March 11, 2012

hidden Costs of Offshoring

The media is full of reports of tech clubs going offshore for their software development and maintain capabilities. While this is a real phenomenon that is happening, and the dollar cost savings can be compelling, there are some downsides that don't seem to be brought up very often. These can have a tremendously detrimental impact on a company's products and brands, and without right observation can lead to shortsighted decisions that finally take down a company.

Here are a few of the considerations:

1.) You may stifle and inhibit your product efforts

Truly great products are created by innovative engineering teams that work very closely with product Managers and other groups in a company. As a product administration professional I've worked with some great teams that have delivered some anticipated products. Products like these aren't something you can plainly write a spec for, deliver it to engineers overseas, and get something exceptional back. Sure, for simple and Very simple coding work you can farm it out. But if you want to generate truly breakthrough products you need a team that has great ideas And that works closely with your product administration folks to ensure customer needs are being met. The best situation is where you get a team that looks at the Mrd (Market Requirements Document) and figures out a way to deliver far more than what it calls for in a way that product administration could never have view up.

2.) Your brand and customer relationships may suffer

The cost of losing a customer and ruining your brand as a ensue of offshoring can be very high. Consider this example. My wife Sarah (Vp of Sales for the 280 Group) recently had a software question and contacted technical maintain for a familiar brand name product. She ended up exchanging email five or six times with them. After the second message it became painfully positive that the someone on the other end didn't speak English very well, and that they had slight occasion of even understanding the question let alone solving it.

Now if this was an isolated incident it would be one thing, but this company gave me the exact same lack of service when I had a different problem. Sure, they saved a lot by having the maintain handled by someone in India. But now that they've lost us as customers, the inquire is, how much are they going to have to spend to exertion to win us back?

Smart clubs are realizing this - that's why Dell pulled their India tech maintain efforts recently. The long-term value of a customer is Far higher than any short-term savings they can perceive by having someone less-expensive answering maintain questions.

3.) Managing offshore development can take a huge toll.

A friend of mine recently returned from a trip India where he is managing an engineering team and was investigating finding new facilities. He goes there about once a quarter. During this trip he got violently ill, and suffered the usual jet lag and loss of personal time when travelling. Upon returning he informed his boss of the progress, and was told that he needed to return again in 2 weeks to finalize the deal on the office space and make sure the team was on track.

The cost of this? Well, I can tell you that if he gets the occasion to work for a different company where he doesn't have to tour he'll be the first to jump ship.

Incidentally, he mentioned that they are having problems with attrition of staff in their India office, and that office space is no longer as cheap and widely available as before. While it had been easy and cheap to offshore two years ago, it had come to be more involved and time-consuming recently.

4.) Lack of accountability

I'm working with a team that is remote right now for a client. Every day we have a team meeting argument call and habitancy call in from complicated sites. Though good in theory, we end up having to repeat many things that are said because the phone lines are questionable. Additionally many habitancy skip the meeting, or delay us because they don't have the scheme files to look at when we put them up on the projector. I also theorize that a good part of the team is doing work (or other things) on their computer while on the phone, since when they are asked a inquire it is clear they haven't been listening.

There is something to be said for manufacture your team show up in person, look you in the eye when you are having a difficult argument about schedules and features, and not be able to hide their facial expressions behind a phone line. True accountability makes for great product teams.

The bottom Line

One has to wonder, when the laws of provide and inquire begin to catch up with the situation, and the hidden costs of offshoring begin to come to be more apparent, will clubs come to regret their cost-conscious post-bubble offshoring choices?

hidden Costs of Offshoring

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