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Technology-driven companies depend on software to deliver value and to create strategic advantage. However, many of these same companies view their IT and software budgets as line items subject to the same cost-cutting measures that lead to one-ply toilet tissue in the bathrooms and off-brand soda in the break room.
This type of shortsighted cost-cutting pressure is the reason so much software development has gone offshore. Farming out labor at lower costs was an attractive fix to the bottom line ten years ago, but many companies who went down this path have come to appreciate that cheap doesn’t mean good. Even worse, lower cost (and lower-skilled) developers working for legacy offshore companies often burn more cash and time to get to the same result a more nimble, highly skilled team can produce even when members of a highly skilled team are more expensive.
So what happened? Unfortunately, companies that signed up for outsourcing advantages wound up paying outsourcing’s hidden (and not-so-hidden) costs, including:
- Average developer quality: The best software developers have moved away from large outsourcing shops. These sought-after super stars prefer higher-status and more lucrative roles. They tend to work as hired guns at boutique firms or as independent contractors. On the other hand, average developers prefer the low-impact path of being part of outsourced development.
- Billing versus incentive: Why would anyone being paid by the hour want to work quickly and efficiently? Paying for software development by the hour is misaligned with the goal of developing faster, better code. When hours are the billing yardstick by which you pay, they tend to add up faster than a debutante’s charge card during a shopping spree. Common sense dictates that hourly billing is diametrically at odds with an outsourcers’ financial interest.
- Lost in-house skills: Traditional outsource models weaken in-house development teams. Failure to continuously exercise and improve development practices atrophies in-house development skills. Inside the Tornado, Geoffrey Moore’s follow-up to the classic strategy book, Crossing the Chasm, warns that organizations must retain what is “core” to their business and consider outsourcing the rest. However, as software becomes increasingly critical to business survival, its core naturally expands. In turn, organizations must regularly reassess their businesses to ensure that their core expertise is not farmed out to outsourcing.
All told, the costs of outsourcing can easily outweigh the promised advantage. Thankfully, there is a cure, which I’ll address in my next post.
