Stephanie,

Well written article.

It's easy to focus on the cost savings associated with outsourcing. But as you've written, there are many other complexities to consider.

The key is to partner with a company that can attract top talent in a region and deliver consistently positive results.

Also, I agree that Friedman was a few years late with his "World is Flat" observation. For those of us challenged with moving IT work offshore, the book was more a recap of recent events than a revelation of things to come.

Stephanie,
I enjoyed your article and I commend you for your skepticism of offshore IT consultants. I've always found it amusing that people assume that firms like IBM, Genpact and Softek employ such phenomenal developers yet they don't provide quality metrics on them.
In regard to achieving better software development results, the way companies are pursuing this “World is Flat” concept is misdirected. Instead of focusing on “low-cost” labor and destination novelties, corporate decision makers should focus on virtual labor, developer quality and a process based on merit-pay. Paying people for the quality of their work product versus the number of hours worked increases quality, speeds time to market and drives down cost.
J

It's a pleasant surprise to see this publication question the globalist gospel of Friedman. I agree with Overby that we should not be coy, so let's just call this flat earth idea for what it is -- global labor arbitrage.

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Cost is just one side of the story. Infact, 99% of the countless articles on outsourcing, cost plays a dominating stance. But a little more analysis would reveal that cost is just a marketing ploy to catch eyeballs. After all it is irresistible for CIOs to ignore something which will save cost.

The key points to be noted infact are:
1. Faster time to market
2. Access to highly skilled labor
3. Saving on fixed costs - no need to layoff teams when project needs are achieved or pay premiums on contractors
4. Able to focus your in-house teams to more mission critical activities
5. ....cost savings (or better ROI) if the above are done in due diligence

I would say Friedman's book is never too late. The inevitable was always waiting to happen just that at some point of time a literary genius came forward and showed us all where we are heading.....the rest is present (not history)

Dear Stephanie,

My thought process is very much similar to the one you have presented. The problems about the alignment of IT functions with other business units are well understood. IT's role as value creator and more recently as innovator means a broader role for the IT bosses and technical staff. This means they have to work closely with their colleagues from various business units in order to come up with the niche applications which can aid the business to improve its effectiveness. This needs different kind of skill-mix within the team compared to what is traditionally available. The technical minds need to have soft skills and their IT bosses need an understanding about the bigger business game in order to organize their house to match the business strategy. Coming back to the topic of discussion here, I want to submit that outsourcing to a low income economy does not automatically produces better or desirable results for the business whether it is China or India or Mexico or Brazil. I used to work for a large manufacturing company. They have significant presence on 4 continents and are a market leader globally with around 60% global market share. They had isolated IT departments scattered across the globe with little or no knowledge about each other. Few years ago the company management decided to adopt a global unified approach to market their brand more forcefully and to make use of their global synergies to propel the business. As part of this the IT adopted an ambitious transformation objective to have a single IT department where cost cutting through stream lining different projects was an important cornerstone of the policy. They agreed to use the same software, processes, networking models etc globally to reduce cost and make use of global IT human resources. At that time outsourcing was a hotly debated topic. Considering the cash flow situation of company and just like everywhere many of the top managers (non-IT) believed that outsourcing to a low cost economy (say India) would be a silver bullet solution. However the fact was that company had no business in India. They just acquired some businesses in China which they were struggling to manage. The bulk of their revenue was from North America, Europe and Asia Pacific (minus China). The R&D and innovation was conducted and initiated within mostly developed economies where the engineering talent was based. Fortunately the IT executive team realized that in order to support their businesses through IT, their analysts or consultants need to work closely with the business stake holders. This is a full time and very rigorous job requiring a lot of troubleshooting (most of the users don't understand what they want) because of evolutionary behavior of requirements engineering. This is just one aspect of innovation being introduced through the development of the necessary software. Perhaps its easy to outsource some of the network and administration work. Some of the call centre work can be outsourced too. However in each case they had to consider that global presence of company means 24x7 operations. Where to base the data centers and contact centers decision required and understanding of all the strategic needs of the company rather than motivated from the Ch-India mantra we hear from the many industry analysts. Again it does not mean that China and India factor is not important. At the end of the day what matters are the basic economic concepts. In other words, the transaction cost of doing business need to be compared with the economic cost of doing business too.

Thanks for writing a good article which prompted me to share my thoughts.

Regards,
Shoaib Shaukat