Are There Lessons to Be Learned From Outsourcing?

Mary E. Shacklett, President, Transworld Data | 9/27/2011 | 66 comments

Mary E. Shacklett
The debate about technology outsourcing has raged for years -- but at no time has it been more heated than now, in an economy where unemployment stubbornly remains at over 9 percent nationally.

I saw the debate again come to a head last week while consulting for a healthcare company. They needed to outsource the servicing of their core software to a new outside programming firm. The CEO was standing firm on his position that they must choose a US-based service provider. Then, the figures came in: $100 an hour for onshore software development and $25 an hour for offshore software development in India. At the end of the day, money ruled and the contract went offshore.

I am sure that this scenario repeats itself across the nation. Naturally, there have also been persons outspoken about whether or not you really save anything by outsourcing. They quote project statistics from research and consulting firms like the Aberdeen Group, which reported that nearly 50 percent of outsourced projects fail outright, or at least fail to meet expectations -- and that 76 percent of companies engaged in outsourcing say vendor management costs and effort were much higher than expected.

Indeed, there now appears to be some movement afoot to reestablish technological excellence and ownership onshore. This was most recently demonstrated by General Electric, which has made a strategic decision to bring a number of outsourced jobs back inside the company. To support the effort, GE announced in August that it will add more than 15,000 jobs in three years, including 1,100 IT jobs outside of Detroit, where it now has about 660 people. Full-time staffers will replace contractors. The principle driver behind this shift in thinking has been deep company concern that it has lost many technical capabilities that it has to own.

“GE and others are beginning to discover what I have felt for some time,” says one software consulting and development company CEO in Los Angeles. “Efficiencies cannot be measured solely in terms of reduced overhead. The benefits of an environment in which [you've got] highly skilled, highly paid technicians in your core organization are much greater than the cost savings achieved by [outsourcing] in the long run.”

However, no story should end on almost predictable outsourcer bashing without discussing some key factors (besides money) on why outsourcers have been so successful. IT should take stock of these success factors -- if, for no other reason, than to add them to its own processes. Here are a few:

  • Upfront attention to software design. The best of the outsourcers invest the time to understand upfront and in great detail what the business wants to accomplish. Then they painstakingly write this into extensive sets of requirements that they present to end users for signoff. This investment in upfront planning and documentation tends to be insufficient in many US IT organizations.

  • Highly modularized and documented program specifications. The best of the outsourcers -- especially if they are developing in open systems environments and technologies -- break apart the routines in the software they are developing so that no one module takes any longer than two days to complete. They are able to do this because they employ excellent systems design and documentation practices. Some are so good at this that they have a first-in/first-out (FIFO) approach to software programming, where the next available programmer in the queue grabs the next available module and then codes it to spec. The documentation and planning have to be exceptionally good for this type of operation. Not many American IT organizations recognize, reward, or encourage performance in this area.

  • "Follow the sun" software development. The best of the outsourcers take these little modules that they program and turn them into demonstrations or pilot projects the next day (or two) for their customers. They can do this because different time zones have them working while their customers are sleeping. Of course, you can’t follow the sun if you are in the same time zone, but you can take advantage of your relative proximity to your users by often producing value that will delight your customers, even if there is a tendency to take them for granted as end users.

The outsourcing debate, with all of its pros and cons, is likely to continue indefinitely. But with more companies again thinking about in-sourcing, it doesn’t hurt IT to give some thought to what it can do differently this time to improve both its quality of service and its approach to software development.

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eethtworkz   Are There Lessons to Be Learned From Outsourcing?   10/11/2011 2:31:30 PM
Re: Bring jobs home - But Service is too expensive

Thats an easy one to answer-The need to be Cool wins 9 times out of 10 in this intense wannabe ,keeping up with the Joneses culture of ours.

And its really,really sad its this way.But that's just the way life works,I am afraid...



Broadway   Are There Lessons to Be Learned From Outsourcing?   10/10/2011 9:39:43 PM
Re: Bring jobs home - But Service is too expensive
Ashish, that brings me back to my original question: The question is what's the stronger consumer impulse: to be green or to be cool with the latest gadget?
eethtworkz   Are There Lessons to Be Learned From Outsourcing?   10/10/2011 1:07:09 PM
Re: Bring jobs home - But Service is too expensive

This is precisely why I mentioned Apple here when the subject of Sustainability came up.

I know and am not happy with the way Apple goes about its Sustainability business.

But then that's the way their Business model works;Correct???

We just have to live with it(& hope legions of Apple fans out there pressurize the company effectively to do something more on this very important issue).


Broadway   Are There Lessons to Be Learned From Outsourcing?   10/6/2011 10:39:06 PM
Re: Bring jobs home - But Service is too expensive
@Ashish, one company already pushing sustainability hard is Intel. And they push on the computer manufacturers who buy their chips to adopt sustainable practices too. I've recently spoken with one of their sustainability folks on this very subject.

And as for Apple, I am not sure sustainability meshes with their business model, which is based on aspirational products, yes, but quickly disposed of products too, to make way for the next version of aspirational products.
eethtworkz   Are There Lessons to Be Learned From Outsourcing?   10/6/2011 3:46:58 PM
Re: Bring jobs home - But Service is too expensive

Its ok to mention Apple here.One of the biggest companies to create pure-aspiration value amongst its loyal set of consumers again and again and again.

If Apple takes a step in the sustainability direction.It won't take much time for the rest of the industry to fall in line.


Broadway   Are There Lessons to Be Learned From Outsourcing?   10/5/2011 3:31:37 PM
Re: Bring jobs home - But Service is too expensive
Consumers picking one product over another based on it's sustainability "cred" could drive popular opinion and thus profits against one brand. The question is what's the stronger consumer impulse: to be green or to be cool with the latest gadget? I ask because on cool tech gadget maker is notorious for its short product life cycles and stuff that tends to break easily.
eethtworkz   Are There Lessons to Be Learned From Outsourcing?   10/5/2011 3:22:30 PM
Re: Bring jobs home - But Service is too expensive

I agree entirely.

Its an issue that has been written/debated on for a longtime.

You need to demonstrate clear ROI for a project to become a success(& gain support from the Finance part of Business).

Sustainability on its own does nothing to pay the bills unfortunately.


Mary E. Shacklett   Are There Lessons to Be Learned From Outsourcing?   10/4/2011 10:41:35 AM
Re: Bring jobs home - But Service is too expensive
Hi Broadway,

The challenge for sustainability is profit. It's why we have the opposition (and even denials) to global warming and other concerns. Until businesses can see a way  to make big money off of sustainability, it will be non-profits and govt pushing it. To date, that hasn't proven to be enough.

User Ranking: Blogger
vnewman   Are There Lessons to Be Learned From Outsourcing?   10/4/2011 1:15:01 AM
Re: It's interesting to hear these "Best of" practices
@Ashish - I think a fundamental perception of most companies is customer service is more of a hassle - a necessary evil of doing business.  If most retailers could sell a product and never hear from the customer about it ever again - I think they would be fine with that. 

And if that's the mentality, why wouldn't you outsource it.  It's like waving a magic wand and making it go away.
DBK   Are There Lessons to Be Learned From Outsourcing?   10/3/2011 6:56:41 PM
Re: Bring jobs home - But Service is too expensive
@ Broadway - I think that philosophically many people say they are sustainability motivated, that is until they have to pay for it.  Then you realize how few are truly on board with more than a weak voice.  They are out there but I don't believe in large enough quantity to vote with their wallet and make a difference.  To bad because it is a great point of view.  With that said there is a trend to recycle and refurbish, but not when it comes to technology.
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