One in three offshore projects fail

One in five IT execs claims to have been "forced" into offshore outsourcing due to pressure from the board and shareholders and over a third say their offshore projects failed, according to new report.

Out of the sample of 5,231 IT users across the US, UK, Canada and Europe, quizzed by research firm Ventoro, 19 per cent said they have an offshore strategy. Out of these 45 per cent said it was a success and 36 per cent claimed it had failed.

One in three also admitted to moving work from the offshore team back to the onshore team because of "performance problems".

Cost remains the main driver for offshoring, although a fifth cited pressure from the board and shareholders. Security, intellectual property issues and quality of service were the main reasons given for not moving services overseas.

Interestingly, however, while one in 10 firms admit to suffering IP theft on an offshore project, in two out of three cases the source of the problem was a member of the onshore team.

The main cause of offshoring failures is a lack of preparation and poor execution by the user organisation, although Ventoro admits that some offshore vendors can try to "steamroller the initial engagement process" in a rush to get the contract signed.

The Offshore 2005 research also warns against unrealistic cost saving expectations. When the successful and failed offshore projects were taken into account the average saving was found to be less than 10 per cent, although when the just the successful projects are taken into account the average saving is around 19 per cent.

"If you are anticipating offshoring savings of 50 per cent or more, you are not being realistic," the report said.

The potential for a customer backlash must also be taken into account by firms looking at offshoring and the research suggests firms ask customers if they are willing to pay a premium to have the service done locally. "If the answer is yes, reconsider moving offshore," said the report.

But it also claims the backlash has yet to materialise. "While customers are passionate about the offshore debate, their purchasing patterns do not indicate they are serious about the issue."