6 ms·

Why Companies Have Stopped Outsourcing IT

84 points by frostmatthew 11y ago

tsotha 11y ago
There's outsourcing and there's outsourcing. There may be fewer companies trying to build internal applications using contractors on another continent, but it seems like more companies are getting rid of data center operations in favor of services like AWS.
- jrs235 11y ago
  > more companies are getting rid of data center operations in favor of services like AWS. That's not really outsourcing. That's shifting from capital expenses to operating expenses which has tax and cash flow advantages.
  - stephenr 11y ago
    Smaller companies doing this (and possibly some big ones) are essentially outsourcing "Ops" by using "cloud" providers. The number of people that think somehow using AWS means you no longer need Ops staff is amazing. In a bad way. How often does "we can't afford our own Ops so we use AWS/Azure/etc" come up as a reason to accept the associated vendor lock in with a given provider?
    - grogenaut 11y ago
      there are ops and there are ops... are you speaking to ops regarding managing the hardware itself, or ops re the applications you are running on the hardware? Cloud definitely doesn't remove the latter. Unless your company runs on just a database with no app code.
      - stephenr 11y ago
        > Cloud definitely doesn't remove the latter. Many would disagree with you, and run their business as if that is the case. I'm not saying they are right, I'm saying thats the reality of how a number of decision makers act.
    - devonkim 11y ago
      It depends upon what you use your ops staff for that can mean different things and how you're structured across a service lifecycle. For example, WhatsApp had no operations engineers that were dedicated - everyone was an operations engineer that was writing the software by helping keep it alive. This to me is the intent for the devops organizational style - your developers have full visibility and responsibility into seeing their code through the entire cycle of existence and can quickly fix and prevent problems better than split teams. While most software developers tend to be terrible operations engineers and vice versa, I'm quite sure that well-written software makes operations work far, far easier and thus makes O&S much cheaper as a result. Also, a lot of companies opt to use Heroku first then migrate to basic ol' AWS once that gets far too expensive for them and may hire an operations engineer or two to replace the cost and to help them scale better with capital. NoOps in a very literal sense being used to describe tech operations is something I never think I'll see anyone take seriously and that can scale.
  - mseebach 11y ago
    Actually, that's exactly what outsourcing is. You buy a well-known commodity service off the shelf from a provider that has the scale to maintain real expertise and reap significant economies of scale. It's been done that way for physical products forever (you never see a company with an in-house carpentry shop making it's own office furniture). It's the "replace an in-house team with a broadly equivalent external team" version of outsourcing of recent years that's the bastard.
  - jasode 11y ago
    >That's not really outsourcing. That's shifting from capital expenses to operating expenses The "capital (depreciation) vs operating" is only talking about hardware. Having in-house IT employees to install new servers, run new cabling, change tapes for backups, etc, is not a capital expense. Migrating to AWS can shift the FTEs from XYZ company's payroll to Amazon's payroll. Presumably, Amazon's engineers can do IT admin operations in a more cost-efficient manner. That's "outsourcing." Yes, there would still be in-house employees as "AWS admins" but overall, there should be a net-reduction of FTEs doing commodity-IT grunt work.
yCloser 11y ago
they have NOT stopped
rmason 11y ago
Why outsource when you can insource instead? Thanks to lobbying both parties support ever increasing numbers of H-1B visas. You can even get the departing developers to train their replacements ;<(. http://www.nytimes.com/2015/06/04/us/last-task-after-layoff-at-disney-train-foreign-replacements.html?_r=0 http://www.nytimes.com/2015/06/04/us/last-task-after-layoff-... http://www.computerworld.com/article/2879083/southern-california-edison-it-workers-beyond-furious-over-h-1b-replacements.html http://www.computerworld.com/article/2879083/southern-califo...
- PhantomGremlin 11y ago
  I tried to submit an interesting article very similar to the NYT story, but couldn't. HN silently blacklists breitbart.com. http://www.breitbart.com/big-government/2015/09/07/exclusive-displaced-cast-member-how-disney-replaced-me-other-americans-with-cheap-foreigners-on-h1b-visas/ http://www.breitbart.com/big-government/2015/09/07/exclusive...
- johnloeber 11y ago
  I don't know if you're trolling, but in this case H-1Bs are being used to outsource: large consulting companies obtain H-1Bs for their (stereotypically Indian) employees, bring the employees into the US for 3-6 months to learn how to do the job, then send them back to India, from where they complete the job remotely, and where they can of course be paid much less due to the lower prevailing wages/cost of life. This is a classic outsourcing strategy. Insourcing is the complete opposite, see https://en.wikipedia.org/wiki/Insourcing https://en.wikipedia.org/wiki/Insourcing.
- matt_s 11y ago
  Insourcing is what is happening at some large global Fortune 500 companies. Essentially this is doing away with H-1B visas and establishing your own IT center offshore or rather on a different shore than your HQ. Massive money savings by doing this. The way this should operate for software development is to have people at or near HQ that are the key roles - software architecture, project managers, requirements analysts and software development leads or managers. Then at your Asia branch (India most likely) you would staff up managers, software developers, etc. in a center where they can deliver things that are tightly aligned to your companies strategy instead of aligning to some legal contract. In software terms: insourcing is a tightly coupled mutually beneficial interface, outsourcing is going through a facade owned by two legal teams.
hmottestad 11y ago
Im getting really tiny font. 10px to be exact, for the main article text. Is this just me?
- rejschaap 11y ago
  It is not just you, the article is completely unreadable for me as well. It's not just small font, it's also the line spacing and paragraph spaces that are off. I had to copy-paste it to a text editor to read.
- wtbob 11y ago
  It's viewable on Firefox for Linux (Iceweasel, really) with AdBlock Plus and NoScript.
pjmlp 11y ago
Well, here in Europe the outsourcing and off-shoring is still playing catch up with US. I see no signs of it stopping. :\
- throwaway13337 11y ago
  In Europe, it makes a lot less sense as developer salaries are likely half of that in the US. Even in western countries like Finland, Denmark, and Austria, mid-level developers and other technically inclined can expect to make 1500-4000euros/month. Compare that to US developer salaries and you can see why.
  - seren 11y ago
    Most of the time there are more employer's contribution in Europe compared to US. Depending on the local law, you have to pay for social healthcare, retirement, jobless benefits... At the end of the day, the difference of cost for the employer is less than the difference in paycheck would make you believe.
    - Avalaxy 11y ago
      The numbers he mentioned are gross salaries, not net salaries. The things you mentioned are already paid by the difference (the highest income tax bracket here is 52%). You would expect the gross income to be much higher.
      - jbergens 11y ago
        And at least some countries adds taxes to the salary that the companies has to pay.
  - JCDenton2052 11y ago
    A FTSE 100 company I was working for has outsourced all their back end operations and is not stopping any time soon. 90% offshore, 10% onshore (legacy employees).
  - 11y ago
seivan 11y ago
I still consider using an (ad)-agency for software to be "outsourcing". Like when taxi companies are outsourcing their iOS applications to agencies while Uber has in-house engineering(?)
- Gibbon1 11y ago
  One might ask what is a company where all the process is outsourced? One might ask, what are you when all of the proprietary parts of your companies process are 'owned' by outsiders?
- stephenr 11y ago
  > Like when taxi companies are outsourcing their iOS applications to agencies Uber keeps trying to tell us that it's drivers aren't employees, so they're trying to outsource the drivers themselves.
planetjones 11y ago
Should be entitled why some companies have stopped outsourcing. From my viewpoint in Europe it's still every managers' preferred route to promotion and a big bonus. Also, what about the practice of bringing in cheaper labour to undercut the local workforce. This seems to be growing everywhere?
petra 11y ago
So isn't the next step opening branch offices in India, etc ? That way a company can enjoy both world ?
- stephenr 11y ago
  The next step for a lot of office-based work should be "accept that remote working is a viable option, and hire staff regardless of where they live".
inthewoods 11y ago
I'm surprised an article like this can be published with zero data - is outsourcing really on the decline?
- asdfzxc 11y ago
  This is exactly what I wanted to ask. The article only mentions things like "a company did so and so" etc. Other than big companies like Netflix closing down their in house data center operations, which has been in the news lately and companies like Uber running entirely off Salesforce, I've not heard of major decline in IT outsourcing activities.
fauigerzigerk 11y ago
>Software-as-a-service and cloud-based operations mean that companies decreasingly have data centers, so there isn’t anything to outsource. That leaves me scratching my head a little bit. It sounds like he's saying that outsourcing is dead because everything has been outsourced already.
mironathetin 11y ago
That's good news! I could never image to work for a company that works for companies. Doing good work is rarely honoured or even noticed. And who cares. Good, that even non-tech people start to understand. How long did it take.
- distances 11y ago
  Some of the very best workplaces are IT contractors. Generally there are limits to hourly invoicing, so the pay ranges are quite limited compared to product companies. Thus, in order to attract top talent the companies simply have to be nice places to work at. Also, hourly invoicing means sane working hours. Then again, some of the contracting agencies are probably among the worst places, too, employing people with limited choices. Just need to identify the good ones.
  - mironathetin 11y ago
    Good to read that there are good contractors. How do you identify the good ones? Just apply and see?
lukasm 11y ago
Developers are not cost centre. They are wealth creators.
- ucaetano 11y ago
  For internal systems they are cost centers, since there's no revenue associated with them, even if they create wealth. Don't mix accounting and economics.
  - demian 11y ago
    But if they create wealth, isn't the "cost center" label outdated?
    - marcosdumay 11y ago
      Well, both this label was always meaningless (not "outdated", as this would imply it was ever worth something), and all parts of a company are expected to create wealth. The reframing of the discussion as about competitive advantage is a good one.
    - ucaetano 11y ago
      No, "cost center" is an accounting term. "create wealth" is an economic term. One does not exclude the other.
      - demian 11y ago
        Thank you for the clarification.
  - lsaferite 11y ago
    That seems a bit short-sighted though, no? Even if you cannot put an accounting profit line with them, they facilitate the profit of the other departments.
    - tharax 11y ago
foolinaround 11y ago
it feels like management needs to act busy and do something, and therefore there is this current trend of bringing in the outsourced parts. the technology landscape has changed since the outsourcing was initiated, some gains will be realized and bonuses will be distributed.
wil421 11y ago
I think it's time to find a new job. Most of the people I work with are outsourced IT or contractors.
geebee 11y ago
I wish I had the link, but I remember reading an article years ago (maybe 7 or 8 years ago?) titled (roughly) "Don't outsource your software development", focusing mainly on Walmart. The article described a project at Walmart where they had their software developers actually go to stores and work the cash registers for a while to develop the kind of empathy and understanding of a job to design a good system. While Walmart labor practices definitely get a bad rap (not necessarily undeserved), I found this story very encouraging. It's kind of ironic, but having developers work the cash registers actually suggests that these developers have a very high status in the business - they are not viewed as glorified typists, or even as technically talented but limited people where it comes to business. They are viewed as people who need to understand business processes deeply and who have the autonomy and authority to act on that understanding. And from what I understand, Walmart did rise to prominence at least in part on the effectiveness of its IT systems (which enabled more efficient supply chains, in particular). This was a long time ago (and the WSJ article certainly acknowledges that some companies have been aware of this for a long time). Personally, it took me a long time to understand how software outsourcing could ever be anything other than a disaster, and I slowly came to realize that this is because I worked in the jobs that hadn't been outsourced, that required a lot of business context. Even then, it's been pretty clear to me at times that decision makers higher up on the org chart really don't understand what I do. Or, more cynically, you could say they absolutely do understand it, but are aware that it would take a few years for the hidden costs of their decision to catch up with them, by which point they've made their numbers and can use it to move up another rung (ie., if a highly competent software developer who truly understands the business has built robust, well documented, well tested systems, that person could be replaced with someone more limited in ability and business understanding, and it could actually be a few years before critical systems no longer effectively support the business).
chronid 11y ago
Actually in my experience (in the EU) they still outsource everything they can, and outsource 90%+ of everything they cannot outsource. And they put a shiny new remedy instance in between to "help". And then they wonder, when they have to push out new releases/features, why no one got the capacity and why only half of the features work - half the time (returning maybe confidential customer data of others customers, ohh). But then it's the "moral duty" (management words...) of the remaining "local" teams to work 20/24 7/7 for a month to try to salvage what can be salvaged.

84 points by frostmatthew 11y ago

There's outsourcing and there's outsourcing. There may be fewer companies trying to build internal applications using contractors on another continent, but it seems like more companies are getting rid of data center operations in favor of services like AWS.

jrs235 11y ago
> more companies are getting rid of data center operations in favor of services like AWS. That's not really outsourcing. That's shifting from capital expenses to operating expenses which has tax and cash flow advantages.
- stephenr 11y ago
  Smaller companies doing this (and possibly some big ones) are essentially outsourcing "Ops" by using "cloud" providers. The number of people that think somehow using AWS means you no longer need Ops staff is amazing. In a bad way. How often does "we can't afford our own Ops so we use AWS/Azure/etc" come up as a reason to accept the associated vendor lock in with a given provider?
  - grogenaut 11y ago
    there are ops and there are ops... are you speaking to ops regarding managing the hardware itself, or ops re the applications you are running on the hardware? Cloud definitely doesn't remove the latter. Unless your company runs on just a database with no app code.
    - stephenr 11y ago
      > Cloud definitely doesn't remove the latter. Many would disagree with you, and run their business as if that is the case. I'm not saying they are right, I'm saying thats the reality of how a number of decision makers act.
  - devonkim 11y ago
    It depends upon what you use your ops staff for that can mean different things and how you're structured across a service lifecycle. For example, WhatsApp had no operations engineers that were dedicated - everyone was an operations engineer that was writing the software by helping keep it alive. This to me is the intent for the devops organizational style - your developers have full visibility and responsibility into seeing their code through the entire cycle of existence and can quickly fix and prevent problems better than split teams. While most software developers tend to be terrible operations engineers and vice versa, I'm quite sure that well-written software makes operations work far, far easier and thus makes O&S much cheaper as a result. Also, a lot of companies opt to use Heroku first then migrate to basic ol' AWS once that gets far too expensive for them and may hire an operations engineer or two to replace the cost and to help them scale better with capital. NoOps in a very literal sense being used to describe tech operations is something I never think I'll see anyone take seriously and that can scale.
- mseebach 11y ago
  Actually, that's exactly what outsourcing is. You buy a well-known commodity service off the shelf from a provider that has the scale to maintain real expertise and reap significant economies of scale. It's been done that way for physical products forever (you never see a company with an in-house carpentry shop making it's own office furniture). It's the "replace an in-house team with a broadly equivalent external team" version of outsourcing of recent years that's the bastard.
- jasode 11y ago
  >That's not really outsourcing. That's shifting from capital expenses to operating expenses The "capital (depreciation) vs operating" is only talking about hardware. Having in-house IT employees to install new servers, run new cabling, change tapes for backups, etc, is not a capital expense. Migrating to AWS can shift the FTEs from XYZ company's payroll to Amazon's payroll. Presumably, Amazon's engineers can do IT admin operations in a more cost-efficient manner. That's "outsourcing." Yes, there would still be in-house employees as "AWS admins" but overall, there should be a net-reduction of FTEs doing commodity-IT grunt work.

yCloser 11y ago

they have NOT stopped

rmason 11y ago

Why outsource when you can insource instead? Thanks to lobbying both parties support ever increasing numbers of H-1B visas. You can even get the departing developers to train their replacements ;<(. http://www.nytimes.com/2015/06/04/us/last-task-after-layoff-at-disney-train-foreign-replacements.html?_r=0 http://www.nytimes.com/2015/06/04/us/last-task-after-layoff-... http://www.computerworld.com/article/2879083/southern-california-edison-it-workers-beyond-furious-over-h-1b-replacements.html http://www.computerworld.com/article/2879083/southern-califo...

PhantomGremlin 11y ago
I tried to submit an interesting article very similar to the NYT story, but couldn't. HN silently blacklists breitbart.com. http://www.breitbart.com/big-government/2015/09/07/exclusive-displaced-cast-member-how-disney-replaced-me-other-americans-with-cheap-foreigners-on-h1b-visas/ http://www.breitbart.com/big-government/2015/09/07/exclusive...
johnloeber 11y ago
I don't know if you're trolling, but in this case H-1Bs are being used to outsource: large consulting companies obtain H-1Bs for their (stereotypically Indian) employees, bring the employees into the US for 3-6 months to learn how to do the job, then send them back to India, from where they complete the job remotely, and where they can of course be paid much less due to the lower prevailing wages/cost of life. This is a classic outsourcing strategy. Insourcing is the complete opposite, see https://en.wikipedia.org/wiki/Insourcing https://en.wikipedia.org/wiki/Insourcing.
matt_s 11y ago
Insourcing is what is happening at some large global Fortune 500 companies. Essentially this is doing away with H-1B visas and establishing your own IT center offshore or rather on a different shore than your HQ. Massive money savings by doing this. The way this should operate for software development is to have people at or near HQ that are the key roles - software architecture, project managers, requirements analysts and software development leads or managers. Then at your Asia branch (India most likely) you would staff up managers, software developers, etc. in a center where they can deliver things that are tightly aligned to your companies strategy instead of aligning to some legal contract. In software terms: insourcing is a tightly coupled mutually beneficial interface, outsourcing is going through a facade owned by two legal teams.

hmottestad 11y ago

Im getting really tiny font. 10px to be exact, for the main article text. Is this just me?

rejschaap 11y ago
It is not just you, the article is completely unreadable for me as well. It's not just small font, it's also the line spacing and paragraph spaces that are off. I had to copy-paste it to a text editor to read.
wtbob 11y ago
It's viewable on Firefox for Linux (Iceweasel, really) with AdBlock Plus and NoScript.

pjmlp 11y ago

Well, here in Europe the outsourcing and off-shoring is still playing catch up with US. I see no signs of it stopping. :\

throwaway13337 11y ago
In Europe, it makes a lot less sense as developer salaries are likely half of that in the US. Even in western countries like Finland, Denmark, and Austria, mid-level developers and other technically inclined can expect to make 1500-4000euros/month. Compare that to US developer salaries and you can see why.
- seren 11y ago
  Most of the time there are more employer's contribution in Europe compared to US. Depending on the local law, you have to pay for social healthcare, retirement, jobless benefits... At the end of the day, the difference of cost for the employer is less than the difference in paycheck would make you believe.
  - Avalaxy 11y ago
    The numbers he mentioned are gross salaries, not net salaries. The things you mentioned are already paid by the difference (the highest income tax bracket here is 52%). You would expect the gross income to be much higher.
    - jbergens 11y ago
      And at least some countries adds taxes to the salary that the companies has to pay.
- JCDenton2052 11y ago
  A FTSE 100 company I was working for has outsourced all their back end operations and is not stopping any time soon. 90% offshore, 10% onshore (legacy employees).
- 11y ago

seivan 11y ago

I still consider using an (ad)-agency for software to be "outsourcing". Like when taxi companies are outsourcing their iOS applications to agencies while Uber has in-house engineering(?)

Gibbon1 11y ago
One might ask what is a company where all the process is outsourced? One might ask, what are you when all of the proprietary parts of your companies process are 'owned' by outsiders?
stephenr 11y ago
> Like when taxi companies are outsourcing their iOS applications to agencies Uber keeps trying to tell us that it's drivers aren't employees, so they're trying to outsource the drivers themselves.

planetjones 11y ago

Should be entitled why some companies have stopped outsourcing. From my viewpoint in Europe it's still every managers' preferred route to promotion and a big bonus. Also, what about the practice of bringing in cheaper labour to undercut the local workforce. This seems to be growing everywhere?

petra 11y ago

So isn't the next step opening branch offices in India, etc ? That way a company can enjoy both world ?

stephenr 11y ago
The next step for a lot of office-based work should be "accept that remote working is a viable option, and hire staff regardless of where they live".

inthewoods 11y ago

I'm surprised an article like this can be published with zero data - is outsourcing really on the decline?

asdfzxc 11y ago
This is exactly what I wanted to ask. The article only mentions things like "a company did so and so" etc. Other than big companies like Netflix closing down their in house data center operations, which has been in the news lately and companies like Uber running entirely off Salesforce, I've not heard of major decline in IT outsourcing activities.

fauigerzigerk 11y ago

>Software-as-a-service and cloud-based operations mean that companies decreasingly have data centers, so there isn’t anything to outsource. That leaves me scratching my head a little bit. It sounds like he's saying that outsourcing is dead because everything has been outsourced already.

mironathetin 11y ago

That's good news! I could never image to work for a company that works for companies. Doing good work is rarely honoured or even noticed. And who cares. Good, that even non-tech people start to understand. How long did it take.

distances 11y ago
Some of the very best workplaces are IT contractors. Generally there are limits to hourly invoicing, so the pay ranges are quite limited compared to product companies. Thus, in order to attract top talent the companies simply have to be nice places to work at. Also, hourly invoicing means sane working hours. Then again, some of the contracting agencies are probably among the worst places, too, employing people with limited choices. Just need to identify the good ones.
- mironathetin 11y ago
  Good to read that there are good contractors. How do you identify the good ones? Just apply and see?

lukasm 11y ago

Developers are not cost centre. They are wealth creators.

ucaetano 11y ago
For internal systems they are cost centers, since there's no revenue associated with them, even if they create wealth. Don't mix accounting and economics.
- demian 11y ago
  But if they create wealth, isn't the "cost center" label outdated?
  - marcosdumay 11y ago
    Well, both this label was always meaningless (not "outdated", as this would imply it was ever worth something), and all parts of a company are expected to create wealth. The reframing of the discussion as about competitive advantage is a good one.
  - ucaetano 11y ago
    No, "cost center" is an accounting term. "create wealth" is an economic term. One does not exclude the other.
    - demian 11y ago
      Thank you for the clarification.
- lsaferite 11y ago
  That seems a bit short-sighted though, no? Even if you cannot put an accounting profit line with them, they facilitate the profit of the other departments.
  - tharax 11y ago

foolinaround 11y ago

it feels like management needs to act busy and do something, and therefore there is this current trend of bringing in the outsourced parts. the technology landscape has changed since the outsourcing was initiated, some gains will be realized and bonuses will be distributed.

wil421 11y ago

I think it's time to find a new job. Most of the people I work with are outsourced IT or contractors.

geebee 11y ago

I wish I had the link, but I remember reading an article years ago (maybe 7 or 8 years ago?) titled (roughly) "Don't outsource your software development", focusing mainly on Walmart. The article described a project at Walmart where they had their software developers actually go to stores and work the cash registers for a while to develop the kind of empathy and understanding of a job to design a good system. While Walmart labor practices definitely get a bad rap (not necessarily undeserved), I found this story very encouraging. It's kind of ironic, but having developers work the cash registers actually suggests that these developers have a very high status in the business - they are not viewed as glorified typists, or even as technically talented but limited people where it comes to business. They are viewed as people who need to understand business processes deeply and who have the autonomy and authority to act on that understanding. And from what I understand, Walmart did rise to prominence at least in part on the effectiveness of its IT systems (which enabled more efficient supply chains, in particular). This was a long time ago (and the WSJ article certainly acknowledges that some companies have been aware of this for a long time). Personally, it took me a long time to understand how software outsourcing could ever be anything other than a disaster, and I slowly came to realize that this is because I worked in the jobs that hadn't been outsourced, that required a lot of business context. Even then, it's been pretty clear to me at times that decision makers higher up on the org chart really don't understand what I do. Or, more cynically, you could say they absolutely do understand it, but are aware that it would take a few years for the hidden costs of their decision to catch up with them, by which point they've made their numbers and can use it to move up another rung (ie., if a highly competent software developer who truly understands the business has built robust, well documented, well tested systems, that person could be replaced with someone more limited in ability and business understanding, and it could actually be a few years before critical systems no longer effectively support the business).

chronid 11y ago

Actually in my experience (in the EU) they still outsource everything they can, and outsource 90%+ of everything they cannot outsource. And they put a shiny new remedy instance in between to "help". And then they wonder, when they have to push out new releases/features, why no one got the capacity and why only half of the features work - half the time (returning maybe confidential customer data of others customers, ohh). But then it's the "moral duty" (management words...) of the remaining "local" teams to work 20/24 7/7 for a month to try to salvage what can be salvaged.