Outsourcing and Offshoring

Scenario A:
An $80M per year software company poors $8M into setting up an offshore center in Bangalore, loses millions in opportunity cost because no products were ever successfully developed there, lose even more because the onshore staff was tied up day and night trying to make the Bangalore operation productive, and loses even more because a key team of highly experienced developers was laid off because the India team was going to take on the work. Total loss was easily $20M over 4 years, and the Bangalore center was eventually shut down.

Scenario B:
A $150M per year software company outsources complicated software development and test to an Indian company. Projects are completed on time and on budget at a much higher rate than internally. A significant number of business opportunities are successfully completed at a much cheaper rate, the less interesting work is offshored and more interesting work kept in house, the outsource company is motivated to get and keep the business, and the process is structured so that there is minimal distraction to in-house managment. $15M has been saved over 3 years, and $25M in additional revenue enabled by the extra output of the extra development and test resources. The total gain is $40M over 3 years.

I was a key player in both scenarios. In scenario A, the CEO forced his offshoring paradigm onto the program managment organization, and didn't allow critical feedback. In scenario B, program management worked with the development teams to create engagements that worked.

You decide: Scenario A with a total loss of $20M over 4 years, or Scenario B with a total gain of $40M over 3 years.

Variations of Scenario A are very common in the world of technology outsourcing. The big players like Microsoft and Cisco have big internal teams dedicated to offshoring. But a $50M to $200M company may not have anyone with serious experience in offshoring.

Before jumping in, hire an experienced consultant to review your needs and develop and implement an outsourcing paradigm that provides bottom line gains instead of heavy losses.