The Cost of Layoffs

Laying off American employees as a result of your offshore contract poses other sometimes unanticipated costs. To begin with, you have to pay many of those workers severance and retention bonuses. "You need to keep employees there long enough to share their knowledge with their Indian replacements," Zupnick explains. "People think if they give generous retention bonuses it will destroy the business proposition. They cut corners because they want quick payback. But then they lose the people that can help with the transition and incur the even bigger cost of not doing the transition right."

Layoffs can also cause major morale problems among in-house "survivors," in some cases leading to disaffection and work slowdowns. Companies with experience in offshoring factor productivity dips and potential legal action from laid-off employees into the cost-benefit analysis.

"You can never underestimate the effect these issues will have on the success of [your offshore venture]," says Textron Financial's Raspallo. CIOs must take time to communicate with their staffs, being "brutally honest," he says. "If your intention is to lay off some workers and move work offshore, let them know. If you want to move legacy systems offshore and retrain staff for other systems, tell them that. And constantly reinforce what the vision is."

Raspallo sets aside time for a monthly meeting with all staff(offshore included) by video. "In the beginning, we spent the whole time talking about the offshore proposition," he says. "If you don't spend that time doing that, your staff is going to make up stories about what's happening themselves."

Without this kind of effort, offshore endeavors are doomed.