Is Outsourcing to Blame?

From the comments to my last post it looks like people are concerned about the trend towards outsourcing taking away their jobs. Rightly so, but things aren’t necessarily as bleak as some might imagine.

Outsourcing, or more correctly offshoring, has become the bogeyman for the software engineering industry, and has spread to other industries as well. However, from my perspective I have seen how outsourcing has worked (or not) at several companies. So here is my observation of how the process typically goes.

First, during boom times a company finds that it needs more people to handle its growing IT needs. It discovers that it either can’t find people to hire fast enough, or else the boom market has driven up salaries beyond what it wants to pay. Either way it looks to offshoring as a source of cheap, plentiful tech labor.

So the company starts outsourcing positions, typically working with a large Indian consulting firm like InfoSys, Tata, or Wipro. The company goes out of its way to reassure its employees that no, their jobs are not at risk; the company is merely supplementing its engineering capacity with offshore talent. The employees are naturally uneasy about this, but management is happy because they are getting additional bodies at a fraction of what it would cost to hire American engineers.

After about a year though the company starts to notice that productivity with offshore engineers is not what they had hoped. Challenges in communication, issues with remote management, and a wildly variable resource pool results in poor code, lots of bugs, and misunderstood requirements. Counting rework and time lost in cleaning up mistakes, overall net productivity amounts to perhaps a half or a quarter that of domestic engineers.

At this point one of two scenarios occurs. In the first, management is so giddy about the cost savings from offshoring that they start pushing American engineers out the door and replacing them with offshore labor. They either don’t understand the implications of reduced quality and productivity, or they just don’t care. They believe that if offshore engineers’ productivity is lower, their lower cost more than makes up for it

Hence these companies throw more bodies at the problem, adding more offshore engineers to while reducing domestic headcount. Productivity, turnaround time, and time to market suffer, but the bottom line looks better… at least for a while. These companies however often get addicted to the supposed cost savings, and enter into a spiral of costcutting and poor quality and never recover.

However, in the alternate, more positive scenario, the company decides that the lower productivity and poor quality from offshoring are not worth the cost savings. Hence they start to bring the jobs back to the U.S., and reduce their reliance on undependable offshore labor.

I have seen both of these scenarios firsthand, and am hopeful that the second scenario will become more common. I believe that eventually more and more companies will begin to see the benefits of having technical resources close at hand, where they can be closely supervised and where communication is more straightforward. This will take time, but I think the tide may be (slowly) turning.