One of the engagement model choices for outsourcing your software development I have described in the past is the Body Shop. Another name used by Reza Imam in his recent article is Software Sweatshop!

The problem is in most cases, you don’t need just bodies (sweating or dry) to develop your software offshore. You need a team that can work together well to get the job done. The reason the body and sweat shop fees are so low is they don’t invest in a good recruiting process or effective software development methodology.

Avoid them!

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Gartner predicts that Outsourcing Prices Could Fall 10%. It is hard to judge the accuracy of these reports because they cover several different categories of outsourced IT services – datacenter, helpdesk and network services – besides just software development. But there is no question that business is less than booming these days and buyers are in a position of strength when it comes to negotiating prices.

If it made sense to outsource your software development globally to save money in the past, then it is even truer today. That is, if American companies are not too afraid to develop anything these days!

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A bad experience with outsourcing in the past can really give you a sour attitude about trying it again. Some people have a visceral reaction whenever they hear the “O” word - Outsourcing. Perhaps they tried to “purchase” outsourcing services in the past and negotiated such a “good deal”, they just about guaranteed they would get poor results.

Hiring an outsourcing vendor is like hiring the employees for your internal software engineering team. Yet many companies go about selecting an outsourcing vendor as if it is a purchasing process, seeking the lowest price possible for the service.

Did you ever purchase an employee for your engineering team? Of course not. Hiring an employee takes a careful evaluation of candidates through interviews and reference checks followed by a reasonable negotiation over salary.

Sometimes you have a choice between two or more employee candidates. Do you negotiate hard so you can hire one of them at the cheapest possible salary? Probably not. If you do, you risk hiring an employee that will only stay until a better job comes along elsewhere. And then you have to start the long hiring process for a replacement all over again.

Hiring an outsourcing team is like hiring employees, and it pays to be fair and equitable. Think of the offshore team as your own team, one that you carefully hire and manage over time to get excellent results. Otherwise you face getting poor quality and having to go look for a new outsourcing vendor again. And that will cause you months of wasted time.

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A synopsis of this post was published on the Business Week website as one slide in their Outsourcing Advice from the Pros. This was an added sidebar with several articles focused on small businesses using outsourcing for manufacturing and professional services like software development.

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Accelerance client ChemSW and Costa Rica partner IsthmusIT are profiled in the Business Week article Costa Rica: Cultural Similarities Make It An Outsourcing Favorite. ChemSW used the Accelerance Rapid Ramp-Up service to select IsthmusIT. The article emphasizes many of the benefits of outsourcing your software development to Costa Rica.

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“Outsourcing is no longer just about cheap labor. … It’s also no longer just about India and China.”  That’s the beginning of a recent article in Forbes that describes global Outsourcing’s Big Picture.

Of course. Doesn’t everyone know this already?

Maybe not. The article suggests there are five key drivers to the growth of the global outsourcing of services. However, it mentions only these three:
1. Tremendously lower cost of labor in multiple global locations
2. The digitization of business processes
3. There is a global pool of educated talent such as engineers and programmers.

Again there are no surprises here.

Is there anything to slow or stop the trend? Maybe government regulation. But the recent warnings of a possible trade war and the downside of protectionism in the so-called Buy America Act by President Obama are likely to be heeded.

This article is a good summary of the global outsourcing trend, but most business people probably know about this already. Accelerance has over 40 partners in a dozen countries. I don’t think it’s a question of if you should outsource, but where.

“A decade ago, if you wanted to cut costs it was an India story. We identified 30 countries that have policies in place to promote service exports. … It won’t be one country that will knock India off the top. It will be a lot of small countries.”

I agree.

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I saw this short article about students in the UK outsourcing their IT homework assignments to India.  Thomas Lancaster, a Birmingham City University computing lecturer, has led the effort to catch these cheaters.

I first hear about this last October when Fred Looft, head of the ECE department at WPI told me he received an email from a professor in the UK saying he suspected a WPI student might be cheating this way. Allegedly a WPI student had posted a project inquiry on one of the job boards and his academic email address was the tip off.

I think that email Fred received must have been from Lancaster.  Fred said he had “a talk” with the student and the project inquiry was withdrawn. 

Clearly cheating should not be tolerated.  But I also shared a different opinion with Fred. 

What if students posted programming projects online, not to have them implemented, but to get an estimate of the cost and effort required if they were implemented?  Actually, that’s not completely fair to the freelancers and vendors that might respond. So why not have them manage small projects for a few hundred dollars with global programmers? 

I think we ought to start teaching our students how to manage programming projects as well as coding them.    

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Steve Mezak will be speaking at the International Software Development Outsourcing Conference on May 20, 2008. His agenda topics include, “Is Outsourcing Right For Start-Ups?” and “How to Choose Outsourcing Partners”.

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More details on how many and which jobs are being offshored from the U.S. are in a report called “Jobs Beyond Borders” just issued by the Wharton School and CareerBuilder.com.

The report has lots of statistics from a survey of more than 3,000 HR professionals and 6,700 workers in the U.S.

13% of companies surveyed outsourced to third-party vendors in 2007 and 7% say they moved job functions to offshore affiliates or subsidiaries.

The main reason is cost.

64% of companies are offshoring to save money. 32% of companies surveyed are offshoring software development work.

No doubt there are many ways to spin the numbers. One blog focused on the statistic that 27% of companies went offshore to find skilled workers, implying a shortage here in the U.S.

For me the handwriting is on the wall. American companies are offshoring for a number of reasons. And if your job is in the list of those most likely to be offshored, then it’s time to adapt to this reality.

If you are a company joining the ranks of those taking advantage of offshore software development then Accelerance global partners have the skills you need.

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Today I ran across this article in Baseline magazine that questions if there really is an IT labor shortage. It reports that the idea of a shortage is popularized by lobbying groups trying to convince congress to increase the number of H1-B visas.  I mentioned a looming IT talent crunch back in January.

This newer article quotes several experts and reports that state there are plenty of IT jobs available, just not high paying ones that Americans are willing to take. Instead companies are bringing in low-paid workers or just sending the work offshore.

I think this new article is closer to the truth based on the large number of comments from people that have actually lost their jobs due to outsourcing or offshoring.

But companies will always want to save money. It’s the main reason we don’t make shoes in New England, steel in Pittsburgh and grow apricots in Silicon Valley anymore. If you are running a company, how would you handle IT? If you are starting a software company with your own money, where would you do your programming?

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Selecting the right kind of engagement model with your offshore programmers (and / or the company where they work) is the best way to ensure you get more dynamic engineers that will deliver your software with the level of quality you would expect from your own software engineers in the U.S.

Generally you want a model where you have more control over the programmer hiring process and the on-going management of the software development process. But you may have to trade-off control with your budget and ability to manage the software development process. Below are the six engagement models most commonly used.

Choosing the right offshoring engagement model is a key to your success

From left to right, each model is capable of handling an increasing level of resources and control.

Freelancers – complete control over the programmers hired, but you have to evaluate each one individually. It is common to hire several on a trial basis and even have them create the same software and then keep the ones that do a good job. Managing more than three freelancers at different locations and time zones is very challenging! Good for small projects for several months or longer if you can get the freelancer(s) to commit.

Body Shops – very little control over the programmers hired. This type of vendor is famous for giving you transactional programmers cheap, but without management or software development process. You have to tell them what to do and manage them yourself. At least they’re in the same room! Okay if you have the time and resources to manage your programmers from a distance.

Software Factory – or a vendor that bids on your software project on a fixed-price basis where you generally have no control over the kind of programmers that are used. Your specifications need to be as complete as possible and have a clear definition of what it means for your software to be finished. Some disreputable vendors will deliver some software for the first several progress payments and then drop you as a client if you make many changes or have no clear definition of what “finished” really means.
Yet, this is one of the most common forms of offshoring. Works well if you have a well-specified programming project and have the budget to try several

Offshore Development Center (ODC) – a vendor that gives you a dedicated team of programmers and you can usually participate in the interviews. You pay a monthly fee for each programmer and their activities are often managed by a team leader you also help select. Good for developing multiple releases of the same software application where consistency of the programming team improves productivity over time.

Build, Operate & Transfer (BOT) – like ODC but with an option to transfer your team of programmers into your own captive operation or offshore subsidiary in future, usually two or three years.

Captive Operation – most appropriate for larger software companies that are developing complex software applications and systems needing fifty software engineers or more. You have complete control (and responsibility) for the hiring and management of the programmers.

Accelerance services can help you with the more complex, rightmost four engagement models. Use Offshoring Jumpstart to find partners that will bid on your fixed price projects and / or build your ODC. Use Rapid Ramp-Up consulting for more complex ODC, BOT and Captive Operations.

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