Outsourcing: Time To Work Smarter

May 31, 2010 in Other - Viewed 40 times.

Outsourcing: Time to Work Smarter

The Wall Street Journal featured an article on 18 May 2010 that discusses how outsourcing companies in India are digging out from their first major economic slump since their establishment at the very beginning of this century. Technology consultancies and business process outsourcers provide software development and business execution services at fractions of what the US employers pay – once the teams and infrastructure are established, that is.

But the fractional differences are diminishing, and the costs of bootstrapping offshore teams and infrastructure are increasing.

Outsourcers have had to cut their rates during the economic downturn to keep clients happy. Some services have been commoditized (e.g., hosting costs). This margin decreases hurt outsourcers as they wrestle with a business model that proportionally equates headcount with revenue growth, and that motivates employee churn as employees learn new skills and change employers in exchange for more lucrative pay. Some larger outsourcers already have more than 100K employees and churn hundreds per month as they add low thousands per month. Further diminishing the margin of profit/employee is the introduction of insurance (e.g., health, safety) products in India, and also China.
The software landscape has changed, and it continues to do so:
- JEE (or J2EE), while still a mainstay in enterprise computing, has lost market share to Microsoft, open source (and related consultancies), and others;
- Microsoft’s .NET has matured such that Microsoft’s traditional positioning at the enterprise edge is being permitted to expand into the enterprise to replace more costly integration technologies (e.g., infrastructure known in the past as enterprise application integration (EAI) technologies);
- Microsoft.NET has penetrated the open source world with Mono, giving opportunity to further leverage .NET functionality in a Linux world, displacing Java;
- Cloud technology vendors are beginning to offer pricing plans with fixed recurring and consumption price components that – while not yet representing the best deals in the world – offer the potential of reliable data centers/good disaster recovery … and
- Cloud architectures change the software development game such that IT groups again must face the costs of architecture shifts, as well as weighing such against the diminishing benefits of offshoring.

To optimize their margins, outsourcers seek to standardize their offerings and force their clients to use standardized templates for both application/platform development and business processes. Clearly this makes good sense … BUT … these are steps that outsourcing clients can and arguably should take in order to decrease and/or eliminate offshore dependencies. Standards-based technology implementations make techniques like code generation beneficial, and these techniques can be leveraged to more effectively use onshore staff and simplify software development, thus making it possible to decrease dependencies on offshore staff, both for software development and business execution. Employers who take advantage of these techniques may need to up the pay of employees who are more skilled in Computer Science/Software Engineering who are tasked with code generation, template development, standardization of platform services, architectural separation of services from user interfaces, cloud deployments, and such. But doing so will permit IT to work smarter (translating to higher output per employee) and decrease offshore dependencies and costs. For companies that have not yet offshored, doing so provides an alternative model that enables them to avoid bootstrapping an offshore contingency.

Truthfully, the potential to leverage techniques like code generation have existed for quite a while. However, the so-called path of least resistance we call offshoring, with its short-term wage arbitrage carrot dangling in the faces of C-level executives and their boards, led to investment in India, China and Viet Nam instead of investment in and strengthening of the computer science skills in onshore teams and cultivating greater discipline in their organizations. Further, use of application servers (the rage in enterprise software development from the late nineties through almost all of the first decade of this century) appeared to obviate the need for computer science skills when building enterprise platforms, though the need to standardize to optimize costs so that IT can self-fund illustrates such was not truly the case.

As we see cloud offerings emerge, and as they become more price competitive, the need for such skills, and the opportunity to leverage modern computer science into new cloud-based service architectures will become acute. We must seize the opportunities to work smarter that economic downturns and technology evolutions catalyze.