18 ms·

Why Software Outsourcing Doesn't Work Anymore

• jmnicolas 11y ago
  I can't say much about the subject since I never used outsourcing, however 4000$ a month for a Ukrainian dev looks really over evaluated, it's much more than most positions in France.
  • jahnu 11y ago
    I assume they will be more capable than the average developer in any country. Everywhere I've worked and lived companies doing anything remotely complicated need to hire devs that are significantly better than average or it's just a waste of money. Sometimes they just aren't around at any reasonable cost for whatever reason.
  • Avalaxy 11y ago
    Yea, I'm not Ukrainian but I'm 99% sure that figure isn't right. $4000 per month is what a dev makes in the Netherlands.
    • jahnu 11y ago
      The exact same search as the author used but in NL shows you earn more in NL http://www.payscale.com/research/NL/Job=Senior_Java_Developer/Salary http://www.payscale.com/research/NL/Job=Senior_Java_Develope... Doing some comparisons between various European countries it looks like the wages for junior and middle experienced devs are wildly different, matching what you might expect. But the wages for senior devs start to converge.
      • wobbleblob 11y ago
        The same search tells me a Java dev in Ukraine earns more than his peer in France. http://www.payscale.com/research/UA/Job=Senior_Java_Developer/Salary http://www.payscale.com/research/UA/Job=Senior_Java_Develope...
    • deleted 11y ago
      [deleted]
    • jerven 11y ago
      In my first job I made 15 euro's an hour and was billed to the client at 125 euro's an hour (this was as a java dev in the Netherlands 8 years ago).
    • w0utert 11y ago
      Let's not pretend software developers are paid exceptionally well in the Netherlands. Somehow it's a skill that's way undervalued here, compared to e.g. middle-management. That said, a senior dev with an academic background (ie: if you can do more than just programming but also have the background to acquire and use complex domain-specific knowledge) you can easily make over $6000 gross a month. The cost of hiring you will be almost double that for the employer. You're not going to make that kind of money by working projects for a consultancy firm though, the margins they are making on your skills are ridiculous.
      • wobbleblob 11y ago
        You can easily make over 100k a year as a dev in NL if you're self employed, assuming you charge 60 an hour (about half the rate a consultancy firm charges customers) and work 1800 hours a year. That way, you have no benefits, no insurance, and no income when you're between projects, but an income that your English speaking peers at least don't laugh as hard at. I don't think the wages are all that bad considering the generous benefits. What's really killing is the cost of living here.
        • odonnellryan 11y ago
          How does insurance in NL work like that? I work for myself in the US and it is a huge pain.
          • wobbleblob 11y ago
            You're probably referring to health insurance, but that isn't a major problem. Health insurance is commercial, but regulated. Employees are insured for unemployment, disability etc. Your employer is insured to cover your wages if you're sick. If you're self employed, you either don't get paid for hours not spent working, or you have to buy similar insurances commercially. You will also need insurance for liability and probably for legal costs. If you're good at your job and good at selling yourself, you probably make more than an employee would, but the 60 an hour are not pure profit.
        • 11y ago
    • chvid 11y ago
      I reckon the article is talking about pay before taxes (what the company pays, not what you get) for a senior developer. AFAIK the number is correct.
      • spdionis 11y ago
        Little secret: you can probably get away without paying taxes on that money in Ukraine.
    • gizi 11y ago
      160hours/month @ $25 = $4000. Go and have a look at Upwork. Relatively few developers there charge less than $25/hour. It is considered a low-ball rate. Even the Indians or Filipinos will hesitate to bid on that kind of projects, and they otherwise have a reputation of "being cheap" ("the cheap guys"). The only place in Europe where you can get really cheap labour, is the Ukraine. Don't try to fish for this even in Romania or so.
    • SilasX 11y ago
      Aren't European salaries generally quoted post-tax though? For an apples-to-apples comparison you'd have to think of the American salaries in terms of "after tax and typical payroll deductions (incl health care)".
      • DanBC 11y ago
        I've never seen English salaries described after tax. They're always quoted before tax and national insurance is taken.
        • SilasX 11y ago
          And I've ever seen an English poster let me get away with lumping England with Europe :-p Seriously though, good to know.
  • miloshadzic 11y ago
    That's just not true. For one you're not factoring in the cost to hire, monthly tax on that salary etc. I doubt a good developer earns less than 4k gross in say Paris. My other problem with this line of thinking is this idea that you are getting less for that 4k than if you were to hire someone from the US. There are extremely capable people around the world with excellent communication skills and if you're looking at it with this attitude you will just miss out on this talent.
    • jmnicolas 11y ago
      From the article : "Today, a good Java developer in the Ukraine earns $4,000 a month." As I understand it, it's not what the dev costs to its employer but what he takes home. And where did you read that I had the idea that they were not good enough to justify this kind of money. My surprise at the 4k number comes from 2 thoughts : - how come a dev from a poor country earns more than one in a rich country ? (I don't say they shouldn't, just that it's surprising) - and as I wrote in another comment, I read since the war the average Ukrainian pension is 70$ a month. I would have thought devs salaries would be more in line. 4k a month must be "stratospherically" rich there.
      • V-2 11y ago
        In Poland (where salaries in general are higher than in Ukraine, my guess would be about twice as high) 4 grand for a dev isn't unheard of, but far from typical, especially outside of Warsaw.
      • temo4ka 11y ago
        You are taking the article too seriously. The guy googled a bit, came up with some half-digested ideas and burped them with a clickbait title. Here’s a recent overview of Ukrainian IT market on the largest Ukrainian IT community hub. Look at the last two pictures. http://dou.ua/lenta/columns/jobs-and-trends-2015/ http://dou.ua/lenta/columns/jobs-and-trends-2015/
  • samdb 11y ago
    I can hire good local people an hour outside of London for that price.
  • andrewl-hn 11y ago
    Ukrainian developer here. First of all $4k is not much - less than $20/h The salaries here are very diverse. Outsourcing companies tend to exaggerate skill level of their employees and one could be called a "senior developer" only after 3-4 years of experience. These "seniors" can be paid much lower salaries (say, $1500-2500 monthly) while the company can charge its client $50-100 an hour. That's where their margins are. Your first job might led you about only $500, though, and on the opposite side of the spectrum there are people of exceptional skill that bring home $5000-7000 per month. These sums seems higher than in Europe simply because of different tax structure. If you bring home in, say, Berlin, $3000 after tax, your employer and you still have to spend another 3-4k on pensions, insurance and taxes - about 100% premium vs 5% in Ukraine. Here we don't have any of that. Our pension will be about $200-300 and we don't have a decent quality health care or education for our families provided by the state. Also, mortgage rates here are insane - 20%/y with 25% down payment! So most developers end up saving big parts of their salaries to afford buying property without taking loans. Many developers here would prefer $3000 in Berlin over $5000 in Kiev because of all the value that you get from the state and the economy. *My numbers around taxation may be off to some extend but you get the idea.
    • odonnellryan 11y ago
      > 20%/y is that interest?! One thing that always struck me about some countries that seem to have a really low housing (rent) costs: the home prices seem to be equal that in the US! It doesn't make any sense. I'll see homes for 100K USD, but rent only $200-300/mo? How does that work?
      • charlesdm 11y ago
        That's because the Hryvnia, Ukraine's currency, is a volatile currency which is hardly worth the paper it's printed on. It has declined about 20% YTD against the Euro, and about 45% YTD against the dollar. Inflation is also extremely high.
      • andrewl-hn 11y ago
        Yep, that's interest rate - I checked with several bank sites before posting. This is due to volatile economy (war, corruption, all that) and higher risks for banks. You end up paying several times the price of the property. Like I said, almost everyone I know just puts aside 30-50% of their salary instead and buys at once when they save enough. 50% of 4k - and you effectively have only $2k to spend each month. Doesn't look that rosy compared to France, does it? Rent is cheap - I pay about $500/mo for a 1 bedroom apt in the city center. 10 minutes of walk to the office. The price of that place? - about $200k. That's one of the reasons we don't have a proper rental business: it just doesn't make sense.
  • gizi 11y ago
    That really depends. Productivity differs between programmers with orders of magnitude. Assuming a career of 35 years, this programmer only grosses 1680000$. That is 6 zeroes. So, that would be a level-6 programmer. By programming Google Search, Sergey Brin and Larry Page produced half a trillion in value. That is 11 zeroes, corresponding to level 11. For example, if you can get a level 8 programmer to work at level 6 for you, you are into making truckloads of money. You could easily beef him up to level 7 and still be laughing all the way to the bank. But then again, most employers are not particularly working on level-8 subjects. I suspect that the problem is rather at that level than anywhere else; especially in France. What software worth mentioning have they ever built over there? Of course, they can't pay anybody anything. From what money would they be doing that anyway?
    • mason55 11y ago
      > especially in France. What software worth mentioning have they ever built over there? BusinessObjects, Mandriva, Dailymotion, Archos, Ubisoft is French, so Assassain's Creed, Drive, Far Cry, Tom Clancy series Alcatel and Orange are French telecommunications companies that are pretty famous
      • SolaceQuantum 11y ago
        I thought Ubisoft was from Montreal?
        • kelvin0 11y ago
          UbiSoft == French Company (France) having offices among others situated in Montreal, Québec (Canada).In Montreal mostly French is spoken (English being a close second). The Montreal Studio of Ubi is responsible for the games you mention ...
        • mfoy_ 11y ago
          Ubisoft's largest development studio is in Montreal, Canada... but their headquarters is in Montreuil, France.[1] So it's fair to say Ubisoft's products are French (from France, not the language) products. --- [1] https://en.wikipedia.org/wiki/Ubisoft https://en.wikipedia.org/wiki/Ubisoft
  • methyl 11y ago
    A small disclaimer: I'm talking from remote programmer point of view. I really don't get why the place I'm working from determines how much do I earn. Am I bringing less value working from Malaysia than from London? I think the value you bring in should be the only factor what your salary depends on. Can somebody shed some light on it? I know there are some arguments like costs of living, but why it should be even considered? It's totally up to you where do you live.
    • andreyvit 11y ago
      Easy: in a market economy, your salary depends solely on how much a developer like you can be had for, not on anything else. So if you're a unique, highly sought-after expert, the country doesn't make much of a difference directly, because people like you a generally hard to find. But for a pre-senior level, there's a lot of people available, so the amount the client is willing to pay is determined by how much other people like you (from a place like yours) are willing to work for, which obviously depends on the country. And then there's the selection bias. If the reason you got found is because the client has been looking for developers in your country, chances are that the client is looking to save money and isn't willing to pay much. Those clients who are willing to pay more generally look in different places. And finally, a US-based client working with a US-based contractor is protected by US laws, unlike when working with a contractor from a developing country with a less reliable judicial system.
      • methyl 11y ago
        I agree what you say, but there is also a different case. I heard a lot of stories about companies paying different just basing on where the programmer lives. Eg. if he switches location, he automatically gets less/more money. This is a biggest nonsense for me I want to clarify.
        • gherkin0 11y ago
          If they can get away with it, they'll try, because it's more money in their pocket. They don't care if it's fair or not. Plus, often times the people actually making salary decisions like that are "HR professionals" or something, who have no real understanding of the value of one individual vs. another. They just compute the minimum salary needed to keep the turnover of generic FTEs low in some market.
• JupiterMoon 11y ago
  I'm glad that Ukrainian Java devs are earning $4000 a month. The quicker wages rise in low wage countries the sooner the 'first world' countries will return to overall wage growth.
  • RobertoG 11y ago
    With 1.2 billion people winning less than $1.25 a day, could be a long wait. That without counting automation.
    • odonnellryan 11y ago
      I wouldn't worry too much. Things happen incredibly quickly at scales such as this. How many people had cell phones, much less a smart phone, 10 years ago? How quickly has Amazon grown? Not saying they're in any way correlated, but technology growth and adoption of new stuff is fast. Super fast.
      • RobertoG 11y ago
        I agree, but we were talking about wages, not technology adoption. In fact, they are probably inversely correlated.
    • JupiterMoon 11y ago
      True. But manufacturing is already being onshored back to the US partly as a result of rising wages in China (and largely due to falling energy costs in the US).
      • RobertoG 11y ago
        Manufacturing maybe, but the jobs is not so clear. http://qz.com/330243/dont-kid-yourself-us-manufacturing-is-never-really-coming-back-from-china/ http://qz.com/330243/dont-kid-yourself-us-manufacturing-is-n... http://www.nytimes.com/2013/09/20/business/us-textile-factories-return.html http://www.nytimes.com/2013/09/20/business/us-textile-factor...
  • 11y ago
• osullivj 11y ago
  This is true of outsourcing generally, not just outsourcing to lower cost offshore regions. Back in 2000 I left my secure dev job with a large US bank to join a startup and chase the dotcom boom with a startup. The crash happened, I got laid off, no one was hiring, so I ended up joining a boutique 'consultancy' doing dev for banks. Over the course of the next three years I learnt a brutal lesson in the consultancy development business model. As this post points out, there's a fundamental misalignment of interests. The client wants the project done, and the consultant resources gone. The consulting firm wants maximum headcount on the project for maximum duration, and therefore maximum billing. This misalignment means the consulting firm can't speak the truth to the client. The consulting firm can't speak the truth to their employees either, and will usually give them some flim flam about how consultancy is the best of all possible worlds as it combines the security of permanent employment with the variety of contracting. In fact it combines the worst of both - the insecurity of contracting with the lower pay of permie work. Consultancy firms run on one key benchmark - utilisation level. Most, like ThoughtWorks or IBM Global Services, will aim for 65 to 70%. That means 65-70% of employee hours must be billable to a client. If you drop below that rate you have to fire people. At the 'boutique' consultancy I worked for they ran at 95%. Folk would roll off a client assignment at 5pm on a Friday, and get a phone call firing them at 5.10pm! So far, so simple. As the original post made clear, it's all about margin. And, as the original post also made clear, the result of this business model is one disastrous project after another. So why does it keep happening? The fault there lies on the client side. The clients hiring the outsourcing and consultancy firms are usually large corporates looking to manage costs down. The project sponsors are senior managers with long term careers in these highly political organisations. When their projects fail they can't make a fuss about it as that would draw attention to their own management failures. Instead they have to pretend the project is a qualified success, and jump to another team or silo in the corporate environment so some other sucker is left clearing up the fallout. So the consequences of failure are repeatedly eluded, as Mr Pointy Headed Manager slips off to another team, and the consulting firm moves on to the next billing opportunity. I was a little shocked when all this became apparent to me, back in 2002/3, when I saw a $25,000,000 project get canned by a large US bank without ever getting into production. Now of course I understand that it's just how orgs like EDS and IBM Global Services make their money. And the upside is, as the article points out, that it enables wealth transfer from developed economies in North America and Western Europe, to developing regions like Eastern Europe and India, by means of rising developer salaries. The conclusion I draw is don't ever work for a 'consulting' firm like ThoughtWorks. Be a permie or a contractor...
• ishener 11y ago
  tl;dr: outsourcing doesn't work anymore because the salaries in third world countries are way higher than what it used to be
  • michaelt 11y ago
    I think the real tldr is: Outsourcing companies and their clients have incompatible incentives; because the outsourcing company only keeps getting paid as long as the project isn't finished/delivering value to the client.
    • ocean3 11y ago
      Depends on the payment model. I sometime do freelance work for friend. You would get clients who have a fixed budget but not a fixed scope.
    • TeMPOraL 11y ago
      Yeah. I always found it weird that outsourcing actually is a thing, because misalignment of values is pretty obvious. I will guess that the company doing the outsourcing is usually also burning someone else's money to fund the project.
    • deanCommie 11y ago
      Except that would've been always true. So the "anymore" part is purely clickbait. The truth is Outsourcing never worked. But it was cheap enough that it could have been considered a worthwhile attempt at cutting cost, even if it ended up costing more with re-writes it was justifiable. Now, you can't justify even attempting it given the high risk of failure.
      • spacecowboy_lon 11y ago
        And some UK Banks have had very high profile failures (the RBS fiasco) ie the CEO gets Grilled in parliament.
    • reustle 11y ago
      That's a pretty broad generalization. The maintenance contracts I have in place with my clients incentivizes us to build software that doesn't break and requires minimal maintenance.
• dbg31415 11y ago
  Good article, and most anyone who has used Upwork will relate. It's not just about off-shore devs. Any time you hire someone part-time / short-term and pay them hourly... what's their motivation (keep in mind they were the lowest bidder)? To give you the best quality code, or to extend / prolong their contract? If you want to make sure your priorities and goals are aligned with your developer, make sure they are on-staff and have a percentage of the company. Or better yet, learn to code yourself.
• soroso 11y ago
  This guy has an agenda. He himself has patented some way of distributed remote teams and wants to kill enemy ideas. Look for his weird idea of XDSD.
• Swizec 11y ago
  As someone who spent several years as a solo freelancer/consultant, sometimes offshore, sometimes onshore. The main reason this type of work is drying up, in my experience, is that there is too much free money flowing around. Why deal with a temporary worker when you can afford to hire them full-time and have them sit in your office? Furthermore, full-time engineers add a lot more to your valuation than freelancers and consultants do. A client once told me that adding a consultant to their "full-time" force increases the company's valuation by $100,000, but a proper full-time engineer adds $1,000,000 to the valuation. I'm not sure why, but if I had to guess I'd say it's a combination of a company showing clear signs of growth (more employees == growth), and the lower churn because of 4 year vesting plans.
  • j42 11y ago
    It's because there's at least one person on-board the company who understands the technical underpinnings, and has incentives that (usually) align with shareholders -- versus consultants whose bottom-line is never entirely dependent on the success of your company.
  • gizi 11y ago
    > Why deal with a temporary worker when you can afford to hire them full-time and have them sit in your office? Because after paying his taxes and his cost of living, this full-time person makes way less than the guy doing the same job from the Ukraine. Therefore, everybody with just even half a brain will do the math and will not be available for sitting in his office. They'll put up their own office on some sunny beach in Guatemala and log in from there. Don't tell me it is not true, because that is what I have been doing for the last 10 years.
    • Swizec 11y ago
      Oh I know it's true. I did it for years. But then I hit a glass ceiling when I wanted to charge SF rates, but do the independent thing. Nobody wanted to pay for that. So now I'm sitting in a SF company, charging SF rates, and building my positive signals so that I can eventually go back to the independent thing and keep charging SF rates. I'm only 28, plenty of time :)
• Priyadarshan_D 11y ago
  Problem is not with outsourcing. Any product will fail if development not monitored properly whether its developed inhouse or outsourced Take example of Outsourcing Success stories http://www.entrepreneur.com/article/247462 http://www.entrepreneur.com/article/247462 · Slack: Now valued at nearly $3 billion, this company used outsourcing to develop its solution in its earliest days. · Fab: This large startup partnered with developers in India to maximize funding while scaling up when their business showed signs of growth. · Skype: They used a team of developers in Estonia to help them build out their business. · Klout: To get its technology in the right place before launch, Klout relied on many outsourced developers A lot of start-ups coming up with good ideas and quality products doing good in so called developing countries Calculate Software revenue generated in developing countries, You have only showing negative side why you dont you write article about outsourcing guidelines? what should they do use “Made in own country” Product strategy?
  • eloy 11y ago
    > Skype: They used a team of developers in Estonia to help them build out their business. I don't know if you can call this outsourcing. They were a few guys who worked together, there wasn't really a difference in power between them.
  • morgante 11y ago
    That list is bogus. I know for a fact that GitHub, Slack, Basecamp etc. are overwhelmingly developed by in-house developers. Skype was developed in Estonia but the company was Estonian. That's not outsourcing. Fab is hardly a success story.
• EGreg 11y ago
  I have hired Russian speaking devs (not firms) hourly and, after the initial hiring filter, about 60% were very productive and didnt want to bill for months for nothing. I worked with them personally, though.
  • larrik 11y ago
    That's off-shoring, not out-sourcing.
• anovikov 11y ago
  I will add one more reason: with appearance of online outsourcing platforms, best developers flocked there as individuals (and that is the only way to really reliably make $4000 as a developer in Ukraine as far as i know). They don't have middlemen, which normally only get in the way by obscuring the communication, and easily beat any outsourcing shops (which don't do much valuable management anyway, just lease out workers). Because individual freelancers and offshore outsourcing companies' employees are doing the same work, only people who left with the agencies are those who are inept and know it - otherwise they'd go to Upwork themselves and get an instant 3x raise. So don't expect an agency to have good people...
  • stevoski 11y ago
    A Ukrainian developer told me that working for a large outsourcing shop looked better in the eyes of her friends and family than being a freelancer. She said being a freelancer, was, in her opinion, seen as a sign you couldn't get work with a big consulting firm. She had just become a freelancer, despite her perceived drop in status.
    • anovikov 11y ago
      It may be because she is a novice developer and not immersed much into the IT world, and not highly qualified yet. With the non-IT people 'freelancer' might look like a nice word for 'unemployed'. Much higher status of an experienced freelancer is undeniable (a $4000 freelancer is solid upper class - able to afford multiple full time home staff - in most of Ukraine)
    • spdionis 11y ago
      Being from Moldova, and working on Upwork, I understand what he means... There is a bit of distaste for freelancers because there are a lot of very cheap freelancers working on the local market (because they would not be able to find a good project on upwork) with very low quality of work. All questions go away though when you tell your family how much more money you make. EDIT: As per sibling comment, there are two types of freelancers: very high qualified or very low qualified. The general public usually hears more about the low qualified ones though.
• ohthehugemanate 11y ago
  The argument doesn't make sense. He brings up a lot of the challenges of outsourcing, and makes offhand remarks about good ways to address them. But if his argument were true, no contractor would "work". The entire contracting industry fits into his description of "outsourcers". Lots of contractors work effectively for their clients. As a person in ANY business, if you believe that your only incentives are to get your clients to pay more, more often, then you will fail. Fucking your customers will wreck your business in any market. The customer has to feel like they got some value out of the deal. The real incentive for a contractor is to provide the best (perceived) quality of product, for the highest competitive price possible. Even the bottom-price bargain barrel shops know this. They're just bad at it.
  • achow 11y ago
    I think the author has a point, as software development is lot different than most other contracting gigs. In most successful contracting jobs one would have a very clearly defined scope (processes and materials to be used, what is a clear outcome, etc.). Software development has lot of ambiguity - processes to be followed, materials (technology stacks) to be used, what is a clear outcome (nobody knows unless it is validated in the field - apart from internal testing scenarios).
    • raverbashing 11y ago
      Exactly Most of the time, the people going for upwork have no idea of what they want, they just want 'an iPhone app'
      • spdionis 11y ago
        But don't forget that there are also good clients. Honestly it's not that hard to tell this kind of clients from the good kind.
    • Kurtz79 11y ago
      It is in the interest of the customer to define and specify what it wants as much as possible. In more formal environments it is normal to have a requirements specification as a point of entry for developing the SW, and the first output by the contractor should be not code, but technical documents describing how this requirements are going to be met, how they are going to be tested, the technology used... Of course this is a process that require additional effort and time, not only on part of the contractors but from the customer as well (in terms of requirement definition and review). What I'm saying is that there are well known processes and methodologies to deliver SW products, and it's up to the customer to define what it wants, and to what detail, and up to the contractor making sure that he has a clear idea of what he is going to get.
• anovikov 11y ago
  But i agree with just one thing: don't outsource management. If you hire some developers from an outsourcing shop in outstaffing mode, or just hire them individually on Upwork, that's fine. But don't let the agency do the management. If you can't do the management yourself you can't succeed.
• mercury_craze 11y ago
  Ugh, not this guy again.
• GregQuinn 11y ago
  Although his comments are accurate there's nothing terrible profound about them. For quite a while everybody has realized that out sourcing was never anything more than labour cost arbitrage, dressed up with fairly empty "sales" rhetoric. However he misses a more fundamental way in which clients and outsourcers interest are misaligned. Because outsourcers are essentially selling bodies they have no incentive to become more efficient through labour cost reduction. I suspect this failure is the real reason for the current "in sourcing" vogue. As software development and delivery becomes increasingly automated the labour cost component will drop, along with the pressure to outsource. The outsourcers business model is fundamentally broken and it's only a matter of time before this shows up in the bottom line.
  • polskibus 11y ago
    Outsourcing doesn't have to be based on pure time&material model. Software houses have huge incentives to become more efficient - using scale to their advantage, becoming experts in technology, etc. - all that to compete with other software houses.
    • GregQuinn 11y ago
      I've dealt with many outsourcers (TCS, Infosys, Accenture, IBM etc.) and WITHOUT EXCEPTION their business model is time and materials.
      • chkuendig 11y ago
        I know from first-hand experience that this isn't the case. Obviously T&M is the preferred contract structure for the service provider, but many projects get done on different metrics (fix-price, result-based, T&M with upper/lower bound etc.). It's quite a competitive industry, so a big client can negotiate for a different contract structure if the project allows it (obv. not for bodylease stuff). Also, your assumption about labour-cost arbitrage isn't completely true. Many external consultants (incl. developers) make better salaries than internal staff.
  • quonn 11y ago
• pjc50 11y ago
  For a top-level view of the question, it's well worth reading Coase's "Theory of the Firm": https://en.wikipedia.org/wiki/Theory_of_the_firm https://en.wikipedia.org/wiki/Theory_of_the_firm It addresses the question of why companies exist, rather than adhoc gatherings of independent economic actors held together by contractual relationships. Coase suggests that this is due to "transaction costs" involved in negotiating everything into a written contract structure upfront rather than adhoc managerial coordination as needed. https://en.wikipedia.org/wiki/Behavioral_theory_of_the_firm https://en.wikipedia.org/wiki/Behavioral_theory_of_the_firm is also well worth reading.
  • crdoconnor 11y ago
    Debunking the theory of the firm: http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf
    • pjc50 11y ago
      Wrong link? Doesn't mention Coase anywhere and is talking about price curves?
• jcbrand 11y ago
  From TFA: > OK, what's the solution, then? Just pay more? I don't think that's going to solve the problem; I'll just burn more money. Sounds like the author hasn't actually tried to solicit a company with higher rates and therefore assumes way too much here. I think a lot of devs/shops who are more expensive are so because they're demonstrably better. According to free-market logic, they can charge more because the market is willing to pay them more. Why would the market be willing to pay them more? Because their services are worth paying more for, due to them being better.
  • forgetsusername 11y ago
    >Why would the market be willing to pay them more? Because their services are worth paying more for, due to them being better. That's a stretch. It might be be the reason they're more expensive, but it might not be. Maybe they choose to work in San Francisco, rather than Idaho, so their overhead is higher. If price were the only signal of quality, then the low-quality workers would take advantage of the signal and charge the same. This isn't hard to see in reality: can you name any industry or product where higher price assures better quality?
    • jcbrand 11y ago
      It's not a stretch. A more expensive laptop is generally better than a cheaper one. A good engineer is generally more expensive than a cheaper one. A good doctor... a good lawyer... etc. > can you name any industry or product where higher price assures better quality? Life doesn't give you any assurances. I'm talking about free-market logic and its application in general. Generally speaking, you get what you pay for. If the dev in San Francisco is not good enough that the market is willing to bear his rate, then he won't have enough work to make ends meet and will move back to Idaho.
      • mcv 11y ago
        You have to be willing to pay more for quality, but simply paying more won't magically increase the quality. The only solution is to learn enough about that you can distinguish good from mediocre. If you just go looking for someone who costs as much as a good dev, you end up running into the arms of con men.
• mattlutze 11y ago
  I'm curious, what protects a customer from the author's personal outsourcing company against the author's criticisms of outsourcing? Their company home page talks about constant value and quality approval / adherence, but it sounds like the same sort of marketing schtick that ever outsourcing company promises.
• szastupov 11y ago
  tl;dr: a middleman bitching about cheap labor from the third world not being cheap anymore.
• a_lifters_life 11y ago
  So, really this just comes back to that Benjamin. It can be summarized in one sentence - the lucrative nature of doing outsourcing before is no longer true today.
• MIKarlsen 11y ago
  A supplementary article from WSJ "Why Companies have Stopped Outsourcing IT": http://blogs.wsj.com/experts/2015/10/14/why-companies-have-stopped-outsourcing-it/ http://blogs.wsj.com/experts/2015/10/14/why-companies-have-s...
• datashovel 11y ago
  I think one of the biggest problems with outsourcing comes from 2 groups of people. Generally these are the most vocal proponents at first, only to become some of the most vocal opponents later. The way I would classify them, generally speaking, are: (a) business people looking to keep costs down but don't know the first thing about running a technology project, (b) those who think "outsourcing" means "I tell you the idea, and you do all the work". Technology projects (especially custom ones) are hard, and they require a lot of due diligence and hard work from all parties involved. I would never recommend a non-technical person / company to try outsourcing. It's a recipe for disaster. That is unless you fully trust the person / group of people who you're putting in charge of the project. EDIT: Thought I'd add a clarification here. Never recommend outsourcing of CUSTOM projects that is. Cookie cutter solutions it's obviously a different story... And I guess another edit would be to differentiate "scale" of a project. Large scale projects which will be "centerpieces" to a company, are the kinds of projects that I read about being outsourced which alot of times seem to turn bad.
  • odonnellryan 11y ago
    > "outsourcing" means "I tell you the idea, and you do all the work". It is okay for anyone to think this, but in any project it is not okay for the workers to leave it uncorrected. I do contract software projects in the US (near NYC). I get this on every project. A loose scope and a general idea, and then the go-ahead. It is my responsibility to refine the scope. Sometimes that takes an email, sometimes a longer discussion, and sometimes it takes a small prototype for the client to play with to find out if it is right for them. It would be incredibly dishonest to just make a project based on what I saw from the beginning. It'd be dishonest of anyone in any industry. "This is what you asked for!!!" does not cut it.
    • datashovel 11y ago
      I think I agree to a point. What I discuss ahead of time with potential clients is the fact that in order for the project to be successful they need to be engaged and willing to work with me toward what eventually will be the end product. I've never received what I would consider a "sufficient spec" ahead of time, but I'm always (as long as the client is engaged with me and with the project) able to do the extra legwork to come to a concrete understanding of what we're trying to accomplish. I have, early in my consulting career, worked with companies where there was literally no feedback, insufficient specifications, and we had no access to the people who would eventually be using the software. It was at this time, early in my consulting career, when I decided this was a critical intangible I must have in a potential client before I start negotiating an actual contract.
• Danilka 11y ago
  I have launched at least 10 products with remote developers and I can assure you that it works perfectly fine. The key here is to find a good local manager that is from a country that you try to hire developers from. Disclosure: I am one.
  • ovi256 11y ago
    I agree with Danilka. I provide the same service to French clients. I live in Paris, and I work very closely with client project management teams, in the same offices. This eliminates 99% of communication problems. Email's in the profile.
• eddd 11y ago
  Well, you should not outsource project - you should outsource people. Have a mix of inhouse developers who will cooperate with contractors. Force them to attend scrums, make them a remote part of the team. The difference is - you can use them for a period of time when you need them and then release the resources when they are no longer needed (fire them).
• mooreds 11y ago
  I had success with one outsourcing project where we had a dedicated project manager and a prototype. We asked the outsourcer to make an exact copy of the prototype for a different platform and had success. I think if you are a good outsourcing shop, you want money to pay salaries, but you also want referrals and repeat business. So you want to do a good enough job. It's the same with every company struggling to meet payroll, except a little more distant. But with globally accessible reviews, the world is a smaller place nowadays.
  • yannis 11y ago
    This is a very good application, as many times just writing a spec is not adequate to describe a project and I am sure you did some iterations to arrive with a prototype. I am currently outsourcing something similar with similar results. Thanks for sharing.
• LoSboccacc 11y ago
  wait did it work at some point? I joined late but by 2003 joking about how low quality outsourced stuff turned out to be was already old.
• PythonicAlpha 11y ago
  Ironically, he is bashing about outsourcing, but he himself is doing just the same. Of course, he does it the clever way (I read the description at teamed.io, how he makes software-development cheaper by paying "more"): By breaking down the tasks into 30 minutes microtasks, he will only buy the "fat" from the programmers cow. The muscles, filaments and veins, he does not buy. Of course, you can buy only the raw implementation part (at best, only the typing) of a software -- but somebody will have to do the reading of the specs, to do some guesswork ... and so on. By buying micro-tasks, this company does use the fact, that many people will only count the "real" net programming time but not the time in-between those micro-tasks -- reading the specs, preparing the next job, doing the thinking, maybe communicating, waiting for the next assignment ... And the final clever way is: The time estimations come from the company and that is the base for the payment. When a contractor took over a job for 30 minutes and worked on it for 59 minutes (without all the reading and other stuff as said before) ... will he go and reject the money because he nearly worked 100% more on it than expected? Will he really tell the company, that he is not that big talent, he was hired for in the first place?
• lectrick 11y ago
  "Communication"
  • lectrick 11y ago
    I actually read the article this time and wish I could delete this comment. It's a good article and it's not a communication problem.
• devit 11y ago
  Isn't this solved by paying a fixed amount, and only paying if the project works and is well done? Then the outsourcing shop no longer has the incentive to drag things out so you keep paying. Of course, it may be necessary to pay a large premium to get such terms since the developers take all the risk.
  • demian 11y ago
    Isn't this solved by paying a fixed amount, and only paying if the project works and is well done? The problem with that approach is metrics. How can to specify that the softwere "works"? How can you measure if it's "well done"? I worked on a project using that approach and most of the time was spent being basically lawyers with specs instead of contracts. Horrible experience.
• cfontes 11y ago
  I've been part of a project that by the time was called "The most expensive IT project on the planet" and it was planned, run, build and supported by outsourced resources. I can't stress this enough, this is a mistake, having your management/architecture teams from outsourced companies is just stupid. Nobody is responsible for anything they have no risk at all, it's the best job on earth. You see those guys come, change everything to their management/architecture style, manage it like they own the company making reckless decisions and before the boat hits the rock they jump ship preferably to join the competitor in a similar project (because they copy each other), because now they have experience and know-how... This cycle is still going on and I know people making a living from this, some are completely clueless but can successfully switch jobs because "They were part of XXXX team in YYYY company" that nobody knows was a complete failure yet. They still have not finished it ( 2 years after ) all personal from the initial setup are gone, all fault of course is on them now, so new guys can continue to make reckless calls that will probably cost billions of dollars and they will receive nothing in the end. This is a terrible waste of resources and it's the Cancer to business nowadays.
  • toptalentscout 11y ago
    The problem is, internal people often are afraid to take risks to implement something brand new because they know they will be going through performance reviews. When the internal staff is empowered by management then it can be done but managers are often not inclined to trust their people enough to empower them at the required level to take on high risk projects. There's also a liability aspect in publicly traded companies. It's easier to lay blame on the outsourcing company when the project fails and conversely take the credit when it succeeds. Either way, the outsourcing company wins because they get the latitude to design and program their way and get paid as well as experience. For public companies, outsourcing is a win/win and the cycle continues.
    • cfontes 11y ago
      You payed a billion dollars for a solution and instead of a product that can be used you get to throw the blame of the failure in someone else? I can see your point regarding internal people making hard decisions, but this is simply a "hide my ass" win/win. If your managers/team can't manage your innovation projects you should get someone that can, otherwise the market will eat you after a couple of those "wins", in the long term you are losing.
• cubancigar11 11y ago
  It is important to remember that when you outsource something to a cheap labor, the keyword is 'labor' and not 'cheap'. Developers in SV don't understand this, probably because they aren't directly doing the cost calculations. And here is the problem - articles like his one, saying how outsourcing doesn't work, are actually why outsourcing doesn't work. For example, consider someone who reads one article daily which says outsourcing doesn't work or that the resources are not very good. In last 10 years I have yet to meet a single client that gave the kind of independence you get as a developer in US. Yet every time all I read in a client's bad experience is that he/she had given too much independence. I am in Bangalore and I work for a British Client. I WILL take the name, it is 3ds (French one). And here the only thing that matters is that client remains happy. Here is what happens here in Bangalore: 1. Client doesn't give any work which requires cognitive skills, since he is sure the return will be bad and he doesn't have time to take chances. 2. This in turn discourages good developers and forces them to: a) Suck it up, forget about any career achievements and keep doing the maintenance job as mortgage payments are a bigger threat. Slowly the quality of output decreases. b) Switch clients/jobs, which means sudden requirement of a resource and investing even more time in training him/her. 3. A lot of companies hear only bad stories about China stealing tech and making knock-offs, never mind that most of these knock-offs don't have any effect outside China and China is a closed market in the first place, that they have trouble handing over critical software/hardware for development. Half of my friends I know work via VPN even in office. In my office it is not possible to work on a laptop. I need to come to office and then work remotely. This is shit. Even with internet speeds in India being faster and cheaper than UK/US, when 2k people suddenly connect to VPN from a single point cursor stops responding immediately. This means slower work. 4. All meeting times are decided by client according to his/her convenience. Almost all of clients from UK that I have worked so far had literally 0 idea what its like to attend a scrum after lunch. Too early to start asking questions, too late to completely absorb the answers. US is even worse - most American clients set up a meeting at around 10:00pm (9:30am PST). Then they complain that people from India don't talk a lot. 5. Worst is pacifying a client's ego. It is not possible to tell him that he has done something wrong. It is not possible to squarely go over his authority and fix it. So Indian managers let the failures lurk for longer than necessary, and at the last moment find some scapegoat and hope the client doesn't fire him. Mediocre developers are who make it big at the end. They stick around until H1B and then earn hefty amounts abroad.
• Mimick 11y ago
  Guy from 3rd world country here. There's a huge number of outsourcing companies on my country, but the ones that are able to attract more clients are the ones who don't care for their products, since their business model is like that. Normally those ones focus on showing you their teams not their works.
• larrik 11y ago
  As a consultant who has in the past worked with outsourcing companies, the mantra I've used to explain "why it doesn't work" is far simpler: Cheap labor =/= Cheap Projects.
  • whatever_dude 11y ago
    "You get what you pay for" is what I've used. There's a number of ways it happens, and reasons that are, in general, hard to explain. Some people might try, as this article does, and rationalize based on whatever their experience is. Some of it I agree, some of it I disagree... it doesn't matter much. But in my experience, 100% of the time, it always comes down to this adage: you get what you pay for.
• razzaj 11y ago
  It is irrational to expect outstanding performance from an entity that does not have significant skin in your business. That's the rationale behind startups giving up shares to early employees. For contractors: more time= more profit. For Employees: better performance = more profit.
• imaginenore 11y ago
  He is comparing the best developers in Ukraine at $4000/month with $40/hr in the US, which is what juniors make. Even with that weird comparison the margin is pretty healthy.
• mk3 11y ago
  The author should change the title of article... I can not rip off Ukrainian devs anymore :-). As the main argument I saw in the article is: you can not get these profit margins anymore.
• vlokshin 11y ago
  The price differences over time aren't what's made outsourcing fail over time. And it's not outsourcing... It IS the misalignment of goals. Clients fail when... They feel like they're paying someone to do something, so they become their agent. That agent is now assumed to do the most amazing job possible with unclear specs. -- Root: bad specs, bad product management. Providers fail when... They take on work that's unclear, or understandings may not be totally aligned. Good providers aren't just inflating hours -- they're hitting on their understanding of deliverables. If that understanding is misaligned, success is impossible. -- Root: bad specs, bad product management. Bad specs, bad PM don't cover everything (you could have bad ideas, bad design, bad devs, bad architecture, bad QA, bad adoption/inner-circle feedback processing), but it's the most common root.
• bluegrape 11y ago
  I think that the cheapness argument holds more water than is let on here. People who engage with overseas developers because they're looking for the cheapest labor possible are also going to be getting the bottom of the barrel in that country. It's not just that, say, Ukraine's standard and cost of living went up. It's also that, over time, there's value discovery regarding who are the good and bad developers.
• ylg 11y ago
  TLDR; the author thinks outsourcing that attempts to increase ROI by leveraging international income disparities to minimize labor costs doesn't work because providers of such work want to earn as much as money as possible for their own businesses. My thought/question for the author would be: how then can companies that work together do so without operating as charities, or are all businesses in relationships deluding themselves? Should everything be brought in-house, for example, house building? Is there a line, or a particular type of outsourcing that works or that doesn't? (Executive management, sewing employees' clothing, trimming their neckbeards?)
  • karmajunkie 11y ago
    I think it's fairer to say the author thinks outsourcing fails because interests are not aligned. The client benefits from a successful, well-designed and efficient code base. The outsourcing company benefits from billing more time to clients that pay a lot on time. I don't think this is an overseas thing. This is an in-house vs hired gun question.
    • ylg 11y ago
      For the "Anymore" part of the authors title to be logical, the points in his article about decreases in income disparity over time must be considered an integral part of his argument, i.e., before the disparities were reduced, outsourcing (according to him) worked. Regardless, the question about how other businesses can be successful in their relationships if his argument were to hold water still stands—every business relationship involves imperfectly aligned interests. By the way, a client benefits from positive return on investment. A client who loses money and receives a well-designed and efficient code base does not, i.e., the codebase is merely one component with variable traits that must be adjusted properly for each scenario.
• blazespin 11y ago
  Outsourcing works great for prototyping and unit testing. You can also use it for mentoring quite nicely if you get the right folks. I've done all of these successfully. I've also had good luck with website design, where you already have the UX clearly mapped out and now you just need someone to fiddle with the css Ie, it doesn't work anymore .. except when it does.
• brightball 11y ago
  This is also the case with US based contract development shops. It's easy to "run your own contract business" when it's just you doing the work and you can decide to pay yourself whenever the client can get you the money. The second you have a single "employee" your sole focus shifts to making payroll on time every month. Completely changes the formula.
• eitally 11y ago
  I would argue that software outsourcing works as well as it needs to. I used to be vehemently opposed to it, for all the normal reasons, but for the people (especially the CIOs) who pursue it, they get exactly what they deserve and I think a lot of them are perfectly ok with that. My experience [reporting to a semi-sociopathic CIO] has taught me that it's a lot easier to be flexible with contract labor (by using OpEx and other methods of shifting funds to increase/reduce monies for the work), and sometimes they care more about that than accurate delivery dates or supportable deliverables of high quality that do what they're supposed to.
  • s73v3r 11y ago
    "but for the people (especially the CIOs) who pursue it, they get exactly what they deserve" Do they? Or do they still get the bonus for cutting costs, despite not actually doing so?
• vermooten 11y ago
  +1 we experienced exactly this failure built into the model never again jeeez
• timtas 11y ago
  The author is on the right track, but he fails to form a serviceable thesis. You should never exchange cash for services if you follow his thesis strictly. My ten year relationship with my own awesome dentist falsifies this thesis. To find a better thesis, we might ask, what's the difference between my dentist and WeCodeLikeNoOneElse, Inc? I think the main difference is reputation, the role it plays the given marketplace. I'm not sure why, but the market for offshore development has never counted on reputation. I can't name a single firm. I can't even remember the name of the firm I recently interacted with as a contractor coming in to to clean up their mess. If I were to suss out any one of the unsolicited Linked In offers for cheap development I get each week, where would I even start? My dentist has built up a loyal clientele by word of mouth in the community over a lifetime. The community is small enough that a shady dentist would be run out town in no time. Conversely, I do know the names of some local dev shops, and I know their reputations. The ones with good reputations do not treat their clients purely as cash cows. Although they face the same, or worse pressures on utilization, they do quality work, at a premium. They have built brands and will grow or sink mostly on reputation. They still constantly face incentives to pump out shit, but there's a counter balance that's missing in the offshore outsourcing market.
  • PaulHoule 11y ago
    I think it depends who you work with. There are "boutique" outsourcing places, some in countries you would not expect, who do specialized sorts of work with the best quality at low rates. A lot of people I know the Los Angeles area run startups with outsourced development shops in India that have excellent, excellent teams. Personally, though, I don't like working for somebody else's consulting shop because of the agency problems mentioned. For instance you get a call from a customer who wants to know why his project is not moving forward, well the real answer is "My boss told me to work on somebody else's project because it is more important to the company." If you say that you will have an unhappy customer and some kind of "correction" from your boss, but if you refuse to give a true answer for the schedule slip, the customer will wonder if you are brain dead or all getting stoned at work or about to go out of business or... Software development "inside" a company has its own problems too that show up in various forms. A "non-technical founder" can often spend $25-50k or so to outside developers to make an e-commerce system that is a "minimal viable product" and then you are in a good place to market it, show to investors, bring in more people, etc. Sometimes it works but sometimes it does not, you might pay the money and get nothing or get a product which is minimal but not viable.
• jff 11y ago
  "Why doesn't traditional outsourcing work? Well, because I came up with a competitor for it!": > Present us with your requirements, be it a web system, mobile app, or Big Data who-knows-what. We will give you our best team of freelancers, all working remotely, and we will orchestrate their work, keeping you an active participant in the project.
  • SCdF 11y ago
    Yeah, his message is confusing. It sounds like what he wants to say is "don't outsource to indian development shops, outsource to us instead" What his company does is outsourcing. He works / runs and outsourcing shop. He might be good at it (or not), but that doesn't change what he is. It's like saying "don't eat hamburgers they're gross, instead enjoy our patented meat-between-two-buns product!"
    • JoeAltmaier 11y ago
      Semantic quibbling. He's saying, don't go the usual route to a foreign nation/language/currency/export/timezone cluster. Instead hire a local agency that will work with you closely. Its a legitimate issue. My own contracting company calls is 'Domestic Outsourcing' because the word outsourcing comes with so much baggage. Oh, and we do the work ourselves. No six-pack of random developers hacking away.
• makecheck 11y ago
  I would say it never really has worked; there is no "anymore". One problem in outsourcing is the thinking that programmers are somehow easily replaced; the "just find 'a' developer" idea, with little to no thought put into whether it may matter if the chosen team has any idea what they're doing. Two anecdotes. Years ago I was given such a team, to maintain a system primarily written in two different languages; the manager in charge gave me two guys from the other side of the world who were to be "taking over" the project despite not knowing how to program in either language, and there was no arguing this point. On another project, a resource from far away was graciously donated to me to help with a C++ project; I later realized he had chosen to recreate several container classes in C++ as if he'd never heard of the STL. Another problem is the fundamental misunderstanding of culture. Managers in the U.S. seem surprised when they encounter wildly different behaviors overseas (gee, it's almost as if they had hired someone from a completely different part of the world!). For instance, I have encountered remote groups that are astoundingly good at self-preservation, who will basically change their minds and do whatever they want at the last minute to prop up their team at the expense of your project. Individuals, too, may have side projects that they care about much more than anything you have asked them to do.
  • JoeAltmaier 11y ago
    Agreed. 20 years, and I've never seen a return on an outsourced project. The overseas company whittles the specs down so far, your own guys could do it in a weekend. The cost of managing is larger than the value received: barriers include language, timezone, network access, culture, currency, import/export rules. The culture one is huge. Many cultures, a worker won't contradict a boss for any reason. So you're trying to get an expert opinion out of them about how to proceed, they're just saying "Uh huh, yes boss".
    • cubancigar11 11y ago
      Funny. In my experience telling something as it is is a very easy way to piss of the client, who in general have huge ego that they are from a superior culture.
• narrator 11y ago
  The problem with outsourcing is that anyone good who can do basic marketing of themselves on odesk, or wherever, will quickly get very busy and raise their rates to market level.
• d4nt 11y ago
  I run a software outsourcing company and I recognise many of the issues raised. I did spot a few problems with the article though. Firstly, you should never outsource in order to save money. The author kind of assumes that is why you're outsourcing. That doesn't work. The main reason to outsource should be to buy in expertise. Many companies do not really know how to document software requirements, or what a non-functional requirement is, or how to design user interfaces, or what makes good UX, or what a good test plan looks like, or how to run user acceptance testing. Some companies don't even realise that those things are important. They just think that if they just hire a few Ukrainian Java Devs, they will get good software out the other end. Some dev shops don't even realise that those things are important either. They just act as a middle man. Connecting you to the Ukrainian Java Devs. Even if the customer does understand what's involved in running a software project successfully, sometimes it just has no desire to employ developers. Maybe they are not the kind of company that can attract and retain good technical talent, maybe they just prefer to stick to what they do best. Either way, using a dev shop offers an attractive alternative to contractors because the team doesn't disappear the moment you stop using them. The team sticks around and retains a certain amount of knowledge ready for next time you need some changes.
  • lotyrin 11y ago
    What's the best way, as a developer who realizes these things are important, to end up on a team that also does? I've tried working at agencies who were middle men as you described and faced economic problem of the OP article -- if the client couldn't provide real specs and communicate effectively, who cares -- we just have to bill and make payroll. I've tried working inside organizations to build things, but they're in a sadder economic situation generally -- they get forced to have built a team because outsourcing failed due to working with agencies like the above, but they aren't a software company and don't have the budget or skills required to build and manage a complete software team.
    • d4nt 11y ago
      I sympathise. I think the best way is to ask lots of questions in your interview. Developers are in demand, so asking some probing questions about the process is not going to hurt your chances at all. If anything it'll improve your standing. Ask about the development process, what documentation gets produced, and what tools they use. Then listen carefully to the answer. Ignore the buzz words, and focus on actual tangible artifacts. Saying "we're agile" or drawing a flow chart on the white board doesn't mean anything. Can they show you the scope of the current sprint? A Kanban board? A burndown chart? Some wireframe drawings? If they can't show you anything tangible, that's a warning sign.
• gadders 11y ago
  He seems to be talking about the low-end of outsourcing, though. I've worked at large enterprises that have outsourced to your Tatas, Wipros etc and although you do get some issues, on the whole it mostly works. Obviously, I wouldn't outsource the system that is my main revenue earner, but getting someone in India/Poland/Wherever to fix bugs in your room booking or hr system makes sense.
  • brazzledazzle 11y ago
    I've had the opposite experience. TCS and Wipro are better than nothing but there's either a talent/skill issue or they just don't care (misalignment of incentives). Even "on-shore" resources that sit in your office range from bad to mediocre on the skill level or if they know their stuff they aren't invested. It could be that the companies I've worked for weren't willing to put out the bucks to get premium developers from these companies though, I can't say I was involved in negotiating. And that's just developers. Outsourcing operations to these companies is incredibly bad. They don't care about anything but their SLA's and will do anything besides actually solving a problem to meet them.
• tmbsundar 11y ago
  I've witnessed two occasions in succession where "outsourcing" failed right in India where an Indian start up "outsourced" to a firm just in the next street. The usual suspects listed in the article like "Cultural mismatch", "Lack of face to face communication", etc., were not the factors in this case. Lack of clear requirements specifications, payments agreed to on-paper milestones vs. payments against actual working code, insistence / payment of advance money to the tune of 50% even before any actual deliverables (Some firms don;t even start work with that. Their logic is that - start ups go bust more than they succeed and they do not want to wait till you succeed to get their money.), lack of technology awareness from the founders (founders were non-technical in the web domain), etc., The factor of cost arbitrage did not play any role here. These were the learning points: - They should have picked up a good firm based on known references rather than go with the cheap one based on a google search. - Tie payments to working deliverables rather than abstract things like design sign off etc., - Track, monitor regularly - Be aware of the technology you are outsourcing. If you are an enterprise IT consultant and you are going to outsource the web work. Be sure to read up on Php or whatever technology they use and ask/think through relevant questions/ improvements Edit: Modified the list into bullet points.
• chris_wot 11y ago
  Isn't it possible that if you do staged deliverable and fixed payments that this will mitigate the risk? If you are able to specify the deliverables needed in enough detail, then you can make payment contingent of milestones. That way the outsourcing company gets a steady stream of guaranteed income, but it's continent in them completing the work. It also allows you to cross check the work frequently. This, of course, means that you have specified what you need clearly and in sufficient detail that you can actually go this. That means though that you need a very technical lead who has the ability to do project management. I can't see how else it could work!
• esaym 11y ago
  I really hate outsourcing of any kind. I am a person that likes software development and I hate seeing it treated as something you want to spend as little money as possible for. One of my last companies that I worked for got bought out. We only had around 8 software devs and the parent company had a 300 man team in India! Needless to say, any new problem that popped up had a strong push from the new management to send it off to the offshore team. And there was also a dumbing down of our solution stack since all the offshore team knew was Windows, Java, and Oracle (none of which we used). After two years, I left and so did half the team.
  • mdip 11y ago
    I used to feel the same way, but I've come around a little bit over the years. I've worked on projects where a portion of the work was augmented by an offshore participant. It works when the specifications can be produced easily and written without onerous oversight. It also helps when it's work nobody on the team wants to do. Your sentiments about it are important, though, which plays into that last sentence. When a dev team is presented with "we're offshoring this and you're going to help" they tend to have a bad attitude about it and subtly (possibly unconsciously) work against the project's success. When used properly, the team enjoys the lighter workload and doesn't have to work on "non-sexy" things. In our case, we had a very complex, old protocol that we needed a C# library written for. No commercial implementation was suitable, and it wouldn't have been technically difficult to write, but it would have taken a long time to do, so we pointed the small offshore team at an RFC and our expected interface and wrote the rest against that interface. A few weeks before the first prototype, we wired it up with their code. It worked brilliantly and I don't think anyone on the dev team even talked to one of the offshore developers. It's important to mention that in this case, the offshore team cost about 1/3 as much as it would have cost to bring someone on to do this work (deadlines couldn't be extended) and there wasn't any more work that we could have put that person on afterward, so it would have been a short-term hire. There are parts of many software projects that fit here -- it falls apart when companies think all of software development fits. There's a difference between tightening 900 screws to the right torque with a precise manual vs. designing and building the entire car.
• mdip 11y ago
  I'm not sure software outsourcing ever worked (but after reading the article, I'm fairly sure that title was picked for aesthetics rather than serving as a thesis statement). I had this discussion with a friend who was charged with controlling costs as the new head of IT for a company he'd worked for since graduating. He had no prior experience in IT and was discussing his plans to "fire IT and offshore" in 2002. The issue of "motivation" between an internal and external team was touched upon but it was the biggest factor in the failure that wasn't already obvious[1]. He points out a good customer for [the outsourcing company] is a paying customer. Not a customer with a successful project. That's a little more cynical than I'd be, but the point of competing priorities is important. Prior to offshoring, the internal staff's motivation was to create software for internal staff that made the business more successful. Their bonuses were paid when the company beat their profit targets, but that wasn't the entire motivation. They were a sciences company and much of the IT staff came from the company -- they were folks who were augmenting their work with code, often writing something so useful that the rest of the team used it and their job became maintaining/extending that software. They knew what to write because they either had previously done the work or were still somehow involved as a user of that software. The IT guys and the main staff were all science geeks and friends with one another so "Jan knows what Bill is expecting to do with this and he won't like it if it's designed that way." That tribal can't exist with an offshore team. The plan was a complete failure; the offshore shop never got up to speed on the existing code-base, outages became a way of life (IT support was also offshored) and the decision was reversed after about two years. When they brought IT in house, they couldn't find anyone who wanted to work for them. In retrospect, they should have predicted this problem since they started having hiring problems almost immediately after the move -- they couldn't get the needed STEM graduates for their main work due to the poor reputation caused by the move. Interviews were outright refused -- most said they weren't interested due to fears of being replaced later[2]. They made a series of bad hires with onerous requirements in their work contracts--bonuses paid out regardless of being employed at the time they were paid--basically "protection" measures built in to calm the candidate's concerns. This was made worse by the economy improving and them no longer having access to more desperate candidates. The failure of this project was bad enough to eliminate most companies of their size. They were lucky that they were a business who's customers had a regulatory reason to use and they lacked any competition (mainly because they're very good at what they do). This would have been a time when someone could have stepped in to compete with them. The delays caused by this were passed on to customers who had the potential to fail regulatory compliance as a result. I've been intentionally vague about the business to ensure I can keep the friendship. I realize this post makes him sound like "an idiot" (I called him one at the time)--but bear in mind this was 2001-2002. 9/11, bad economy, and an IT budget ("new" at the time) growing like crazy were huge problems for them. IT then was seen as a necessary, unwanted, expense in most businesses their size. Coupled with prominent stories of offshoring success with little actual data about the details, it looked like an obvious choice. To the credit of his character, he set his ego aside and reversed his decison in just short of 2 years. They still occasionally augment with offshore for technically easy but time consuming work, and do so very effectively, but nobody is interested in replacing tribal knowledge with outsourced talent at his company (in 2007-2008, it never came up once as an option to improve the balance sheet). I've e-mailed him about this post in case he wants to provide detail that I wasn't comfortable sharing; but I'm leaving that to him. [1] The obvious was having no transition in place between letting everyone go and spinning up the off-shore plan. The team literally inherited tens of services and a large code base to both support and expand on with nobody from staff able to tell them how any of it worked. Being that he failed to account for that problem you can use your imagination about every other thing that wasn't accounted for. [2] A google/twitter search of the company yielded blog posts and other related items about the offshore move. IT folks communicate publicly when they're treated badly by an employer and they were treated terribly when they were let go. The worst thing was that despite being 2 years prior, most were convinced the company had done this only a few months prior. Objects on the internet are closer than they appear, I guess.
• tequila_shot 11y ago
  I used to work for an Indian MNC first, I was their eyes and hands in United States so I had to work with a lot of remote teams every single day. Like everything, working with remote teams is also a skill. May be you worked with some team in poland and they were brilliant, good for you; you don't have to manage. But all remote teams aren't like that. The mantra for working with any remote teams is to micro manage. Have everyday calls with them, specifically tell them what you are expecting. Before that, I myself was a remote developer, before traveling to US. As many of you already pointed, this depends on the vendor you go with. There are lot of multinational companies who outsource work and some of them are really good. A lot of discussion is going on that the teams have reduced the specifications given to them again I would tell you that it all depends on the team you choose. I never did that myself, hell the person who outsourced the worked to me, was not very knowledgeable. So does that mean I can judge everybody who outsourced work to us? makecheck said, the software outsourcing never really worked, when I was working in that MNCs we had projects ranging from huge telecom companies to Aviation companies. And those projects ran close to 5 years - 10 years. How did the CXO reap the benefits for 10 years if he doesn't see value in it?
  • philipodonnell 11y ago
    Honestly, having worked in corporate IT, a project big enough to last for 5-10 years has an enormous amount of inertia behind it from the tens or hundreds of people in the company who got behind it, all the "ra ra" project newsletters, the political capital expended to get the project budget approved, etc.. Even if it was going absolutely terribly and wasting millions of dollars, the project sponsor has every incentive in the world to keep moving forward and try to get something out of it to justify all of that. The failure of a big project like that might kill somebody's career at that company; a lackluster deployment a few years behind schedule is survived more easily.
  • s73v3r 11y ago
    Here's the big question, though: I have to put in a lot of work to manage an overseas team. In many cases, more than I would have to put in to manage a local team. And the costs aren't really that much cheaper. So if I have to put up with all that, why would I want to outsource? "And those projects ran close to 5 years - 10 years. How did the CXO reap the benefits for 10 years if he doesn't see value in it?" Did anyone ever actually do the analysis? I doubt it. They saw a cost reduction in one quarter and called it good. They haven't taken into account the extra work needed, the costs of reimplementing stuff after they get it because it's so bad, or anything like that. And because the CXO spearheaded the initiative, anyone who questions it is going to be questioning the CXO's competence.
• MortenK 11y ago
  Outsourcing has worked for me and my clients for 10 years or so. The main aspects of making it work is vendor selection, local manager with outsourcing experience and proper choice of engagement model. The author, Yegor, is arguing outsourcing categorically does not work due to lower vendor margins from 2001 and today. What he fails to mention is that while Eastern Europe has risen in cost, there's still plenty of locations with much lower cost and therefore much wider margins. In such locations, his main argument would no longer be valid. Even in Ukraine, there's huge difference in cost of living and therefore average salary across the country. Kiev is very expensive. Dnepropetrovsk, Kharkiv and Donetsk, not so much. But nowhere are you going to find 300 USD a month developers. 2000-2500 maybe, but not 300. Further, the vendors he describe are not good vendors. Good vendors will raise the price to provide a sufficient margin in order to provide a good quality service. Bad vendors will sell with low price being their only parameter, and yes, such companies will typically have the mindset of "milking the cow". Until they fold from one day to the other, that is. Finally, the mismatch Yegor describes between client and vendor expectations could be entirely removed if he just chose a different engagement model. For product development, you shouldn't do a fixed-price project model. Rather, do a monthly retainer based model for the same employee(s), where you pay the vendor x amount of dollars for the full allocation of person x. This way there's no prioritizing from the vendor company that can influence your project (unless the vendor is straight up fraudulent). And with a cancellation notice of 3 months, the margin can be lower as there's no risk for the vendor.
• zarkov99 11y ago
  My impression is that early outsourcing did work but it worked because the first outsourcing in India companies were founded and staffed by an elite fraction of Indian developers who, for the money, were in many cases sufficiently better that the in house counterparts to overcome the very significant problems of remote development. Capitalism works and that huge salary differential has eroded to the point where this is no longer the case. You can no longer get a Phd to work on your in house CRM system for $20 an hour. Outsourcing companies tried to scale past this talent imperative through heavy process focus but this of course only works for very well understood problems of which there are few in the software world.
• ageyfman 11y ago
  outsourcing works when you and your devs are aligned, you have a tech owner on the client side and regular checkins from all parties. What doesn't work, and never worked, is throwing loose specs over the wall and expecting the next Instagram. Moreover, people who manage remote, outsourced, teams for a living (I used to be one of them) have known this for years. The ones who don't know this are the non-technical founders who think the idea is the hardest part. Alas, that has been an issue for years before outsourcing became popular.
• gcb0 11y ago
  summary: CEO managed outsource company when margins were 20x costs. now that it's 0.3x he claims only scammers are still in business. sounds like a sour loser.
• nnnnnn 11y ago
  Interesting take on consulting. I agree, the traditional consulting model is fundamentally flawed, but after reading some of his other blog posts, I'm not as sold on his approach to hiring and "orchestrating." For example: "In our projects we discourage any horizontal communications between programmers, and you won't be able to get any help from anyone. You will be on your own and you will fail, because you are used to patronizing someone senior, in your office." This is so ludicrous that it almost sounds sarcastic. While I agree there is value in searching out your own solution, talking through problems and asking advice from team members is very valuable. It doesn't have to be a junior asking a senior. There's clear value in talking problems out with an equal and even a senior talking through a problem with a junior.
• anovikov 11y ago
  But this isn't so bad: outsourcing used to be merely arbitrage (you made a profit just because you was here and your customer was there, buying on one market and selling on the other - 'free money' in the sense that it didn't require much talent or ability to withstand competition to make). Now it's just a business just like any other: there is about as much chance to turn a profit operating a U.S. local software development shop or an offshore one. Prices you can charge and your costs will be still somewhat lower, because of all aforementioned factors like time zones, cultural and language barrier, and many offshore locations being legal grey zones where you can't really procesute anyone for say, stealing your secrets or violating your NDA. Every source of free money ends one day because too many people will try to get it, and this moment has arrived for offshore outsourcing, but it doesn't spell its death.
• shas3 11y ago
  There is so much he-said she-said, in my experience, etc. in the comments and the OP. This is a very easy thing to verify and can be easily done by b-school and economics profs and researchers based on financial statements of companies. It is also easy to find controls, there are many companies that don't outsource. Why do we rarely see such posts about scholarly work on outsourcing on HN? Instead the links posted and the comments therein devolve into circlejerks of how US workers are efficient and international devs are shit. A simple Google Scholar search yields the following peer reviewed papers about outsourcing. There are even meta-reviews [2], etc.: [1] http://www.esr.ie/ESR_papers/vol35_3/Vol%2035_3Gorg.pdf http://www.esr.ie/ESR_papers/vol35_3/Vol%2035_3Gorg.pdf [2] http://onlinelibrary.wiley.com/doi/10.1111/ijmr.12075/full http://onlinelibrary.wiley.com/doi/10.1111/ijmr.12075/full
• jbarmash 11y ago
  I think an interesting question that I am currently trying to think through is whether it's possible to structure your outsourcer relationship in such a way that their incentives are more aligned. I will be renegotiation a contract with a company, were we represent over 80% of their business. They have great technical people, and have generally delivered good work, but with more management overhead than we'd like - so we want them to be more accountable. Any ideas would be appreciated.
• stretchwithme 11y ago
  It sound like many other businesses, with costs and customers that change over time and many people to keep happy. Also sounds like the arbitrage is no longer as profitable as it used to be. And that's a good thing. When information is flowing, you get less people profiting simply for having information others don't.
• dragonwriter 11y ago
  I find it extremely ironic that I get that piece with an add for teamed.io ("Hire Us to Develop Your Software".)
• josephjrobison 11y ago
  What about some of the more hybrid models that are growing - where you have a company trying to build a brand on quality work - like TopTal or Codeable - where they have seemingly good management overseeing the work?
• z3t4 11y ago
  I think the best strategy is to find a good developer, then stick with him/her. There are tons of good developer out there who are willing to do hard work for almost nothing. You just need to find one. Simply hiring the lowest bidder is a waste of time unless your project budget is $50000 or more. At that range, you can find hungry developers that are willing to do ten times more work then you would get from established players.
• dror 11y ago
  Funny, I just came back from visiting two companies that do excellent outsourcing work for us, one in India, eternussolutions.com and one in Poland, www.soldevelo.com. The secret? We've built a long term relationships with them, have reasonable expectations and communicate continuously. I've worked with offshore teams since 2005 and there are major benefits: prices that are roughly 1/3 of what it costs to hire the equivalent person locally, availability of talent (everyone's scrambling these days in the Bay Area), and the ability to quickly scale up or down your team. There's also a price. You need to deal with the time difference; I have calls at 11 PM. There are cultural differences that you need to be aware of. The Holidays are different and usually more frequent, they won't be familiar with certain segments of the US business environment such as health care, HR, etc. And they won't work the same long hours. They have better work/life balance. On the other hand, you're not giving them options, so that's totally understandable. In summary, have reasonable expectations, expect that there'll be a ramp up period, and be willing to learn from the other side.
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