Offshore work can bring off-target results
In many cases, the benefits of offshoring aren't what they're cracked up to be, researchers report. Unplanned costs arise.
With the world's information technology outsourcing market topping $27 billion, the practice of exporting work to companies based in other countries appears to be here to stay.
But the highly vaunted benefits of global outsourcing -- lower labor costs and higher revenue -- are proving to be somewhat elusive. The main culprit: Unexpected transaction costs that are being driven by communications difficulties, project delays and compromised development quality.
It might seem self-serving for the owner of a locally based IT consulting company to criticize global outsourcing, but experience is proving that our elders (once again) were right when they counseled: "If something seems too good to be true, it probably is."
A recent article by an associate professor at Bowling Green State University, in the technical journal Communications of the ACM, describes how U.S. companies are waking up to the dark underbelly of global outsourcing. They're finding that many IT projects being done offshore are plagued by:
• Poor team cohesion between IT workers in the United States and their offshore counterparts. • Nonstandardized and incompatible development processes. • Issues over intellectual-property rights and control over development. • Incompatible project management and business management styles.
In short, "the benefit of low-cost labor must be weighed against the risk of missed deadlines, dissatisfied users and failure to reduce development costs," the journal article said.
Now, you may be scratching your head and wondering why it's so challenging to export technical work that involves the universal language of programming.
In the journal article, Professor Sivagnanam Sakthivel concludes that "teamwork with a high degree of interdependent tasks for a diverse team warrants face-to-face interaction. ... A bad fit among development task, team and communication technology reduces task effectiveness, increases time and cost, and jeopardizes development quality."
So why do so many global offshoring projects seem to involve bad fits? Research and my own company experience in helping clients recover from poorly executed offshore projects points to challenges such as different cultures, languages and time zones, not to mention widely varying notions of quality, accountability and grossly lower technical skill levels by offshore workers in many cases.
Requirements analysis and quality assurance of user requirements are a prime example of how things can go awry when key IT players are operating in different cultural and geographic time zones.
Reports Sakthivel: "Regardless of the methods and tools employed, the success of requirements analysis depends on how well users and analysts communicate and collaborate. Offshore requirements analysis, even with the best available communication infrastructure and collaborative work tools, has a high risk of producing infeasible, excessive, unrealistic, missing and/or incorrect requirements."
User requirements are the functional blueprints for a project. When they are incorrect, the entire project is doomed from the start.
Beginning to get the picture?
Offshoring in reverse
Global offshoring, ironically, is happening on our own shores now. A recent article in the New York Times reported that the fast-growing H-1B visa program -- which allows a person to work in the United States for up to six years, traditionally a steppingstone to becoming a permanent resident -- is now viewed as "the outsourcing visa," according to Kamal Nath, the commerce minister of India.
Nath is in a position to know. According to the Times article, "the list of the top 10 companies requesting H-1B visas in fiscal 2006, the most recent government data available, was dominated by Indian-based technology outsourcing companies like Infosys Technologies, Wipro Technologies and Tata Consultancy Solutions, Accenture and Deloitte & Touche." The source for the Times article was a paper by Ronil Hira that was published last year by the Economic Policy Institute.
According to the paper, the H-1B visa program has become "a vehicle for accelerating the pace of offshore outsourcing of computing work and sending more jobs abroad." Holders of H-1B visas do the on-site work of understanding a client's needs and specifications -- and then most of the software coding work is done back in India.
Microsoft Chairman Bill Gates says the H-1B visa program should be expanded beyond the current limit of 65,000 per year. He argues that having more visas for skilled workers would increase American competitiveness. But now I'm scratching my head. How can exporting more IT work to foreign competitors make America stronger?
As usual, the real story can be found in the bottom line. A survey of more than 5,000 corporate executives worldwide found that offshoring produced cost savings of less than 10 percent compared with systems developed onshore. But the survey only tells part of the story. What the survey didn't measure were the intangible losses from diminished customer confidence, missed deadlines and lowered competitive advantage.
Maybe it's time to consider some additional elder wisdom: "The sweetness of a low price is quickly forgotten, while the bitter taste of poor quality is interminable."