Are Offshoring and Outsourcing Different?

An exchange of blog comments has found me and Bill in agreement yet again.  Management’s sole reason for outsourcing is to save cost.  Period.  (Or may I say “full stop” depending on which side of the Atlantic you are?).

However, outsourcing does not necessarily prevent co-location (outsourced staff can remain on your site), so in theory at least, using agile software development is possible.

But what about corporate allegiances?  Once they were part of your organisation.  Now outsourced staff, at some point post-contract (and it can take a while) have to go native and support the outsourcers corporate objectives – which include making money out of the client.  This doesn’t sound very compatible with creating mutual respect between business and IT and it especially doesn’t sound like an environment conducive to delivering a high quality solution that meets business needs.

So in my view, outsourcing is generally a bad idea.  Really it’s only a replacement for poor internal management since, if done properly (the management), there should be no outsourcer that can save you costs.  The only remaining reasons to outsource are to get a share of a unique skill-set on an intermittent basis, or to provide flexibility in resource usage (OK so just outsource those bits then!).

<Aside>…….I am feeling like a rant about the quality of IT management now which I think is still suffering from “promote your best developer” syndrome.  The classic management error which loses you a good developer as well as gaining you a person unsuited (and usually uninterested in) management.  But let’s save that for another post.

If outsourcing is bad, then where does that leave off-shoring?  I have argued previously that off-shoring software development is not good and let me amplify why.

Put together a team based not only on different corporate allegiances but also on different time zones, different geographies and different languages and cultures and that hardly creates a business environment where great things will happen.

“But the staff are only one third the cost!” is the cry from the CIO.  “They would have to be dreadfully inefficient for this not to be a good deal!”

Guess what – not only are they are dreadfully inefficient, they are disconnected, and whilst individually keen they are never going to be motivated like your own staff.  If they are also geographically disparate they are mentally not part of the team – you can expect rubbish results which (pun intended) will trash your business benefits.

What sort of a short termist do you have to be to not see the sense in this argument?

4 Responses to “Are Offshoring and Outsourcing Different?”

  1. Hong Nguyen Says:

    Hong Nguyen
    English 126-0138
    May 10, 2007

    The Truth Behind Outsourcing
    The United States has always been a country with many opportunities and a lot of wide range jobs available. However, as the time passes by these opportunities seem to be diminishing with the constant hiring of oversea workers. The outsourcing market is growing tremendously and expected to grow even more in the next couple of years. Companies are planning to outsource both low end and high end jobs in the United States and offshore. This new cheaper workforce seems to be a far better advantage for employers and companies seem to be taking advantage of the situation. The increase in oversea hiring means a lot of change for the economy, for the better or the worse it remains a mystery. While outsourcing provides companies with lots of benefits for some it’s considered to be a hazardous threat. Only the truth can settle this matter and by analyzing evidence we can come to the right conclusion.
    Though outsourcing seems to have its advantages it may possibly be lies to cover up the truth. Outsourcing jobs is used by companies mainly to cut the cost of operations. Companies outsource in order to compete with other companies and at the same time make a profit (Otterman,2007).Profit and money is everything and there is no denying it. Some may argue that outsourcing is good because it creates cheaper goods but it only provides producers with the choice to sell cheaper goods. Given the opportunity companies don’t do what’s best for the consumer; they do what’s best for them, making profit. Though jobs are outsourced and goods are made for less money, products still remain relatively high because companies can. Outsourcing jobs can also mean lost of jobs for many Americans especially for those in the high-tech field. (Cyber Futuristics, 2007). According to Denise Dubie reporter for Network World, one of the biggest challenges employers face is finding qualified employees. Since this is such a difficult task they have to turn to oversea workers. Not only do oversea workers provide a bigger employment pond for companies they are cheaper too (Dubie, 2007). This however seems to be merely one of the excuses given by companies to excuse themselves for acting on their own behalf. Edwin J. Feulner, Ph.d says “The United States has the best educated, most productive, most adaptive workforce in the world.” If the United States provide educated, productive, and talented people, what more can companies ask for? Companies claim to outsource due to a small workforce available but here they are laying off people who are well- qualified for these jobs and ignoring the many others to outsource to foreign counties where education is a minimum and skills are lacking (Gollsby, 2007).According to Dubie 500 of the fastest growing North American companies turned to offshore services and 55% intend to move their work overseas (2007). This possibly could be due to the cut in cost rather then the search for talented workers. Though corporations seem to be thinking their getting a deal by hiring these offshore workers some companies who have tried regretted their decision. A company who outsourced many operations to India found how hard and costly it was to communicate with their workers. They also concluded that Indians are not productive and at times took 2 weeks to get a job done when it could’ve been done in 2 days in the United States by a skilled worker (Bartlett, 2006).
    Business people, companies, corporations factories are driven by money, achievement, and fear. They fear failure, lost of power, and appearing weak. They are competing with one another and by being in competition they ignore the rest. They don’t care about employees, or consumers. They make quick decisions without considering all the details which result in long run failure, what they feared. Outsourcing at first glance seems the way to go due to smaller wages but the long run effects can be damaging. Companies who plan inefficiently risk heavy loses and customer dissatisfaction (Goolsby, 2007). Customer dissatisfaction can mean lost in sales, and profit which can destroy the whole concept of outsourcing jobs to begin with
    Edwin J Feulner in an article titled “The Truth about Outsourcing “ asserts that even though employees are losing their jobs due to outsourcing they can easily find another one, often times at a higher salary. After doing research this seems very vague because

  2. Alastair Bathgate Says:

    Interesting article, I am guessing you are a student because of the citations.
    You don’t pull any punches and for the most part I agree but there are one or two areas to be careful.
    For example I don’t agree that Indians are not productive. I count many Indians as friends and of all nationalities I find them the most dedicated, loyal and efficient of workers.
    I would not hesitate to set up an operation in India to serve that part of the world and if I did it would be supported by local staff, not remote British or American staff.
    The problem stems from the geographical separation, and IMO two locations are not good for a team with one goal. It’s important to examine the cause of the inefficiencies of off-shoring and I strongly suspect that the Indians took 2 weeks to do a 2 day job because of communication problems and I would further speculate the communication problems were more the fault of the outsourcer than the Indians. But that is still a good reason not to off-shore.
    My final comment is that the point of my article is that outsourcing and off-shoring are different – you can outsource in your own country, (occasionally but not usually to good effect). You use outsourcing as a proxy for off-shoring which I see as totally different.

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