Entries from November 1, 2007 - December 1, 2007
Donald Trump on Outsourcing
Ok, maybe he didn't speak directly about outsourcing, but I read this in a recent BusinessWeek post. Apparently, Donald Trump's secret to success is to love what you do. IMHO, you should find partners and vendors who love what they do too. How is this relevant to outsourcing you ask? Most offshore companies smell money. Outsourcing has become wildly profitable, so offshore outsourcing companies are springing up all over the world to ride the wave. In our experience, most of the companies are little more than software sweatshops.
When looking for an offshore company, you want to look for a firm that LOVES what they do. Companies that love what they do are:
-More pricey You can't hire and retain good developers on sweatshop salaries.
-More selective This will ensure they do an awesome job for you. Since they won't jump at every deal that comes to them, you can be sure they'll give you their best guys.
-Not afraid to tell you the truth Are your expectations unrealistic? Software sweatshops will dance around the issue. A company that loves what it does will tell you that they can't meet your deadlines, even if it means they lose your business. But it doesn't matter, they're so good that they have no shortage of business in the first place.
-Innovative thinkers In most cases, they'll help you solve problems before you know they exist. They will use their experience and ingenuity to add value to your business... not just sit on their hands waiting for you to bark orders at them.
Look for an offshore partner that loves what they do. They'll be worth their weight in gold.
Raza Imam
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PrintHow Not to Get Burned Outsourcing Tip of the Day...
Our experience has shown that good developers are poor designers, and good designers are poor developers. Don't work with a company that tells you otherwise. A key characteristic of 'software sweatshops' is that they're everything to everybody.
Yes, they may all of the skills internally, but you won't find one resource that's both a killer developer and a rock-star designer.
Top Reasons for Offshore Failure: Bad Chemistry
Another critical factor to an offshore development relationship is for both the client and the offshore team to have similar corporate culture. This means they should be the same in terms of size, business philosophy, growth strategy, etc. If you're a small company partnering with a big vendor, you'll be forgotten and you won't be happy if your vendor is too small to meet your needs. We've seen way too many relationships (ahem... business relationships that is) get screwed up because of compatibility issues. Partnering with a team that understands you and views business the same way you do is invaluable. Do NOT farm out work to the lowest bidder. You won't get the continuity of knowledge that you need.
From experience, one size does NOT fit all. You need to find an offshore partner that is mature enough to understand who they are and who they can successfully work with.
Captive Offshore Development Centers
Interestingly, SMB's are having a hard time with their captive centers. It's hard to identify a location, hire and retain employees, and manage it for the long-term.
Captive centers may be great for the big boys, but they're a nightmare for small software shops. If you're a small business or startup, look for a vendor that gives you the benefits of a captive center.
Top Reasons for Offshore Failure: Not Seeing the Vision
If your development team doesn't see the vision, you're doomed. It doesn't matter if they're across the hall or across the world. Many companies found on sites like Odesk, Elance, etc. are sometimes little more than 'software sweatshops'; more often than not, providing below average code. I always hear "those companies just don't get Web 2.0" It's extremely hard to find an offshore team that will really partner with you and assume the responsibilities of a CTO, but if you find one, they'll be worth their weight in gold. Trust me.
Moral of the story, don't farm out your development work and expect to run with it when complete. If you're building a product that you plan on taking to market, you need to find a team that sees the vision and will be there with you as you grow.
Top Reasons for Offshore Failure: Poor Communication
This is the first in a series of posts detailing the reasons for offshore outsourcing failures. The focus is on offshore product development, though many of the points are relevant to offshore IT outsourcing also.
Poor communication is THE biggest reason for failure in an offshore software development project. Even projects developmed in-house are susceptible to mis-communication. Since nearly 50% of offshore projects end in failure, it's critical to establish daily (if not more) communication with your offshore team. Since you're dealing with a host of cultural, technical, and interpersonal issues, daily communication is a must.
Also, most development is highly iterative, especially when using an agile software development methodology. Offshore product development is an entirely different beast than IT outsourcing with its quaint and manicured SLA's. Software development is dirty work and there's a lot of room for error. You need to invest time in communicating with your team and they need to be prepared to do the same.
The Key to Offshore Product Development
I read an interesting quote by Joel Spolsky from the popular Joel on Software blog. He said,
"We will not be "offshoring" our software development because you don't outsource your core competency. I'm not a software broker, I'm a software developer."
He makes a good point, why would a software company outsource its core business? He continued by saying that the market pays extra for value added. Great point because outsourcing is about high value, not low cost.
BUT... some would argue that software companies are actually in the business of designing and marketing software. Outsourcing the actual development to a trust partner can free up your time and money. Like a master architect who works with qualified builders, a mature and competent outsourcing firm will help you focus on your core business, which in my humble opinion is come up with innovative products. Yes, there is a fine line between designing and coding. And yes, the only way to ensure success in any development effort is through good communication. Software development is highly iterative and requires lots of communication. But communication is a problem for companies whether their developers are across the hall or across the world.
Outsourcing is about high value, not low cost.
It Was Only a Matter of Time...
Increasingly we hear that cost reduction is less of a factor when companies go offshore. While companies will continue to benefit from lower cost of labor in the developing world, expectations of saving up to 60% are no longer realistic... The following article says that although outsourcing is still a major part of corporate IT strategy, it's still not the main reason to outsource anymore.
IMHO, companies that go offshore just to save a few bucks eventually regret their decision... bad. You typically get what you pay for. Many companies that send software development work to the lowest bidder end up with useless code and months of rework. They didn't realize that the sweatshops they sent their work to either couldn't get the job done, or weren't getting paid enough to put the really good developers on the project.
Anyways, it's good to see that CIO's are making outsourcing decisions based on the agility and responsiveness provided by outsourcing rather than just cheap labor.
Saving money is no longer the number one reason for IT outsourcing, according to new research released today. Instead, three-quarters of UK chief information officers (CIOs) cited responsiveness and flexibility as the primary drivers behind their decision to outsource. The ninth annual outsourcing survey, carried out by recruitment and IT outsourcing consultancy, Harvey Nash among 650 senior level IT professionals from businesses across the UK revealed that confidence in IT outsourcing is booming as businesses increasingly recognise the potential strategic benefits as well as operational cost savings. India and China continue to thrive, taking the two top spots respectively and Vietnam continues to perform well, rising to seventh place behind other emerging destinations such as Brazil. The top ten offshore outsourcing destinations as revealed by the survey are India, China, the US, Malaysia, Brazil, the Philippines, Vietnam, Poland, Romania and South Africa respectively.
Over half (53 per cent) of CIOs expect their IT budget to grow next year and half plan to spend more than 10 per cent of it on IT outsourcing programmes.
At the same time the survey suggests confidence and satisfaction in offshore software development service providers remains high, as the vast majority (93 per cent) of CIOs plan to maintain or grow their current offshore software development activity in the next 12 months, while two thirds (65 per cent) are satisfied with the service they receive.
And even those who haven't been completely satisfied said they still had plans to invest in anticipation of improved service levels.
Paul Smith, global managing director of outsourcing and software development for Harvey Nash said the research findings clearly demonstrate that "IT outsourcing is here to stay".
The outsourcing consultancy also said a rise in mixed model offshoring has also seen a change in the geographical spread of IT outsourcing, where South Africa and Canada have both dropped down the list of most popular offshore destinations.
"As the reasons behind the decision to outsource change, we will also begin to witness a dramatic change in outsourcing hotspots. Eastern Europe and Vietnam have already made a significant impact on the IT outsourcing map as businesses become more tactical in their approach to offshore development," said Smith.
2 References
Many IT leaders enter into outsourcing arrangements with an expectation that the outsourcing provider will not only live up to the letter of the contract, but by virtue of being a Big Outsourcer, will bring something more to the table.
There's a lot of talk about outsourcing and innovation. Here's the thing... outsourcing was innovative in itself when it first started! Everyone was proud of their 'lift and shift' solution to non-core services in order to save a few bucks. But saving a few bucks isn't cutting it anymore. Businesses need innovative solutions to their problems. But as outside entities, how are outsourcers even supposed to know your problems?
Outsourcers are like factories; and factories can't innovate. Simple as that. It's like expecting a maid to come do your laundry AND help you figure out why little Johnny got a D on his last algebra exam. Outsourcers are not familiar with your problems and are not being paid to solve them. You outsourced non-core services so you can spend time innovating and solving real problems... not getting grass stains out of little Jenny's soccer jersey.
Innovation is to expected in offshore product development, but that is a totally different animal. No doubt, the talented management that lead the world's top outsourcing firms will figure out a way to add value to your business... but don't expect it without a price.