Ask The Experts: Ira Lehrman, CTO at Merrill Lynch, on Outsourcing

Question: What are the major risks of offshoring and how can they be avoided?

The offshoring landscape is littered with the spectacular failures of companies that missed or lost sight of the big picture. For many IT managers, outsourcing is a source of stress, struggle and angst. Some statistics show that more than half of outsourcing contracts end up prematurely terminated. However, offshore providers and the infrastructure that supports them are maturing, making offshoring less complex and risky than it was even a few years ago.

Unfortunately, some people still have to understand their specific levels of excellence. Never outsource a process that isn't at a level of excellence or maturity within a firm, unless the outsourcing vendor has a level of expertise that far outweighs the internal competencies -- but that's usually not the case. A key problem for many companies is a tendency to hand off an IT project to an outsourcer and then fail to check on the progress until shortly before the entire application is scheduled to be delivered.

The right governance must be put into place. Further, the requirement specifications have to be more sophisticated and more complete. When you're building a new application, offshoring is not like having your IT on one floor and your business units on another floor. Currently, in traditional development, domestic IT has a lot of access to the user community to validate design, but that's not going to happen 12,000 miles away.

The only way to effectively manage any type of development project -- whether onshore or offshore -- is to focus relentlessly on the scope, schedule, budget and quality, and to introduce a methodology of discipline, measurement and repeatability. That's the only way to continually track performance based on development of performance targets or comparison points to industry norms.

While no one should underestimate the time and the additional costs involved in management and maintaining communications, offshoring does work. Among other benefits, you enhance and mature your own processes internally. Offshoring is something we need to do, but be relentless in your approach. Those that have a thorough and well-thought-out strategy will succeed. --Ira Lehrman

As CTO for Global Investment Banking & Investor Client Technology at Merrill Lynch, Ira Lehrman oversees technology for global investment banking and global institutional sales across all debt and equity product lines.