I would agree with Arpana regarding the coin game; if you want real benefits from outsourcing then you have to see this like a partnership and not just as a short project that has the only scope of cutting costs.
Reducing costs is important but if you target a minimum of 21% then you will have to face problems at home: hard to find and retain motivated people and experts in their area. A reliable partner (or more) can take all this headaches and to offer you flexibility and scalability beside the points mentioned earlier.
The only issue is to find the right partner for you and is not whether outsourcing is good or not.

Wish you luck!

Paul

The ability to offshore successfully is definitely distinct from the ability to manage a development project. Hope the two tips help.

See also our discussion at http://www.manoatech.com/quality

One company went dark for 4 days due to a code move from offshore that was poor quality.

Another almost incurred a HIPAA fine due to falsfied test results. You must be joking to state there is quality in offshore.

Also, jobs are lost, wages are lost government support increases (as does cost) to supplement the unemployed and the dollars go offshore and never come back. There is a multiplier that reduces consumer demand damaging the US economy on a macro level. And our young people are unmotivated to study sciences as they know there is no future in it. Hmmm..that leaves the US totally dependent on a third world country someday that doesn’t like our country but loves out money…hmmmm not a good scenario for national security is it?

I’d like to question your model of 1.12 gain. What source did you use?

Where is the great benefit to the US economy that was promised? Where are the jobs? And my favorie where is the lower cost of goods and services? I’ve noticed nothing getting cheaper since this trend really took off.

I have noticed executive bonus’s going up at a rather alarming pace. Then so has the rest of the country…AIG anyone??

great information here! My 2 cents to “Myth 5: Quality of offshore IT operations is lower than in the US”.

The subject of quality can be really hard to grasp. I would not though rely on any QA certification here too much. Yes, it is a good indicator, that’s for sure. However, I think there are other aspects as well. CMMI5 (or any other certification) might be a double-edged sword. It might make total sense if the processes and the project scope are clearly defined and if the project is quite big. If I think about software development (say agile SWD) it might not be that easy.

One of my older colleagues who has experience outsourcing in Europe and India even says that for Western countries CMMI3 is as much as they can get, because of the Western mentality. Everything above is simply too rigid (for software development).

Jozef

Offshoring issues are rarely understood and appreciated without an inherent bias is clear from the lists of “Facts” and the “Myths”.

Lot of the confusion is knocked off when one compares “offshoring” to “imports” and “Outsourcing” to “procurement”.

It is true that there are exporters who export substandard quality, but on an average- “better quality” is kept aside for exports.

It is true that imports are normally cheaper than local goods but this is not always the case. When a product/service establishes a mark for itself it becomes expensive as there is a low degree of comparability with local alternatives. Same is the case with offshoring IT.

Any attempt to restrict “imports” through tariff and non tariff barriers will have the same impact( on the long term) that was there on countries which had closed its borders for imports. There will be low levels of investment in the local markets resulting in reduced competitiveness over the years. Imagine the days ( 1970′s ) when one had to pay 360% duty to import a computers and the present days when Notebooks are importable practically duty free into India.

IT and process outsourcing are no different from import of goods and lessons have to be learnt from the past.

Myth 1 – Offshoring means we don’t need to manage it anymore. Offshore engagement management needs to be managed like any other work. Perhaps the parameters are a little different. No customer involvement will lead to deliveries that do not satisfy the customer.
Once we played a game with our service providers. The game was simple. One person takes a smal bucket and stands away from another person who has to throw the coins in the bucket. In the first round the bucket had to be placed on the ground and stood upright. We had a few coins that went in the bucket, many fell outside. In the second round, the bucket holder could tilt the bucket forward. We got more coins in the bucket. In the third round the bucket holder coudl move the bucket around to catch the coin. We got the most coins.
If we translate the bucket guy to be the customer and the coin thrower to be the vendor, we have our answer. When the customer and vendor are attuned to each other and work like partners, we derive the most value. In other cases non-participation or little participation from the customer resulted in lesser success. Now if the coin thrower was throwing coins in someone’s elses bucket, you may want change them!!!

clarification:

Myth 1 = the myth I believe is the biggest myth

Here is my comments on

- Myth 6: Quality of code produced by offshore organizations is very poor.
I have used offshore engineering teams (India, and Bulgaria) with some success to maintain an existing product line. The quality of code was very good.

- Myth 1: India is the best destination for IT outsourcing
I used both India and Bulgaria. It worked because I decided to use manage the project directly from the US. I used recruiters overseas to pre-select candidates for the interview process so those engineers were just an extension of the US team. It is also critical to use effective communication and collaboration tools if you rely on 24 by 7 development.

Links:
http://www.pnexpert.com/24-7_SCRUM.html

I also liked your comment about the ‘flat’ world. I have worked in 37 countries during my career – lived in 6. There is very little I would consider ‘flat’!

Cheers!

I started setting up off-shore technical response and parts managemen centers in India about the mid 80′s for Honeywell. At that time, India’s government policies, import/export regulations, etc., were their biggest enemy. At that time, you could ‘hire’ a PHD for about $6-$8k / year. You can absorb a great deal of customer dissatisfaction when your margin rates are at 50-60%. My prediction then (and I stand by it yet today) is that when the advantage of doing business there is 21% or less better than in the US – companies will stop doing it there. That seems to be the ‘cost’ of customer/client satisfaction.