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Long Term Effects of Outsourcing
simulate writes "There have been several postings about outsourcing and offshoring in the past
few weeks. Is outsourcing just a fad? In Outsourcing
Programmers is Bad Strategy for Software Companies
author Michael Bean compares offshoring to the enthusiasm for Internet startups
in the Nineties.
He claims
that
outsourcing programmers is bad for companies not because
of the programmer layoffs, but because technology companies lose their
capacity
to innovate.
Offshoring is a mistake
when technology companies confuse operational
effectiveness and strategy." I don't think the comparasion to Dot Bombs is entirely accurate - the trend to globalization overall has been going on for decades. Still interesting piece.
f you're building an innovative software company, you need to retain your best and brightest programmers internally. Software companies entirely based in India can successfully innovate over the long-term, as can US companies or companies based anywhere else. It's this recent trend of US software companies outsourcing all their development that's bad strategy.
I hear McDonald's is hiring
"I would say that 99 per cent of what my father has written about his own life is false." - L. Ron Hubbard Jr.
While I don't think it's what you're referring to precisely, there has been a considerable move to outsourcing customer service call-centres in recent years. I think that in some cases this has led to a much higher level of customer service from the companies concerned. That's outsourcing taken care of. Offshoring, or moving the business outside of the UK (in these cases) has been considered lately as well. This seems to be having the opposite effect, as the new centres in foreign parts are staffed with inexperience workers without the requisite communication skills. It's going to continue as a trend though. Because it makes money. Cost rules all these days. No one cares about the service level, just about the profit margin. Right?
If I seem a little hostile about this particular trend, it may be because the jobs of a few people I know are under threat as a result of it.
Sign the FSF's Anti-DMCA petit
Has this guy ever worked for Accenture or PWC Tech Consulting? Those guys essentially have a few people do the design, write some high level code documents, and then hand it off to some code monkeys for assembly (oftentimes recent college graduates who didn't know squat about programming until their corporate training kicked in). So his argument isn't good - companies can still keep the design close to home and then outsource the assembly to India or China.
:) .
FYI - I worked for Andersen Consulting (now Accenture) so I know how those guys do business. I left after two months
smd4985
This would be similar to the people on eBay who just sell drop-shipped items.
If you ask me, India is on the way to the Shoe Event Horizon, and it will only take one piece of protectionist legislation in the US to tumble the whole house of cards.
Carefree highway, let me slip away on you.
Are we saying programmers in the US are more innovative than Indian, Russian or other off shore programmers?
Evolution or ID?
Business Week had a good article on this a while back. Problem solved. The water will seek its own level.
Life is the leading cause of death in America.
Jobs move where there is cheap labour. Even within the US, Call centers are found in cheaper places in Tennessee, Oklahoma, etc. This is the system the US has been forcing on the world for decades. When it bites them back, they whine and whine and whine.
The bottom line looks great, when you start digging around your new app, or code you find that the quality is generally missing.
Post: Sigged, for your pleasure.
The comparison of design/assembly splits between manufacturing and software development provided some useful insight, but it's not like companies don't realize this.
The hard part about realizing the gains from outsourcing is that most firms aren't up to managing such a long-term, strategic relationship in the manner that's required. When the work is done in-house, you can trust that the developers have your company's best interest in mind - when dealing with an outsourcer, their ultimate goal is to extract as much money from you as possible. If done right, it can be worth it, but as we've seen, many firms haven't been up to that challenge.
Stop by my site where I write about ERP systems & more
"Farming out development to legions of programmers overseas will not create a differentiation advantage. When a technology company outsources software development, that company loses its capacity to innovate and its competitive advantage."
the author seems to be under the impression that the success and innovation of a product is purely in the hands of a bunch of software developers. this is rubbish. innovation in the software industry is also about building a product to solve a particular problem - and well. if the functionality is well designed (say with some good interaction design) by a US-based company, the specifications can be written up in the US and sent to the Indian shop for authoring. in a well designed component-based framework, the "glue" can be built in the US whereas the components or specific objects can be farmed out at a lower cost.
The largest problem with outsourcing/off-shoring software development is SECURITY. Remember Y2K? Many major corporations outsourced their Y2K work to foreign countries because they didn't want to hire the extra programmers locally to do it. What several companies found when they got the code back was that trojan horses, backdoors, logic bombs, and other nasties in the code in addition to the Y2K fixes.
NOTE: I am *NOT* saying *ALL* people from other countries are dishonest. You can find dishonest people anywhere in the world.
What I am saying is that if you turn control of your software code over to someone else, you run the risk of them altering it to their advantage. This also applies to local hires as well, but it's MUCH easier to keep track of what your people are doing locally than half a world away.
Why do you think that the US Government/Military doesn't outsource? The same with most financial institutions: SECURITY. (Microsoft not included.)
If "disco" means "I learn" in Latin, does "discothèque" mean "I learn technology"?
Actually I liked Michael's article. It is my experience that while programmers from India and other countries are every bit as technically capable as American programmers they seem to fall down in the design area. Specifically, other cultures produce programmers who aren't quite as confrontational as Americans. What determines a good design for an American product is it's developers initiative at voicing their opinions of what the product should do.
Design in America is confrontational. It has to be. That's what makes American software products good. When a company takes it's core software and ships it overseas it looses that drive from employees to make the software better.
This is not to say that software developed elsewhere cannot be good but it does mean that software developed in India must use an Indian model for design and development if it is to be successful. For an American product competing on a slight technological advantage this is bad.
HP, as a sidebar, tends to outsource end of life stuff to India.
Beware the wood elf!!!
Having just come from a company that was rabildly outsourcing, we saw a different backlash of the outsourcing problem. The execs were outsourcing everything they possibly could, even when it made no sense. However, the company was still not going to be positively improved financially by this happening. What everyone remaining on staff could see is that it would boost short-term profits just long enough for the execs to rape the company with fat bonuses just before bailing out. That's apparently another popular trend.
Be excellent to each other. And... PARTY ON, DUDES!
What we've found during the six month trial of hiring outside programming help this is what we've found:
o While Indian programmers (we used 8 different ones for 6 different projects) may be perfectly competent to produce software to spec, they usually ALWAYS built it to spec and NEVER brought up any issues they might have found in the process. Either they didn't see a flaw in the design or just figured it would be job security if they changed or fixed the ap later.
o We had no luck with Russian programmers (We had went thru 4 of them and none could complete the project they say they could have)
o American (We used 10 of them for 8 projects) outsourced programmers communicated MUCH better with their project managers and usually offered suggestions to how we might want to change the app to make it better or more efficient. The applications developed stateside required less QA and went to market faster.
Is this a good enough sized sample to make judgements? Maybe not. But good enough for us.
After the six months, it just didn't make sense to outsource, howerver if we do again, it will be domestic. The shortterm costs may look good but a 33% savings per hour usually gets lost in the longer development cycle.
Karma means nothing to me, so suck it...
You could always form a union of Wal-Mart greeters!
When your on strike you could just kick everyone in the balls when they walk in and yell "GO TO A FUCKING LOCAL MERCHANT ASSHOLE!"
It would be awesome.
... in the normal sense of the term. Outsourcing implies farming out the job to some other company. On the other hand the examples that the article gives about Hewlett-Packard and Oracle employing the programmers in India as in-house employees. So, the capacity to innovate still remains within the company, though it moves outside the US. So, I don't see how the argument works for most of the bigger companies like HP, Oracle, IBM, GE, TI etc. etc. who run their own operations in India, and do not outsource to other companies as much.
1 /043220 0&mode=thread&tid=187&tid=98&tid=9 9
For example of innovations in subsidarys outside US see
http://www.iht.com/articles/121488.htm
and the slashdot story
http://slashdot.org/article.pl?sid=03/12/2
It's not wasting time, I'm educating myself.
Where does Linus Torvalds come from? Do all major contributions to Linux come from the U.S.?? Remember Gupta, Magic and other good software that made it big some time ago before M$.
The percentage of development work that is truly innovative is relatively small, but the article is correct. Out sourcing the "innovative" parts of a company is very dangerous and will lead to more problems. From first hand experience, innovation comes from interaction between the developers. Very few individuals can cook up innovation in box all by him/herself. Can innovation happen in an outsourced model? Sure it's possible, but it's going to be considerably harder. This is why companies like Oracle, MS, Intel and others are expanding their divisions in India and china. They maintain tight control because it's not out sourced to another company. Companies can offshore their R&D, they just have to open a division in a foriegn country. For better or worse, that's reality.
Based on my trip, I don't think good programmers should worry. More importantly, if you have the skills, you are way ahead of your Indian counterparts right now (emphasis on right now). Keep improving your skills and becoming more and more expert and you will continue to be employed. Focus on fad languages and "me too" web designs and you're putting yourself in front of a train. I can't tell you how many people in India listed C# and Java as their primary languages...C'mon now, we all know that those are good for small things and prototyping, but they aren't languages you write OSs or such in.
Offshoring and outsourcing are not bad in their own right, but managers who think it is a panacea will be bitten for their lack of vision. The world is going to be global. Get used to it. Recognize that we AREN'T worth more than Doctors and other professionals.
Every profession, when it is in its infancy, has the potential to create very wealthy people relative to the norm. After a time, those new professions become common and the lucre standardizes lower than originally expected. Our incomes in the West will decrease somewhat. I think it sucks, too. That said, the cost-basis for India is growing geometrically now (from 4k to 7k to 18k in five years). Guess what? Those programmers in India who are good are unwilling to be without the amenities that you are I take for granted...good phones...broadband...etc. The infrastructure must grow and that costs money...so you have to pay them more...and costs grow.
Get over it, grow in your profession, become an expert and highly sought-after. It doesn't matter where you live...it matters what you know and can demonstrate.
Dave
"... but you can love completely without complete understanding." - Norman Maclean, "A River Runs Through It"
Follow this train of logic: If more and more software jobs move overseas, then there will be less drive to join an industry where you are paid a mediocre wage for complex work. Thus there will be fewer students enrolling university programs in the industry, and thus universities will cut back on software departments. Ultimately the very infrastructure of the nation's software industry will be severly reduced. No follow similar logic in the country that was offshored too, and the reverse happens.
I don't think the comparasion to Dot Bombs is entirely accurate - the trend to globalization overall has been going on for decades.
That's not what he's talking about; it doesn't matter where the programmers are. The point is that if the programmers aren't really part of the company, the company is less likely to have the capacity for long-term innovation.
Don't become a regular here, you will become retarded. -- Yoda the Retard
I'm in a MBA program and my professors stress that out-sourcing strategic assets is a very bad idea. Because, you never know where your IP will end up - regardless of which country/company you out-source it to.
The trend we're seeing is people who are just looking at the their numbers, which were probably fsck'd up anyway, and not at the long-term ramifications to their IP.
I just finished a class last semester that drilled into our heads that projects can be calculated in ways that will show them to be profitable, or calculated another way, to be unprofitable. Unfortunately, there's a lot of people out there who think accounting is a science.
There is no spoon or sig.
I saw the proverbial crap hitting the fan and started looking for a job that is "impossible" to outsource. For example, I am an on-site Network Administrator/Engineer/Hardware Tech/Telephone Tech/Help Desk/All Around Nice Guy. No way in hell someone from India can do that job. Sure, they can tweak scripts or change passwords, but can they replace a CPU fan or install RAM? I do all that stuff, and I bring in candy. What more can a company ask for? Well, unless you are a Diabetic that is.
I hate sigs.
How long until the pseudo companies in India decide to simple become full fledged name brands in themselves? Not only are we training them how to do our customer service, programming, back office, and research, but were also teaching them how to run fortune 500 class companies. They already have the expertise, how long can it be before we start seeing Indian versions of our established corporations.
They can skip the normal growing stages of setting up the megacorp, because they already have it. Offices, research, staff, software, it, they lack everything but the name - right now. Once some of these companies lose a contract with our corps, theirs nothing to keep them from setting up their own shop under their own name. This is the next trend in outsourcing - megacorps themselves.
There is NO compelling reason for these companies not to do this. They are making large profit from back of the house, it's inevitable they'll want the profit from the front of the house as well. The irony is that these large corporations are training the competition and replacements and most dont even see it coming. Is it arrogance that causes people to overlook this inevitability?
Say an American programmer works for $30/hr and an Indian programmer works for $3/hr. $27/hr savings, not bad. Say a CEO works for $1.2M/yr, $600/hr. The outsourced Indian CEO will work work for $3/hr. $597/hr saving - great!
XML causes global warming.
The problem is, in the 1990s there was still a pool of people for these orgs to use in re-insourcing. If large quantities of work move from the US to India, both current and future IT experts will move to other jobs and not be willing to return. Which could prevent a continuation of the IT insource/outsource cycle which realisitically has existed since the 50s.
sPh
See here
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...for reduced ability in India that many westerners don't realize.
India is a caste-based society. In recent times, the lower castes have been throwing their weight around in their legislature.
Of particular concern is that they have implemented a "graduated" admissions policy in their universities. An upper caste member might not be able to get into a school with a 90% score on the entrance exams, but a lower caste member may be assured admission with a 70% score.
Because of this type of (reverse)discrimination, many upper caste individuals of means leave the country to obtain education and work elsewhere. While India is a big country, the trend is concerning, and western outsourcers should be aware of it.
I think there is a step before "writing" software that is easily overlooked. And that is figuring out the Requirements of the system to be designed. This is where I believe the innovation lies. A lot of good code has already been wasted chasing bad problems - unless you believe that those "objects" have found reuse elsewhere in large quantities.
The people who identify the need and then figure out the "requirements" are better off in the US as they are close to the problems there. Many offshore programmers who have never seen a scanner at a checkout of a grocery store are ill-equipped to understand all that might be required of the checkout counter in the real world. But once someone identifies what is required, then it is possible to put together a solution. The solution can be academic and the solutions depend on who has framed the problem - but the solution then is not as hard. What is hard is understanding what the problem is. Understanding what the requirements are.
Coke and Pepsi do just that. They have bottlers all over the world - and they still have been able to maintain the "secrecy" of the recipe. The point in operational excellence is that you have to not only look at the process of improving the manufacture of the product, but also its delivery and logistics. At a certain stage of his business, it is conceivable that Jean-Marc's might be like Coke/Pepsi. Outsource the chocolate production to supply worldwide.
Wrong. Most of the cost of clothing is in the inventory and predicting the fashions. Have you seen how many shirts go unsold for every shirt that you buy ? I can bet that keeping the inventory, getting rid of old fashions, and other marketing battles cost much much more than the shirt itself. The cost is mainly in the movement of information about the shirt - what is required, where is it required, when is it required, how much is required, etc. All this outweighs the cost of manufacturing at the assembly line in influencing the margins eeked out from the clothing business.
Again, I believe the first step is understanding the Requirements. Then is the design. nhen is the coding. Then is the debugging. Then is the testing. Then is the recoding. Then is the etc. etc. A lot of these steps don't need "innovation" - they require competence.
The game is about requirements. One who can understand the requirements are, and can understand that the business benefits of implementing the solutions are more than the technical costs of implementing them - is going to win. That is the real innovation.
To see a world in a grain of sand, and then to step back and see the beach where the sand lies
Quite a lot longer than that. Actually, the level of global economic integration is not much higher today than in 1913.
Those who fail to learn from the past are doomed to repeat it.
I'll readily admit it. I'm old. I've been in this business for nearly thirty years. I've seen a lot of changes, but I don't want to concentrate on IT history. Instead, I want to talk televisions.
Back in the day before most slashdotters were alive, there were American companies that designed and manufactured televisions. First, manufacturing went overseas, and it was managed from the US. Next, middle management was moved because it made more sense to manage the plants using local talent than trying to do it from the US. After all, time differences, cultural difference and just plain cost was enough to justify it. What this did was educate new competitors, and mentor them so that they didn't have to suffer the pain of starting low on the learning curve. Guess what, companies like Admiral and Motorola, who were leaders in home televisions are either gone, as in the case of Admiral, or dropped the product entirely, as is the case with Motorola.
This was not necessarily a bad thing, as it ended up benefiting the consumer, and helped spread wealth overseas. However, there is no one capable of designing a TV that could compete with the imports in the US today, except for those individuals working on HDTV, which was mandated by law.
My point is that the US lost not only its ability to compete in these areas, but companies themselves. If history does repeat itself, companies like Oracle will disappear altogether, similar to Admiral, and companies like HP and Dell will change their product concentration in order to survive, similar to Motorola. The consumer will probably benefit, as computers manufactured in India or China will be cheaper, thanks to cheaper local software available for these systems. But is this technology that propelled one of the greatest economic growths ever, something we want to loose?
Friend or foe? Call me neutral.
Most of the readers and contributers see Offshore Outsourcing to much lower waged coutries a threat.
The Indian programmers in India are too busy working to read and write to this thread.
I am almost neutral as my job in Ireland relies on globalisation from the United States, but is at risk from the globalisation to India and China.
Be Free: Free Software Tuition
If measuring the cost is more important than measuring the result, then offshoring looks better on paper. Many companies use brute-force hack-it-til-it-works because it does eventually get you what you want after several iterations.
Offshoring makes it easier for organically-grown hack-til-works companies to keep doing it the same way. Good planning and understanding the customer is harder to recognize, harder to meausre, etc. Accountants can't track that and companies tend to ignore what they can't track. In the end it seems such companies just end up paying the user more to keep them because they are the only ones who know how to work the resulting hackware.
It looks like a mess, but it seems to be the primary development model because way too many companies do it and survive somehow. The market seems to favor swamp guides over true engineers.
Table-ized A.I.
Each kind of product had quite a few fuzzy parameters like "overhead", "scrap percentage", and other strange acronyms I didn't understand... I don't think it was even possible to determine a single correct value for these numbers, so my choices were as good as any.
This is exactly the problem: the people running the business don't understand what the business does or how it does it.
If you were to go down to the manufacturing floor and ask them what the "scrap percentage" was, I'll bet 90% of them could at least tell you how to figure it out; they'd point to a bin full of bad parts and say "count those, and then divide by the total number produced". "Overhead" is a bit more tricky, but it still isn't some magic unfigurable "fudge factor". the only thing that makes it difficult to calculate is the fact that everyone is lying about their numbers to make their department look better. (Notice that I said "lying", not "manipulating". I don't believe in double-speak.)
The only thing keeping accounting from being a science is the lack of integrity in the people practicing it.
Under capitalism man exploits man. Under communism it's the other way around.
First let me say that yes I am biased, I am an american .
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I can be considered further biased because me and ALOT of
ppl I know have lost their jobs to it
So in the best objectivity I can muster here are some reasons
I think it is bad
1) Money sent outside the US for third world labor stays there,
thus money that used to pay ppl here, to pay taxes, to buy
food, to further employ americans in a trickle down effect is gone
2) If we were to pay US workers third world wages, and have
third world labor laws, we would be breaking US law
*** So are we gonna lower minimum wage to 50 cents/hour ???
3) If you did pay lower than minimum wage to workers, would
they all have to be sponsored by the government and go on welfare
and increase the already burgeoning working poor caste
4) The value of the dollar has been steadily falling, what are
the implications on real estate, US investments, trade ???
5) Huge layoffs create bankruptcies, repossesions, forfeitures,
and broken homes, and broken marriages . Money being one of
the top 3 reasons for divorce
6) Even with a increase recently in GDP not seen in 20 years,
little to no hiring is occuring
7) Companies that reveal their internal secrets overseas may
just find new foreign companies making their products for even
less, after the plans were just copied by former cheap labor
With no recourse thru US patent law, etc etc, they experience a
TOTAL loss of market share as the foreign government chooses to
support their own ppl
8) Unemployment figures do not count those that are no longer
eligible for checks , they are no longer considered unemployed
9) The US cannot compete equally on unequal ground, we have a
huge tax overhead, and cost of living here is too high to
compete with countries that have poor humanitarian labor laws
10) US companies are going overseas and thru negligence are
creating disasters like Bhopal in India . They act above the
law and thousands die from it
http://www.bhopal.org/
The so called race to the bottom has negative aspects that
I feel will create even more hate for the US, within and
without and there is already a sense of a Elitist class in
this country
The funny thing is they expect to be protected by some of the
poor they pay to serve in the military, but in recent polls
soldiers were ask if they would defend the rich against
an uprising of the poor, you can guess the answer
Peace,
Ex-MislTech
google "32 trillion offshore needs IRS attention"
The resources available have changed.
In the old days (I'm talking BBSes here), there was no Google, no "web", and no easily searchable archives of a decades worth of discussions. Most of the online projects had little or no documentation. The Telegard BBS software, for instance, was a pile of mostly obfuscated, uncommented (or incorrectly commented) code. There were no autoconf scripts for building on different platforms. Most of the interesting knowledge was in people's heads, which made the question/answer groups very valuable. There were few enough newbies that answering their questions was not overly taxing.
Now, we have Google, we have the web, we have discussion archives, README files, support "Knowledge Bases" and so forth. The user guides for many projects are still abysmal, but at least the more popular ones have gotten quite good. We also have an enormous amount of newbies. So, in short, the number of people asking questions has increased dramatically, and there is much less excuse for them.
As a list member, why should I expect to have my question answered without bothering to read a README, search the web, check the archives, etc? As a project maintainer, when I spend hours putting together and editting FAQs and documentation, why should I not be angry that the users do not bother to use them?
Sure, there are holes and ambiguities in documentation; there are advanced problems and unusual circumstances, but most of these questions are not about these things. Most, in fact, are not even looking for the information, but a solution: "Can you show me a script that solves exactly my problem?" Reading this kind of question, especially after referring them to appropriate tutorials, tells me that not only did they not do their homework this time, but that the really don't want to know how to do it next time either--- they just want their problem to go away at the expense of my effort. Rather rude, don't you think? It is just salt in the wound that the people asking these questions are the same people who are taking jobs here. These folks won't invest in their own skillset, but they will leach off of mine.
I think, to a large extent, this is where the "old spirit" has gone. In order for some of the politness and openness to come back, there has to be a measure of common courtesy on the other side.
I'm a professional developer and at first I was pretty hostile towards the idea of jobs like mine being outsourced. I've come to some conclusions though about outsourcing in general:
-If you have a rock solid spec, outsourcing is fine. You get the best price for labor, everyone is happy. Sadly a rock solid spec is a mythical creature in my experience.
-"Real" programmers over time will do just fine. During the IT boom, remember all those ads by IT training companies saying "switch careers to a lucrative IT job!". Well, alot of people went and were trained to be programmers and got positions in the industry who really aren't good programmers.
Those of us who are good at what we do and like what we're doing are well aware that a certain "type" of person makes a good programmer. Anyone who got into the business because of salaries or the promise of a cushy job really doesn't belong here. Programming is a mixture of art and science, it takes creativity, a desire to explore and expand your boundries, and a logical mind. It's definately not a 9-5 job, you need to have a passion for it!
Outsourcing is the latest thing, there's going to be some casualties of good programming talent until the market stabalizes and companies figure out what does and doesn't work. In the meantime, we will see less people entering the field who shouldn't be here, and also many less experienced (and less "suitable") people changing careers out of IT. Toss in the demographic loss of the baby boomers starting to hit retirement age and you have the formula for solid demand for good programmers.
Realistically, "outsourcing" just is the situation when software development is cheaper in India but their US-based management doesn't want to move there. The long term resolution to that is obviously not that software development comes back to the US, the long term resolution is that management also moves to India (or wherever).
It's really not that different from what happened in the electronics industry after all: initially, parts came from Japan, then whole devices, and now the companies themselves are Japanese. And it was the same with cars and computer hardware.
What should the US do? There is really only one choice: if it wants to retain its strong economic position, the US needs to start the next revolution in a different field. Maybe that's biotech, nanotechnology (whatever that is) or the commercialization of space. But anybody who wants to claim a leadership position can't lean back and say "we'd just like to lean back for a while and relax on the strength of the jobs we already created".