When is offshoring software development the wrong choice? 7 don'ts to remember

Offshoring can be a valid option, but only for the right projects and the right reasons. Here’s how to know for sure if it’s the wrong choice.

Offshoring has gone from being an interesting and novel alternative option for software development to becoming an incontrovertible first choice for many businesses. We have shifted from viewing offshoring as an option in the armoury of business to treating it as dogma. This is not good for business or for IT. We need to be more astute when it comes to offshoring, and only choose it when it is appropriate to do so.

There are three key drivers used interchangeably to justify the use of offshoring:

  1. Capacity. We do not have the availability of skilled staff. 
  2. Cost. It is cheaper to offshore development rather than to develop in-house or onshore.
  3. Chasing the sun. We have the option to carry out software development around the clock.

It is good to consider offshoring as an option, but I also think we must have flexible rules to ensure that we do so for the right reasons. This is my list of offshoring don'ts:

  1. Don't offshore anything strategic. By strategic I mean connected with real business strategy that addresses a significant business challenge.
  2. Don't offshore anything truly Agile.  Anything that puts more distance between Agile team members is adding complexity, reducing complicity and weakening communication.
  3. Don't offshore anything mission critical.
  4. Don't offshore anything sensitive.
  5. Don't offshore anything speculative.
  6. Don't offshore anything that challenges the laws and customs of your host country.
  7. Don't exceed a set financial watermark for outsourced and offshored work at any one time. Of course you must first establish a reasonable financial watermark.

When we are considering developing a piece of software, we need to consider all the factors, dispassionately cohesively and rationally. Because what may seem intuitively the best choice of a software development partner may not in fact be the most appropriate partner, for various reasons, such as cost, quality and location. Remember, it is the overall cost that matters, and not primarily the unit costs.

We also have another factor to consider. Corporate social responsibility.

Ohio politician Ted Strickland had this to say about offshoring:

"Our nation was built by pioneers - pioneers who accepted untold risks in pursuit of freedom, not by pioneers seeking offshore profits at the expense of American workers here at home."

Over in Europe, CEO Maria del Mar Bonet put it this way:

"Offshoring of IT has wrought more damage in Europe than the combined damage of all terrorism in the last four decades, by far."

Impassioned statements for sure. But I can guess what might have motivated people to make them. I can also vouch for the shortfalls of investment in attracting and training local IT workers and can affirm the exaggerated pricing and billing by certain IT service suppliers. Especially where there is a high degree of supplier lock-in. A virtual monopoly, which comes with its ever-attendant and volatile risks, costs and restrictions.

For example, I have seen corporations overcharged by a factor of 10 and upwards. Which in itself negates the 'cost benefits' of offshoring or indeed the economic benefits of doing many projects in the first place.

I have also seen companies spending hundreds of millions of Euros on offshored core-application development that lasted for many years. Only finally to write-off the delivered artefacts as unusable and unfixable.

There are also the hidden costs of offshoring. Additional costs for management, communications, displacement, training the supplier, remediation and knowledge management.  

I would not argue for the abandonment of offshoring, which would just be silly, because it can be a valid option. Nevertheless, these are aspects to consider:

  1. If a significant proportion of IT is outsourced then there will be conflicts of interest.
  2. If a significant proportion of IT is offshored then this conflict of interest will increase by significant orders of magnitude.
  3. Further, if you have outsourced and offshored using any of the big service providers, this adds more conflicts of interest, especially when wider sales funnels, more revenue streams and increased profit is being encouraged by the senior management of your supplier.
  4. Do not pretend that your service supplier is your trusted partner. They are in the business of making money, of taking as much of your money as they can, regardless of the outcomes and tangible results that you want to focus on.
  5. When it comes to providing a service, your supplier will probably consider that less is more. Less service, less quality of service and higher project costs will almost inevitably lead to wider margins. It is all about the profit rate (your supplier's profit rate, that is) and your business interests are not going to be at the top of the list of your supplier's prime objectives and priorities.
  6. For many businesses, the most important asset they possess is their intellectual capital. Think twice before giving away your most important assets to your supplier, unless of course there is a clear and formalised reciprocal exchange of value.

Just keep these points in mind the next time you have to decide on whether to develop a piece of software in-house, locally, near-shore or offshore.

Many thanks for reading.

Copyright © 2015 IDG Communications, Inc.

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