-written because it is so bad or is not maintainable. In my last project a returns order entry screen was written to allow scanning of returns. It was sent offshore. Whenever we found another bug I cringed because I was afraid of what else we might find. Touch one thing and something else would not work. If anybody had ever bothered to compute the cost of this piece of code I think they would have been floored.
Why outsource? Apart from the obvious reason of cost savings, some companies are doing it for another reason. After carefully surveying their core business, they have decided that they are not in the business of IT, they are in the business of selling water or contact lenses. Although the IT component is crucial to the business, why not outsource it to experts in that field? Or so the logic goes.
What can be outsourced? In an SAP implementation, it is generally the development work that gets outsourced. However, I have seen the Basis support and even application support outsourced. In one case, I saw all the accounting outsourced to Hungary.
In this series of articles, we will explore the following topics: The problems with SAP Outsourcing; 10 Golden Rules for outsourcing SAP; 10 Myths about outsourcing; SAP Outsourcing successes and failures.
