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Metrology

Offshoring Brings Sometimes Unexpected Risks

Published: Monday, March 14, 2005 - 23:00

Most experts don’t see an end to the offshoring trend, but with an estimated half of all offshoring operations falling short of expectations, companies considering sending their operations overseas have to consider the risks—not merely the rewards—of doing so. The findings come from a report, “Thinking Offshoring Through: A Framework for Decision Makers,” released by The Conference Board. The report reveals that unless corporate leaders address the full spectrum of offshoring challenges, underperformance will grow, leading to significant effects on corporate operations.

“Companies now need a comprehensive decision-making framework to help senior executives rationally and systematically assess the risks and rewards of offshoring,” says Ton Heijmen, senior advisor to The Conference Board on offshoring and outsourcing.

The report reveals that many companies that offshore operations suffer from poor project management, inadequate internal and external communications, and ill-conceived transition plans. Many companies focus on security risks and neglect others: damage to the company’s reputation, social responsibility, human capital, and regulatory and legal difficulties.

The report concludes that successful offshoring operations depend on the comprehensive analysis of a full spectrum of factors: location, process, scope and participating business units among them. Successful companies must consider the tradeoffs of cost, proximity, convenience, time to market and depth of resources. They must survey all of their options in each available market, from the quality of vendors and staff (and their skills, language abilities and motivation), to the offshoring country’s business environment and the availability of government incentives. The report endorses the use of a risk management framework for offshoring organizations.

“Once a company outsources or offshores, it’s on its way to creating a virtual corporation—a network of companies and operations that must work together and should act as if they were one integrated firm,” says Heijmen. “Beyond advanced IT and communications capabilities, this virtual organization requires special approaches to organizational and behavioral management, and the coordination of internal and external relationships.”

The Conference Board will host its Strategic Outsourcing Conference in New York City, April 27–29. For more information, visit www.conference-board.org.

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