Software Development

The offshoring debate in a small organization

In-house, outsourcing, offshoring, onshoring; for some, doing the right thing is more important than the money involved. IT pro Benny Sisko believes that keeping work local is an important consideration when it comes to making this decision.

I'm a CIO in a relatively small organization.  With less than a dozen IT staff and only 200 employees in total, we don't qualify for Fortune 500 status.  However, that doesn't mean that we don't face similar challenges as those faced by our larger brethren.

Like many organizations, we routinely run through the build vs. buy debate when it comes to deploying new software.  Does it make more sense to buy and off-the-shelf package or does it make more sense to build it ourselves?  As you might imagine, with a very small IT staff, we don't have a lot of spare capacity to build our own software solutions, so when we begin considering a project that falls into the "build" category, we have to take the next step of deciding if we want to outsource the development or have someone in house build.

In the past, when I've needed custom programming assistance, I've enjoyed outstanding success in finding people using services such as guru.com.  After all, different programming tasks require different skill sets, and guru.com makes it possible to find people with exactly what we need.

When I'm posting one of my projects to guru.com, I have to decide whether or not I want to accept bids and proposals from companies that reside outside the United States.  Guru.com is chock-full of talented people from all corners of the globe.  I constantly have trouble when it comes to whether or not I should check the box that allows bids from freelancers and companies in places like India and China to bid.

Now, if you're thinking that I'm some "buy American" kind of person that can't see past his country's own borders, I'm not.  Sitting in my driveway are two foreign vehicles, although both were probably actually manufactured here on American soil.  That said, our own auto companies have not exactly endeared themselves to the general public, and they are paying the price now.  Even when they try to get it right, someone seems to manage to botch it up.  I'm about the furthest thing you'll find from "Buy American" but lately, as American companies continue to downsize their American workforces in order to take advantage of lower overseas wages and as American companies continue to clamor for an increase in H1B visas and other immigration concessions, I wonder about the future.  Do American corporations and other organizations, including non-profits, hospitals, and colleges, have a social responsibility to help keep the overall U.S. economy strong even if it means pressure on profits?

Personally, I do feel that this is the case.  While I fully realize that we live in the days of a global economy, it doesn't mean that social responsibility and local issues suddenly take a back seat.  With double-digit unemployment in many states and with entire cities under serious financial pressure, companies that have built their businesses on the backs of the American consumer need to take stock of their success and where it came from and help make a better future.

This is not to say that companies should never offshore services.  In fact, in some cases, it makes sense.  I'm all for the concept of "the best man wins."  If a company in another country has more experience and can do a better job on a particular task, great.  That company deserves the business.  If, however, the sole reason for outsourcing is to move tasks to a cheaper locale in order to maximize profits for shareholders, I think we enter a gray area and the plans need to be rethought to make sure the right thing is done.  I've done a ton of business with consulting firms based elsewhere that I felt were the best choice at the time for the task at hand.

It's also heartening to see U.S.-based companies also working hard to keep jobs in local communities.

We can't be successful unless we immerse ourselves in the global economy and it's important to keep costs down and make sure that shareholders enjoy a return on their investment; but keeping costs down in a way that will ultimately make sure that there are no consumers left in the U.S. that can afford product is not a sustainable business model, unless corporations eventually plan to completely abandon the U.S. market in favor of global venues.

Me?  I'll check that box on guru.com that allows bids from non-US freelancers, but unless there is a serious and compelling reason to do otherwise, I'll still favor my own economy.

About

Since 1994, Scott Lowe has been providing technology solutions to a variety of organizations. After spending 10 years in multiple CIO roles, Scott is now an independent consultant, blogger, author, owner of The 1610 Group, and a Senior IT Executive w...

18 comments
Deadly Ernest
Deadly Ernest

The biggest problem with any offshore or outsourced activity / service is that you do NOT have full control and you can NOT get it done how you want when you want. Thus you place your whole operation at major risk when you offshore or outsource critical services or critical support. This problem is worse in a small organisation than a big one as a big organisation has enough business and money headed to the outside people to have some significant influence over how they respond. Think about offshore and outsource activities the same as you would for a city or a country. is there any big issue if outsourced garbage collectors don't do their job for a few days; no, not nice but the place isn't at major risk. How about outsourcing your military services. What happens if the military service provider is a bit slow in providing defence services when really needed? This is how you should look at all offshore and outsource issues. Once the service goes outside you lose control, is it one where it won't hurt if you lose control. National economy wise, offshore of services often leads to short term savings and long term higher costs as you lose the skills needed to do the job. Once you can no longer do it onshore, the offshore people can charge you all they like, and they will. We've seen some of this behaviour here in Australia and some organisations are bringing some activities back home, and having trouble doing so.

jeff
jeff

Is the trade tariff structure between the US and other countries. Ther is a huge imbalance here, not to mention the amount of Government subsidized (or owned) entities in the marketplace. If the playing field was truly level in all areas including this one a 'protectionist' attitude wouldn't be necessary for our country to compete on the world marketplace. Are all US companies too 'full of themselves' to compete in a global marketplace? I don't think so.........China and other countries economies are changing as we speak, but many still have unequal advantage when it comes to this area.

cguinn
cguinn

Excellent article. I think if more people would have been thinking about how outsourcing would affect our economy in the long run, we may have saved ourselves from this global economic disaster. We've taken the biggest consumers, slowly drained their pockets, taken their jobs, and we wonder now why those big companies are failing. Those big consumers can't buy the products because they are all unemployed. Thank you for writing about this issue.

wrlang
wrlang

Not many interesting comments yet. Having recently returned from a Panama Canal cruise I remarked to my very significant other how the global economy is like the locks. The USA was like Lake Gatun whose waters feed the locks and controlled management allows the locks to operate effectively. Simply opening the locks would drain Gatun rendering it useless in its job of floating ships from one ocean to another. Rabid globalization is exactly like opening up the locks and letting the economic high water flow out of the USA. Since the USA cannot float the entire world economy, what we would end up with is a global economic adjustment down to the level of equilibrium. This would mean that the entire world would get paid the average between an American worker and a second/third world worker. No one would be able to afford anything at current American prices, so all American businesses that could not adapt would simply fold. And that would be a huge number of American businesses because they have no ability to adapt to an economic environment where no one can afford their products. Ford is a case in point. They ran from Henry's concept of building a car the worker could afford to putting all kinds of useless bells and whistles on cars to raise the price. That kind of business model is destined for failure because it doesn't rely on adaptation to the economic environment. It attempts to make its product more appealing to fewer and fewer buyers as the economy contracts. Lunacy. My grandfather (RIP) expressed his indebtedness to his boss during the great depression. If his boss hadn't gone to the same church and been a friend and employed my grandfather sweeping floors, my father would have been living on the streets and had a very different life. There's much to admire about patriotic employers who have the fortitude to recognize their fellow countrymen as more than just a piece of meat. The old school people, who ALWAYS look for the best ROI, are of course a dime a dozen. But it is how they were trained, so some retraining is in order. I've said many times that I'd take a $1 a day wage if my daily expenses were less than $0.50. So Benny, my hats off to you. Keep up the good and patriotic work.

stuffinator
stuffinator

Mi dos centimos: - 200 employees is NOT small. You may be justified in wanting close relationship with your bidders if your organization's needs demand it. - social responsibility for the nation as an argument is somewhat sketchy, as not only are globalization efforts often strongly driven by US interests, but they tend to propagate the exact reverse cultural ethic wherever they outsource their labor. Bringing up social responsibility as an issue may be well-intentioned, but maybe naively so. From an outsider's POV, it would quite logically seem like the US, at large, intends to take all of the profits of globalization and take as little responsibility as possible when it's on someone else's shores, but don't let anyone do the same on theirs.

3feathers
3feathers

The idea is to be non-biased in choosing the best technology solutions for any size company. Why differentiate between onshore and offshore talent? Sound IT Business Strategy today demands solutions that bring about the best long term effects that a company can leverage and enhance over for the next five years: meeting new solutions using updateable technology. Both sides of the ocean have the desired skillset. Whoever you choose, if you make the IT pool of people accountable and as a business owner, get involved in governing the process, making your vision and goals a part of daily process, you have a sure shot at achieving the best outcome. So, the answer is, take the best parts offered by onshore and offshore solutions and take a strong role in daily governing of any project.

zen.wang
zen.wang

I enjoyed reading Benney's article and agree with most of his points. I was a vice president at a large US corporation managing our offshore development teams in China for the last eight years. Finding and using the best resources for the best thing at the best time is what a senior IT decision maker should seek, whether the work be done offshore, onshore, or in house. Zen Wang President zUniSourcing International LLC

reisen55
reisen55

As an independent consultant concentrating on small business, I essentially outsource my services to support their stations and servers. To this end, the money they pay me and my colleagues stays within the country and does not run out to Bangalore. Then again the service and support structure of India is just plain dead lousy. It is also cheap. Very cheap and that is the mystical solution to cost cutting. Wow, looks great on the accountants books but the quality of work goes to hell quite fast. If you must, consider reliable small business consultants who are quality product and are nearby your business. Then you can outsource with confidence.

Techdelirios
Techdelirios

In the current economy, there are plenty of U.S. based programmers with 5 years of experience. Offshore (India ,China, Mexico) offers a group of programmers with 6 months(in my opinion this is akin to none at all) experience. They are cheaper... but then if I hire inexperienced programmers here they are also very cheap. The thing is it is harder to lie about your experience level when you are in the office with that person interviewing you instead of over the phone, or email. So you don't find out how shallow their experience is until they have been wasting your time for a couple weeks. I say hire locally and keep your programmers as close to you as possible. This is the best way to keep your costs under control.

pmichael97
pmichael97

It's simple people, if a US company employs workers on foreign shores, the money they are paid goes to their foreign economy. If the products are also produced on foreign shores, and are sold in the US, the money goes to a foreign economy...except for the money made on the product and the only ones standing to gain anything are the shareholders of the company as they continue to earn income. Our economy suffers, our people suffer, and our nation suffers. One step further, as hard as this is to swollow for those of us in the IT industry, if companies insist on hiring cheap foreign labor, at least bring them in to our economy (on our shores). They are competing for our jobs (they are now anyway), but at least the income they make (or part of it anyway) will stay in the local economy. That will improve business and create more jobs. If you doubt that, think about where they will live, what they will eat, the services they will need, and how they will get to work. That all costs money and they will spend it in the local economy. This is the way the US has done things for 235 years now...let's not go apey because we have competition in IT. If the economy is healthier, more young people will invest in a degree in IT and we can produce the talent on our shores to be great again. Let's pull out of this nose dive and get back to business!

reisen55
reisen55

The offshore and outsource debate is always framed in terms of economic imperatives, i.e. that companies - large and small - HAVE to cut costs and manage expenses to be competitive. Taken to it's extreme, this justifies outsourcing on any rational front. It looks good on the books. And it's cheaper labor too with no health care bennies. I have even heard that it increased shareholder value too. The latter is a crock. Now as for the job itself, we hear NOTHING. Delta just discontinued IT service calls centers in, oh .... what was that famous country ... INDIA. Why? Poor quality. Read that again!!! When you outsource for reasons of PURE economics based on SALARY and BENEFIT cost only, your decision is made in a fools paradise. And very often it is followed by the universal caveat that that work will be done " CHEAPER, FASTER, BETTER. " I remember the debate at Aon Group that all Windows computer problems could be solved with JUST A SINGLE PHONE CALL to Bangalore. Oh, really? Cheaper = no, more expensive. Why? Problems are resolved SLOWER, not faster. Problems are thus not resolved better, but worse. Outsourced work very often returns to the original owner in whatever form it may be in and has to be re-worked anyway, in effect voiding the original cost of the original work! American Express learned that one too. GenPact has destroyed back office support at Aon. Insurance certificates remain landlocked in India and when they are released, they are just plain badly done. Quality of job is ignored in this debate. I submit that experienced AMERICAN workers do the job BETTER the first time around so that inexperienced and geographically removed workers being paid 1/4 salary do not have to do a lousy job that has to be corrected by whatever few AMERICAN workers are left behind.

avidtrober
avidtrober

It's such a complex mess with many moving parts, it can't be summarized fairly. The overall arching motive for out-sourcing is profits, period. When you talk of what's good for the country, the truth is the American Executive Model couldn't care less. There is no market for the American Executive Model, for starters. And, that is a fact. They're fleecing the country for short-term gains, which is the next problem. Short-term gains are the reward system in the U.S. Everything from exec remuneration to accounting tricks are all about short-term gains. Get while the gettin's good, then get out. Since it is the U.S. citizen and workers being fleeced, THEY are the ones who are going to have to step in and DO something about it. It won't change until then. And, this brings up another point: national security, perhaps even sovereignty. What kind of fools is the U.S. to back office our economy in foreign countries? Does anyone really know how much critical business process automation is in the hands of non-U.S. interests? Oh, they're interested as long as they're getting paid. Which opens a real can of worms, what are we going to pay them with? U.S. dollars aren't going to remain the world's standard on this course. This highly controversial issue, U.S. currency, is only going to be settled in one way: we will default, at some point. Another point: what makes the U.S. think a "service-based economy" is going to work in a global economy? The only "service" going on is out-sourcing to other countries. I see Fortune 100 with core technology, products, etc. managed, top-down, overseas. They aren't going to want, much less need, U.S. "service" in coming years. I'm not an alarmist, nor a conspiracy theorist (it's just human nature, collectively, self-destructing): the U.S. is screwed in a global economy. This idea we'll come up with something better is devoid of understanding the nature behind why we're in this situation, and why looking at it the ol' way "American ingenuity will dominate" wasn't that at all...the world was a much different place then. The lenses thru which we look at the problem is going to have to change. And, en masse, the U.S. citizen is going to have to make sacrifices comparable to earlier generations that fought for this country. I'm afraid that won't happen through a "comfortable enough" or "gripe only" generation.

pablo.emanuel
pablo.emanuel

What you said is absolutely true. If you hire in the US, you keep the money in the US market. It's exactly why companies should spend even more on China and India. The US market is very near its saturation point, so 1 dollar spent on developing the US market has a return orders of magnitude smaller than 1 dollar spent on developing China's or India's - where there are almost 2 billion people that are nowhere near the current level of consumption of America's poorest people. So, from a purely economic point of view, investing in the US is just plain stupid. Apart from very small local businesses, there are no *national* companies left. It should be irrelevant to businesses whether a particular country suffers, as long as the net result on the global market is positive.

bdskp
bdskp

"All the ill effects you mention are drags on the person, community and government. None of which, really, are concerns to the company." And this is a big part of the reason why we are in the position we, as a country, are in. EVERYTHING you and I do effects other people around us. Our lifestyle, our beliefs, our choices in life, etc. And since people are what companies are made of then that fact becomes a part of companies. Companies should have a HUGE concern and interest in the people, community and government that they come in contact with. Companies not only impact these different groups but those groups impact, a great deal, the companies they surround. We really need the company's "perspective" to change in this country (and probably the world). At least that is my opinion. :)

NotSoChiGuy
NotSoChiGuy

...from the perspective of the company. All the ill effects you mention are drags on the person, community and government. None of which, really, are concerns to the company. A decayed neighborhood in Detroit is no different than a decayed neighborhood in Rio de Janeiro, New York, Hong Kong, Chicago or Johannesburg to globalized firms. Just one more place to move from (get when the gettin's good) or move to (buy low, cheap labor). IMHO, the best thing the American work force could do would be to try and move towards the next 'phase' of economic excellence. The US once excelled as an agrarian economy, then as a manufacturing economy, and then as a service economy. We're now eating grapes from South America, buying cars from Mexico & everything else from China, and getting service from India. We have to redefine what we can do better than no one else, and gear up for that. Perhaps a nation of thinkers, instead of tinkerers??? ?:|

activen
activen

It is wrong to say that the investing in the US is wrong. Not true. That investment is actually in the form of tax paying jobs that are needed to support the current infrastructure. Without them there is decay and collapse. The knock-on effect is that other support jobs are then lost and the cycle gets worse.

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