There is concern in the Western world that the surge of outsourcing IT projects to overseas locations in India is threatening jobs in the UK IT workforce. This article argues that the overall cost of development is not that much different and that longer term we will not see the surge to outsourcing that many are predicting.
Introduction
Many Western companies are sizing up the benefits of outsourcing their IT development to overseas countries with the view that it will significantly decrease the cost of IT development. Outsourcing companies have expanded rapidly in countries like
The outsourcing surge began in the late 1990’s when the cost of IT development in the Western World soared amidst the hype of the Internet. It is true to say that the market at that point was not sustainable. People were earning too much for knowing very little.
The concern is so high that in America the industry has enacted a law that bans government contracts from being outsourced. The move to outsourcing is expected to expand rapidly in the next 5 years, with many predicating price wars to follow.
This article examines whether it really is cheaper to outsource and if in the long term there is a real threat to the Western workforce. Let’s examine some of the aspects associated with outsourcing and conclude whether it is in fact cheaper to outsource the work.
Lack of Face To Face Communication
The most effective form of communication is face to face. People can use speech, facial gestures, gesticulate, draw pictures, and express emotions. We can engage in dialogue and ask questions and respond to each other. It is rich with signals to which we are all exceptionally tuned. The next best form of communication is over the phone. It isn’t great, but it is the next best. We lose all visual clues, ability to gesticulate, and show expression. After the phone the next best is pictures, and after that the written word.
In outsourcing face to face communication gets replaced by the written word which can be heavily misinterpreted and is a much slower medium in which to communicate understanding. If you outsource your development work to a foreign country you lose the most effective form of communication which inevitably slows you down.
Additional documentation overhead
Because of the poor communication factor requirements need to be detailed clearly in documentation which requires significantly more work than if it was done locally using a highly iterative lightweight approach. A considerable amount of work needs to be done to ensure the written specifications are water tight and understood.
There is a balance between spending time writing instructions for someone else to carry out correctly, or just doing it yourself. In my view, small scale projects are simply not justified for outsourcing.
Only a small part can be outsourced
The only part that will be cheaper is the actual coding and unit testing part. There is a great deal of work that will need to be done that cannot be done overseas. For example: business analysis, system specification, requirements specification, user acceptance testing, installation, training and project management.
The part that can be outsourced is a small part of the project. The companies that provide overseas outsourcing who live in the expensive economies also have to manage the project themselves. The margins are thus very high to cater for the work they need to do at their end and also to cover the risk of problems arising in the project, particularly for fixed price work.
Questionable support
Longer term the support of the application is an issue. Can it be supported in a cost effective manner from an overseas location in a different time zone? Do you need to pay for support in this country? What is the cost of handing over the code base to a local team?
Power Games
It is often claimed that middle managers in large corporations are involved in complex political struggles to reach the top of the ladder. Many large companies also tend to run by managing headcount numbers. In these types of organisations it is easy to see why a manger might find it attractive to hire 10 cheap overseas workers instead of 5 local workers at even if both teams could achieve the result in the same time frame. The same logic would also apply when hiring locally as well, but that is the topic for another article.
Managing by headcount promotes cheap labour even if in the long term the overall cost isn’t cheaper at all.
The Red Herring
The majority of IT projects fail due to bad project management. In my 10 years of experience I’ve never known a project to fail due to bad technology or poor coders, or expensive programmers. The project gets delayed and money is wasted for a few common problems. The chief culprit is a lack of understanding of the problem trying to be solved resulting in building something that isn’t needed. The second is a failure to mitigate the project risks early enough. Project pitfalls and reasons for failure are discussed in another article.
Conclusion
The outsourcing of IT development to more cost effective locations overseas is still relatively new. We will see over the next few years whether the practice is actually cheaper. My opinion is that it won’t make the slightest bit of difference. Many projects will still fail and go over budget for the same reasons, regardless of where the construction is done.
Whilst this continues market forces will also drive down the differences in overall project cost between outsourcing and developing locally.