Does Outsourcing Programming Really Save Money?

itwbennett writes "In a blog post titled 'Why I Will Never Feel Threatened by Cheap Overseas Programming', John Larson tells the story of a startup that shipped its initial programming to India, paying $14 per hour, with predictably disastrous results. Larson concludes: 'I have yet to see a project done overseas at that sort of hourly rate that has actually gone well.' But in this not-uncommon tale of outsourcing woe, is the problem really with the programming or with unrealistic expectations?" The comments on Larson's blog post (originally titled "Why I Will Never Feel Threatened by Programmers in India") seem to me more valuable than the post itself.

Comments

Faulty Reasoning

[gatkinso]

Just because the overseas programmers suck (debatable, but let's assume) doesn't mean management isn't going to go for the $14/hr carrot.

Re:Faulty Reasoning

[nomadic]

Exactly. You should feel threatened, because quality frequently doesn't win out.

Re:Faulty Reasoning

[samsmithnz]

It's not because they suck, it's because they don't own the code. If you know you have to maintain a piece of software, you will spend extra time ensuring that it's maintainable and coded well. We have a large team in India and they are very successful, because they are part of the company and are building a career, not being a code monkey.

Re:Faulty Reasoning

[Anonymous Coward]

> It might take a few years...

Yup, I've been hearing that since 2000. How much longer do you think? 20 more years? 50? A century? I don't think so. Show the PHB two salary numbers, he's going to pick the lower one, never mind any other factors (e.g. overall cost).

Re:Faulty Reasoning

[Billly Gates]

Problem is software is an expense that adds little value to bottom line unless your a software company. Therefore go cheap and invest in more sales and accounting gurus who can better raise the stock price and bring better value to the shareholders. That is what is taught in business school and makes sense. You dont save anything as it never generates revenue.

Re:Faulty Reasoning

[vlm]

Exactly. You should feel threatened, because quality frequently doesn't win out.

There are a lot more McDonalds than five star restaurants.

Re:Faulty Reasoning

[schlesinm]

Outsourcing code development doesn't work unless you have some onshore owners of the code who are able to review for code quality and demand fixes when the quality suffers. I've been working with offshore developers for over a decade now. There are some that are really good and I felt confident giving their code just a quick once over review. There are others where I have to review the code thoroughly because they're not quite up to par (such as the time I had to write the Java time code interface for a coder after he failed three times to figure out how to do it). Without an employee owner for the code, then outsourcing is hit-and-miss for actually saving money.

Re:Faulty Reasoning

[TheRaven64]

If they're part of the company, then they're not outsourced, they're just offshored. Often the two go together, but they are independent. You can move an office to a different country and you can move the work to another company in the same city. Or you can combine the two. This is usually when you get the worst results. There may be talented people in India, but if you're hiring them at one remove from a continent away then there's a very good chance that you won't be employing any of them.

Re:Faulty Reasoning

[niftydude]

I'll probably get modded down for saying this - but over the years, I've worked as a developer/tech arch in Palo Alto, Mountain View, Milwaukee and Portsmouth, and my experience is that the vast majority of US programmers also suck.

The main problem I've had with Indian programmers is that a lot of them don't really understand english (even though it is the official language of India) - which makes explaining requirements more difficult, but at least they can do math properly.

Not all overseas developers suck, and not all US developers are awesome. I can see why management would be willing to take the lower cost option, when they aren't guaranteed (or qualified) to identify and hire good talent locally.

Re:Faulty Reasoning

[next_ghost]

You know the saying: Cheap, good, fast. Pick two.

Re:Faulty Reasoning

[Lumpy]

This is because they dont give a rats ass how much it costs in 5 years.
They care about the balance sheet for the next 90 days.

This will not change until they fix the problems with corporations.

Re:Faulty Reasoning

[Lumpy]

"That is what is taught in business school and makes sense. "

Yet the company I am at that has a non business school owner who goes against ALL the crap they teach at business schools is still here after 40 years and 3 recessions.

All of out competition is now gone. The last one filed for chapter 11, 1 month ago. WE are the ONLY company now left on this side of the state while all the Business school morons cant keep their business running.

I don't care if you have 20 phd's in business. you suck compared to a man that pours his heart and soul into a business and does the right thing before maximizing profits.

Honestly, business school grads are some of the stupidest people I have met. They can't comprehend concepts like customer satisfaction, customer retention, talent retention, and paying people what they are worth, not what they will begrudgingly accept.

Re:Faulty Reasoning

[tbannist]

The way thing work now, that's never going to really happen. It's the MBA effect. The goal of an MBA is increasing ROA, there are two ways to do that, either increase revenues or decreases assets. One is hard to do, the other is pure profit for the current quarter. That's why many projects (and factories for that matter) get outsourced. Reduce the assets and the magic number goes up. Brag about it to your peers and get promoted to some other job, the sucker who comes after you gets to clean up the mess.

The "it will cost more later" argument won't do anything as long we allow disposable idiots to run businesses. That why it's so remarkable when someone who doesn't consider it their one and only goal to increase a magic number comes along and leads a company to (temporary) greatness. There's a convincing argument that Google, Apple, even Microsoft (among others), became huge because their CEOs looked beyond the numbers games and actually cared about the companies they were working on. Dell's the current example for the idiot CEOs who only care about numbers that don't actually mean anything, Dell gradually sold off it's assets to a Chinese company, now that very same company is in the process of cutting Dell out of all the businesses it used to own. Why? Because Dell doesn't own anything but a brand name and a web site, now.

Re:Faulty Reasoning

[xclr8r]

I'm on board with your comment but one item that I've seen actually help is detailed reports of color printer and photocopying. It's saved my department thousands of dollars; now we can afford the coffee and paper clips again.

Re:Faulty Reasoning

[tbannist]

Only if the managers who made the decisions stick around. If they take their bonuses and leave, then it may be the guy who ends up cleaning up the mess who also gets the blame. After all there wasn't a problem until he pointed out that the work wasn't going to get done on time, and now he's spending so much money to fix a problem that was only supposed to be a small fraction of that to start with...

Office politics can be as stupid and unrealistic as the real stuff. Also once the decision has been made, some people can become completely unable to accept that it was a mistake or that it should have been done differently. They'll blame someone else for hiring the wrong outsourced IT company or not tracking the project closely enough.

Re:Faulty Reasoning

[King_TJ]

Wish I could mod your post up higher (but hey, it's +5 Insightful as I speak, so what can a guy do, right?).

I, too, work for a small manufacturing business where the owners are not from "business school backgrounds". They simply understand our industry and have hands-on experience with it, and do their best to run a successful company.

I've seen plenty of other places run by the folks with "professional degrees" too, and typically, they get way too fixated on spreadsheets and reports, vs. having a firm grip on the realities unfolding right in front of them every day.

You *do* want a few basic, easy to interpret and use reports being generated, so you can nip problems in the bud. (Say you've got guys out in the shop who start slacking off, pretending they're really busy when they're not? They might be pretty effective at making the people observing them believe they really are working as hard as they can. It's not that hard to pace yourself so you take 15 seconds to put a box on a belt, or make sure you cut a piece with the saw *slowly* to waste a little time without anyone noticing. But a good daily or weekly report on man-hours spent and output completed would "red flag" this behavior pretty quickly.)

But keeping one's head buried in the numerical data seems to be the downfall of many an MBA out there. You simply can't base all your decisions on what produces the best numbers for you in certain columns.... You've got to actually care about what your business does (yes, even if in the short-term, that occasionally means taking a loss to please somebody).

Take our business, for example. In the recession, we really took a beating and we had to do 2 rounds of painful layoffs. Still, we did what was needed to trim things back to an effective skeleton crew of employees who could keep the place functional ... and we held our prices as low as possible, and provided the same level of customer service we always did (even when we had to pay to correct problems for customers that weren't really our fault, sometimes). We outlasted one of our biggest competitors, who has been a thorn in our side for decades. (He responded to the downturn by running a barrage of expensive advertising and giving away special promotions and perks.) Now, we suddenly have almost all of his business, which is giving us a big boost moving forward.

Re:Faulty Reasoning

[jedidiah]

Employees of some outsourcing outfit do not work for you.

They work for their own company.

That contractual wall that separates them from you ensures that they will never care about your company nor go out of their way to

Re:Faulty Reasoning

[lightknight]

Same tactic politicians use.

Sell off the capital buildings, then rent them from the new owners. Claim profits during your term, and put it into the programs of your supporters. Let the next guy figure out how to pay the rent.

Re:Faulty Reasoning

[Anonymous Coward]

usually you only get to pick one

Re:Faulty Reasoning

[dpilot]

Seems to me that some number of years/decades back, most of Corporate America lost its sense of direction/balance/mission. Today it's "all about the money," and personally I believe that's wrong. If you're a car company, and you're "all about the money" instead of "all about cars" you may not have failed yet, but you're clearly on the road there.

Obviously you can't ignore the money. By the same token it's probably handy to have some MBAs around. But you need to keep track of who's in charge and what's the mission, and that shouldn't be the MBAs - it should be somebody experienced in the company's products.

To switch from the car company analogy to the software company analogy, would you rather buy your software from a company that's "all about software" while managing to make a profit, or from a company that's "all about profit" while managing to make software? Which company do you think will produce better software? (or better cars, to switch the analogy back.)

Re:Faulty Reasoning

[rtb61]

Corporations answer to their investors, that's a laugh. The modern corporation is an illusion run by psychopaths to confuse and decieve their investors. The number one goal of corporations today, is to guide as much of the company income towards company executive pockets and to maintain this for as long as possible until the company explodes under the weight of impossible debt.

The reality is failed offshoring is driven by nothing but pure greed. Some executive will claim the project costs 'x' based up a salary of 'y' but by offshoring for a salary of 1/5'y' they will save money and the executive deserves 10% of that saving as a bonus, of course when it fails the executive has already received their bonus and has launched a bunch of other half-arsed schemes since then.

As for the off-shorers they are coding for a price and they will contently code what ever crap they have been told to code no matter how piss-poor the results.

Re:Faulty Reasoning

[MalleusEBHC]

If you're not aware, a bunch of "hippies in jeans and t-shirts" have done quite well here in Silicon Valley. While obviously there are many other factors at play, one reason for the success of the valley is that, by and large, nobody cares what you look like so long as you're intelligent and get your work done. Keep your suits, we'll keep our t-shirts, and call me when your fashionocracy catches up to our meritocracy.

Re:Faulty Reasoning

[SecurityGuy]

No, it's not the MBA effect. *sigh* I have an MBA. I rant about the exact same things you do. They don't teach managing to the quarter or tweaking some stupid number to get a bonus. Quite the contrary, they teach building incentive systems that DON'T reward doing stupid or harmful things to your business. The "it will cost more later" argument is perfectly well respected by any competent MBA, though of course how much more and how much later matters. The damn sad thing is that if I come in and engage in a course of action that drives a company's revenue through the roof this year, but puts it out of business in 5, the market will put the share price through the roof and give me a ton of money. The market is not composed of MBAs. It's composed of fools. The only solution I can think of is simply not to take a company public, because when you do, you have to pander to fools rather than build REAL value.

Re:Faulty Reasoning

[Darinbob]

Ha, it's similar in US too. The web turned everyone into a "dev" even if they only know HTML and some high level scripting language. So now there's a glut of programmers that just aren't very good.

As "Joel on Software" puts it, even if you're using Ruby on Rails and just push a couple buttons to create a web page, you still need to understand the fundamentals like pointers and recursion. If you can't understand those then you will have difficulty with abstraction elsewhere.

Outsourcing...

[Bert64]

If you pay someone by the hour, they will work as slowly as they can...
If you pay someone by project, they will cut corners to finish quicker.
If you pay someone by lines of code they will write bloated code.

All of this is even worse when the developers are halfway round the world and you can't keep track of them so easily, and when you don't have sufficiently clued up people on hand to inspect the code they have written.

Outsourcing sucks

[Decameron81]

I work at a company that does outsourced programming for for US and EU companies. I have been working at this for the last 5 years aproximately (always in programming & analysis roles).

I am really amazed at how much our clients undermine their own goals. I understand that cost is what drives programming jobs to my country - but I still have to see a really successful product come out of this. It would be difficult to find a single cause for this, but all of the following are at least partially responsible:

1 - Low wages.

2 - Lack of good programmers getting involved: some of the programmers you can get for the lower wages are great, some suck. I've seen companies taking just anyone interested to fill programmer positions for such jobs (you can train them, right?). Getting involved in the selection process may help prevent this.

3 - Lack of trust in the the outsourced team: you can't think of the outsourced team as a bunch of mindless morons and expect them to care about your product. In those cases in which the outsourced team was a very good team, it didn't make the slightest difference because people was told what to do, and not to think - which makes hiring inexperienced people a pretty attractive alternative.

4 - Giving more importance to cost & time, than to quality: what would anyone expect to get, when quality is secondary to time & cost? This is a huge way to undermine your projects.

5 - Communication: communication is harder when people is spread all over the world. IMHO you need to compensate this difficulty by having some tool to help you keep in touch. In my current company, we use skype, and we keep in touch at all times with the client, which really helped solve this particular problem.

6 - Planning: planning is much more difficult when delivering work to someone who is not right at your side.

5 - Etc, etc.

College Hires the real problem

[Kagato]

I think you hit on something, even if you haven't realized it. Companies don't hire first year students. The numbers have been dropping for almost a decade now. Companies get it into their head "why deal with college hires when we can use experienced off-shore". Well you can't keep a pipeline of experienced programmers in the US unless you make the investments in the next generation of programmers.

Don't be the ugly American

[RobinEggs]

The main problem I've had with Indian programmers is that a lot of them don't really understand english (even though it is the official language of India)

English is an official language of India, and not the primary one. The primary official language is Hindi - you know, their native language.

I realize it's vastly preferable that they speak English if they work for you, but you're implying there's actually something wrong with Indians who don't speak English, and that's absurd. There's nothing any more backward or stupid about an Indian who doesn't speak English than there is with a Canadian who doesn't speak French or a Belgian who doesn't speak German.

Don't practice the cultural ignorance and arrogance that befalls other Americans. I think you're smarter than that.

Re:Don't be the ugly American

[olliM]

I'm from Finland, where we don't have English as an official language. I think there is something wrong with Indians who don't speak English, same as with everyone else who doesn't speak it: they are at a great disadvantage in the international job market. I'm not saying it's necessarily their fault, they may not have access to language lessons etc., just that it's a smart move for people from anywhere in the world to learn English.

Re:Outsourced Programming Flaws

[DesertBlade]

Why didn't college teach me Lying 101 and 102?

Those are MBA levels courses