Simon’s Blog

When companies take the decision to move positions offshore - for example, to move positions from the UK and the US to locations in India and China - it is often claimed that the reasons for the changes are all about improving the quality of operations. A new study from Duke University, reported in eWeek, however, has revealed this to be the lie that many people in the IT industry have always known it to be. The real driver of these decisions? No surprise. It’s cost. That won’t come as a shock to many people. But, actually, I think there is something shocking going on here…

When I hear reports from friends and colleagues who run global outsourcing companies, almost without exception, it’s the same story. Their customers - the companies looking to do the offshoring - are simply not interested in quality. They pretty much want whatever is cheapest, even if they are told that the setup they are going for will compromise quality in a major way, and not deliver genuine cost savings. In other words, they’re told that the projects will fail.

Now, highly qualified, highly skilled developers in India and China want to do a great job. Just like their counterparts in the US and Europe want to do a great job. So, when offshoring projects fail to deliver genuine cost-savings (which they often do), it’s nothing to do with people in India and China not being able to do the job. Rather, it’s everything to do with incompetent decision making inside the corporations doing the offshoring.

A simple example will illustrate the problem. Imagine you are a senior manager who wants to move some positions offshore. You have a senior software developer in the US who has ten years experience working with a particular system. They know the system inside out; they know your business inside out; and so they are extremely productive when needing to add new features or fix bugs. You pay that developer $100,000 per year. Now, you find out that you can hire a developer with similar technical skills in China, and pay them $10,000 a year.

How would you move this role offshore? Clearly, the lowest cost option would be to replace the US developer, with a Chinese developer. After all, both developers have similar technical skills. And the cost-savings are obvious. Or are they? There are many reasons why such a move won’t deliver the expected benefits. I won’t go into them here - but at root, they’re to do with the fact that the Chinese developer has no experience working in the business area or with the particular system they’re being asked to work in/on; and their spoken English won’t be as good as the native English speaker in the US (no surprise there - I mean, how is your Mandarin?) However, all the challenges with this move should be well-understood by anyone that understands how software development works… to anyone that is responsible for making offshoring decisions.

The truth is, there is a massive gap between what many companies want from offshoring and what is possible. What companies want are instant, large-percentage cost-savings. That’s why they’re looking to move positions offshore in the first place. The problem is - in many cases, it’s simply not possible to achieve the desired cost-savings on the desired timeline, at least not while maintaining quality. The reality of off-shoring is that there will often often be short-term increases in costs, where short-term can be measured in years, not months; and also that large percentage cost-savings can be achieved only with scale (ideally of the order of hundreds of positions).

Maybe I shouldn’t be shocked at the level of incompetence that’s extant in this area - afterall, high-quality senior management is often in rather short-supply, regardless of geography. But I am - I really don’t think this stuff is all that difficult to understand…