Global or Local? Four Considerations When Deciding Where to House Your IT Infrastructure
While IT infrastructure outsourcing is not a new concept, much has changed in the industry: In a world where innovation and delivering an exceptional customer experience can drive growth, companies are motivated by more than cost savings alone.
Businesses are looking to find partners that can offer the right amount of flexibility, technical expertise and innovation to help increase revenue and improve the customer experience. But all of these requirements must still be balanced with liability, compliance and cost savings in order to get the highest return on investment (ROI).
To help businesses weigh their options, here’s a look at four considerations when selecting whether to house your IT infrastructure offshore or onshore.
1. What Are the Liability Risks With a Global Partner?
There are liability risks in any outsourcing venture, but these may be exacerbated when dealing with a global partner. Not only can laws differ from country to country, but differences in the judicial system and local regulations must also be considered.
To ensure a business retains maximum flexibility throughout the partnership, a comprehensive service-level agreement (SLA) is necessary. To safeguard your business, make sure your SLA includes:
- Detailed specifications of the work to be performed;
- Schedules and deadlines, including penalties for failing to meet deadlines;
- Payment terms and cycles;
- Clear expectations of the service levels to be provided, including identifying performance metrics;
- Identification of asset ownership;
- The method of conflict resolution when required quality level or deadlines aren’t met; and
- Contract terms, including expiration and conditions of renewal.
Liability risks might always be more easily managed in a country that shares the same language and legal understandings, but they can also be managed with a global partner as long as the appropriate legal legwork is done and strong SLA agreements are in place.
2. Can the Partner Meet Compliance Standards?
Technology used for managing and monitoring IT infrastructure is fairly standard, and most remote management providers will be ITIL-compliant. Yet for many organizations that must abide by a host of additional regulatory and compliance policies, such as businesses that require payment card industry (PCI) compliance, the ability for the partner to meet compliance standards will not be based so much on their location as their expertise.
For example, many vendors may claim to be PCI-compliant and affirm that they have a secure firewall to protect cardholder data. However, they need more than just a firewall; there needs to be a formal process in place for approving and testing network connections and validating all changes to firewall and router configurations.
To ensure compliance, find a partner, whether global or local, who can clearly demonstrate how their processes and technology address your specific compliance requirements.
3. What Are the Real Cost Savings?
The reduced costs of housing IT infrastructure overseas has historically been the main motivator for companies using remote partners. While that may no longer be the case, lower labor costs in foreign countries remain appealing, especially in a post-recession environment where everyone is squeezed to do more with less.
If analyzed only from a labor-cost standpoint, many companies anticipate cost savings of 60–80 percent. But according to an in-depth look at the costs of outsourcing by CIO, companies leveraging a global partner can expect to see their anticipated cost reduction gouged by:
- 1–10 percent in vendor selection costs;
- 2–3 percent in transition costs;
- 3–27 percent in productivity lags;
- 1–10 percent in software development processes; and
- 6–10 percent in managing the contract.
In total, companies should expect their overall cost savings to be anywhere from 13–60 percent less than what they expected due to these additional costs. This may make the savings insignificant compared with onshore options, especially when factoring in other concerns such as language barriers and time zones.
4. What Is the Overall ROI?
Cultural barriers, increased downtime, worker attrition, language barriers, time zone differences and higher oversight or management costs are all risk factors for overseas infrastructure management when compared to partnering locally.
To manage these risks, it’s important to determine your business’ specific needs and conduct a thorough cost-benefit analysis. While many of the benefits of housing your IT infrastructure closer to home may be soft and cannot be specifically quantified, consider the following questions:
- Which approach will best meet the strategic goals of the business?
- Are increases in productivity, service quality, lower error rate or reduced downtime and cycle time equal to or higher in valuation than lower labor costs?
- What are the ongoing costs for managing and training an outsourcing partner? Are they significantly higher when offshored?
- Which partner offers the most proof of innovation, flexibility and technical expertise?
Understanding these additional considerations and their associated costs can guide the decision-making process and steer a company toward a partner with the highest cost benefits and lowest levels of risk regardless of location.
The decision to outsource IT infrastructure requires thorough investigation and thought. A key component to its success, no matter where you house your infrastructure, will be finding a provider that aligns with your business goals and offers expertise in your line of business.