The decision to offshore application development initiatives remains one of the most contentious debates in IT circles, if not the most controversial. For some, the decision seems like a no-brainer, while for others it seems out of the question. For those of you who find yourselves caught in the middle, we believe some basic guidelines exist when you remove the clutter and the noise behind the debate, and focus on expected results. Take a moment to consider the following observations we have made over the last several years, and decide what profile best fits your current situation.
Company-Type 1: Large Multinational
In some companies, the size and complexity of the organization can have a negative effect on the ability to staff, maintain and hire good teams internally to deliver thousands of complex projects. Think of this in terms of hiring experience – how much time and money would you spend on hiring seasoned IT managers, specialized developers and system integrators if your company literally had 150,000+ employees, billions in capital (including IT infrastructure) and a presence on every continent other than Antarctica. A large multinational client of ISI recently made the decision to move this burden to a large offshore firm. At some point, it made more sense to offshore their entire IT organizational management and staffing, and maintain an offshore contingent to ensure consistent project delivery across their entire geographical footprint. They readily admit that the overall cost for skills will go up, but that the time and expense of maintaining internal skills outweighs the opportunity costs of such a large company.
In addition to organizational leverage, this client also wanted to reduce the cost of “commodity” IT projects. Most offshore groups specialize in commodity skills, such as desktop support, basic open source development and/or any development that does not require a heavy data-centric or analysis-intensive approach to the project development lifecycle. This model favors the fire-and-forget projects that do not require much feedback from users, and offers a low cost solution to supporting commodity infrastructure. Maintaining hundreds of thousands of machines and literally cloning low-tech solutions across continents, in addition to having a worry-free model for maintaining their IT core competencies, means that the offshore model made a lot of sense for this company, and will probably save the company millions of dollars over several years, in addition to the indirect benefit of letting managers focus on the core business rather than organizational IT. In other words, they are knowingly paying a premium for the privilege to concentrate on their core competencies.
Company-Type 2: Fast-Growing, Small to Mid-Size
As mentioned above, the offshore model suits companies where the cost of doing IT-related activities outweighs the perceived value of missed opportunities. To understand the product that offshore firms deliver, at the risk of oversimplification, we need to consider the fact that there are basically two types of offshore contracts – agreed hourly rate for tiers of skills (developer, business analyst, project manager) and all-inclusive support contracts. Company-Type 1 above clearly needs both, and for any company of size with distributed infrastructure (think retail or manufacturing) an all-inclusive support contract probably makes sense.
Inversely, we have noticed that many of our small to mid-size clients who engage with offshore firms for an agreed hourly rate for development and project management skills often end up experiencing buyer’s remorse. Companies find, after the fact, that using offshore resources often results in one of the following three scenarios:
1. Costs unexpectedly go up – the natural lifecycle for even the most basic development increases in both time spent as well as responsiveness to design changes and project methodology. Also, project managers and business analysts must adjust to the new model and become more efficient in a paradigm where changes may take days to enact rather than minutes after a face-to-face conversation with local developers. A Director of IT that I know personally once told me that the actual cost per hour for a given resource can drop by 1/3 when offshoring, yet the same amount of work done by the new offshore resources, once done by the displaced local resource, now takes 3x longer to do. This does not include the potential need for new resources who can break down requirements in a manner befitting offshore development, which typically requires more explicit and detailed specifications at the onset of the project in order to avoid delays from unintelligible requirements or reconciliation of conflicting features.
2. Team cohesion suffers – Team dynamics change, and the intended benefit of projects quickly evaporates when internal seasoned resources feel endangered by changes, and do not feel safe in their position.
3. Delivery does not speed up – In spite of quick turnaround times promised by offshore firms, the additional preparation, overhead and iterative correction process required to get the right output from offshore resources can ultimately slow down development and decrease over ROI. Of course all of these symptoms can hypothetically be managed. The question is, how long does it take to normalize these problems before the perceived value of using offshore resources becomes a moot point?
When considering offshoring, think about what you are really paying for and the total cost of the new model. Most skillsets you need are not the commodity you might perceive them to be. Experience is hard to come by and expensive, no matter where you get it. High-visibility solutions require intimate understanding of your business, rare skills and tight team synchronization and cohesion. You will never know that the offshore firm you hire will not be able to provide that rare gem of talent you need – until they can’t. Also, what will be the cost of managing your team in the new offshore paradigm? How will your team react to the loss of cohesion that naturally occurs by injecting resources with different expectations, norms and practices? What about the uncertainty that the decision implies – will team leaders and senior developers jump ship and see the “writing on the wall”, even if that writing really does not exist?
Are you a Type 1 or Type 2 Company, or somewhere in between? Depending on the answer, offshoring your projects may make sense. We would love to discuss the pros and cons with you as part of a complimentary 2-hour strategy session. If you would like to chat, please reach out to us at email@example.com or click here to contact us.