Tuesday, December 08, 2009

Why Outsourcing Fails 2. Due Diligence

One thing to keep fixed in your mind throughout the outsourcing process is that the costs that can be saved are really substantial.

Let us take the cost of an average C# Developer which is currently running at a recessionary rate in London in 2009 of 45K. On top of that we need to pay Employer's NI of 10% which makes it 49.5 then recruitment with the average tenure being one year and recruiters charging 20% for six months which is another 4.5k bringing it to 54k, then there is the share of office space, HR, travel, training , heating, lighting etc, which once it is all factored in pretty much doubles the cost of that Dev.

That same Dev, as a resource outdourced from Bangalore would be 35k. Overall potential savings are in the region of 50-60%

What percentage of these costs can be instantly realised will vary from one business to another but assuming the outsourcing process goes well they are all available to realise at some point in the future.

The main reason that I have pointed this out is so that businesses realise how they can gain and subsequently DON'T SKIMP ON DUE DILIGENCE!

I won't go through the whole due diligence process here but let me take one aspect which is visiting the suppliers.

If I had a pound for every time that I've heard about how offshore outsourcing is not working followed by the usual litany of complaints about the suppliers and when I then ask if they visited during the due diligence process I hear that hadn't happened, I could retire tomorrow.

In a nutshell, once you have got your due diligence process down to a final three that Are competent, Go and visit them....

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