Outsourcing IT development can be a powerful business tool for companies that learn its best applications. Think of it this way: opening a can of soup with an electric drill would be a bad experience. But that doesn’t mean the electric drill is useless — it’s just not being used for what it’s best suited for.
Businesses are learning the same lesson about outsourcing. One major manufacturer decided to outsource all Internet development efforts to India. They terminated all onsite IT development consultants and pushed development offshore. Their experience was disastrous. Within a year, they’d terminated their CIO, yanked all development back into the U.S., rehired everyone and licked their wounds.
Many companies have learned the same lesson the hard way. Organizations can’t just throw their IT development projects across the sea and get back a flawless package, quickly, at low cost, with a big red bow on top. That’s not how it works. In fact, learning how to leverage offshore/nearshore development has been quite an education for many companies.
So how does it work? Many organizations have seen success by dividing large projects into multiple parts: a part that stays within the U.S., a part for nearshore development and a part for offshore development. The challenge is knowing who should get each part.
Below are some of the benefits of, and best cases for, offshore and nearshore development. However, realize a company can’t outsource internal problems. Outsourcing development only works if internal development processes are sound.
Here are some of the best cases for considering offshore development:
• Simple projects that are well defined and have a fixed price
• Projects that don’t require creative solutions
• Development of inexpensive prototypes — bringing an idea to life
• Larger pools of standard development talent (SAP, .Net, Java)
• Pockets of talent well-versed in older technologies (i.e. AS400)
• Various companies with Centers of Excellence (CoE) and partnerships with leading technology providers (IBM, SAP, Oracle, etc.)
Nearshore development has been quickly gaining momentum over the last few years. Some of the benefits of nearshoring include:
• Similar time zones: This makes it easier for conference calls and less expensive for in-person meetings.
o India is 11-12 hours ahead of the U.S. Beijing, Shanghai and Hong Kong can be 25 hours ahead of the U.S. Managing complex IT projects across an 18-24 hour time difference can be extremely difficult and frequently results in delays and setbacks.
• Similar cultures: Nearshore business cultures are similar to the U.S., and these developers are quick to share creative development and efficiency ideas. On the other hand, employees in in India, China and Hong Kong strictly follow their employers’ project requirements.
• Language proficiency: Most nearshore providers (Brazil, Mexico, Costa Rica, etc.) are proficient at English as a second language.
• Cost savings: The cost of labor in India is not as cheap as it used to be, and continues to rise as individuals from India travel back and forth to the U.S. and demand higher wages.
• Pools of talent: Sao Paulo, Brazil has the second-largest community of Java programmers outside of the U.S.
PROCEED WITH CAUTION
In considering offshore or nearshore development, keep these recommendations in mind:
• Manage all projects from within the U.S.
o Have a U.S. project development lead tied to the outsourced development lead.
o Conduct knowledge sharing between the U.S. and outsourced development teams.
o Have a business analyst or technical writer capture all development issues, resolutions, scope creep, change orders, etc.
o Conduct a post-mortem on each project to determine areas for improvement.
• Avoid interpretation issues by providing clear direction and confirming everything in writing.
• Keep the development of larger, more complicated projects onshore.
• Start outsourcing simple, end-to-end, component-type projects, or easily defined micro-projects that fit within a larger project.
• Keep home-grown, company-proprietary technology development within the U.S.
• Ensure U.S. team members are available to answer outsourced vendors’ questions, attend conference calls, review and approve requirements.
• Hold your outsourced vendor accountable for milestones, timelines and scope. The number of resources they put onto your project is immaterial if it’s a fixed-bid project. Manage them by the quality and timeliness of their deliverables.
BENEFITS OF OUTSOURCING
• Depending on the technology selected and the required skills, outsourcing costs can be one-quarter of U.S. costs.
• Organizations that outsource only pay for the time spent on a project, unlike onshore or onsite where they are paying fixed salaries and benefits.
• Outsourcing often offers access to the latest technologies without having to purchase them.
• Companies have no direct liability over the outsourced vendor’s employees.
• Vendors can be updating and maintaining software during the evenings, keeping the company current and productive.
• Outsourcing can be used to expand a business without compromising quality or overtaxing employees.
One bad experience can cause a company to “throw the baby out with the bath water,” swearing never again to outsource development. The savvy company will learn how, when and where to outsource IT development to capitalize on savings in cost and time.
Tony Streeter is the Chief Marketing Officer, SVP at Y&L Consulting, Inc. in San Antonio, Texas. Mr. Streeter has led new product development, Ecommerce marketing, and integrated platform marketing initiatives for major companies such as Harland Clarke, Deluxe Corporation and RR Donnelley. Currently, Mr. Streeter leads marketing and branding initiatives for Y&L Consulting, a comprehensive IT Services & Solutions company specializing in IT Development, Information Management/BI, and Service Desk Services.