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

I outsourced this first post!

[Anonymous Coward]

Seems to work ok.

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

[Anonymous Coward]

My company outsourced a piece of a project (GUI redesign). The result looked good and met the requirements but turned out to be inadequate. No error conditions were handled, any change to the test cases caused it to fail. However, since they brought it in on cost and schedule they were given a larger piece as a follow-on. We ended up rewriting both the GUI and the second piece and were late by a year. You can blame the spec (they did) but no US developer that had to support the finished product would have done shoddy work. I think the outsource company did it deliberately because they expected to be paid to fix all of the problems.

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

[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

[compro01]

Available evidence suggests you can sell an unfinished program just fine.

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

[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

[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

[donscarletti]

In response to the suck speculation. I know some really good Chinese programmers in Beijing, Shanghai and Guangzhou. They're not going to work for $14 and hour, unless you throw in a percentage of the company's shares and some serious pandering from management. Crap Chinese programmers cost about RMB¥5000 a month, about US$5 an hour, but prices climb extremely sharply after that. Outsourcing companies will hire those crap ones and pocket the difference, every time.

There's nothing intrinsically wrong with Chinese, Indian or whatever programmers. It's just the Chinese companies, and I assume Indian companies who actually need to sell their own product want to hire the good engineers to get the job done and so they are in demand in the market and thus expensive. To an outsourcing company however, maintenance is an externality, they don't care if something is well engineered, just if it meets the requirements to the letter, or at least appears to then its good enough, so anything will do.

Why would you go with a Chinese outsourcing company then? Well, I am in the business of making good software, but here's how it would go if I wasn't. I'd fly you on a junket and you'd stay in a 5 star hotel, paying for a few extra nights because who wants to go on an overseas trip without seeing the sights. You'd come to my office in Beijing, it is big, has a lot of people in it and they look like they are working hard. I would then precede to show you some professional looking slides and give you some serious false impressions as to what we have delivered in the past and I'd deliver it with such unerring conviction you would have to believe it. Then I would take you out to dinner, Peking duck, abalone and alcohol, I would invite some girls from the office, receptionists etc., who would smile at you and blush when you try to speak English with them, that's just what Chinese girls do, but you feel like they're into you. Then I would take you to do something else, grand sights, more booze, or a really, really good prostitute.

Now, this is what a Chinese sales guy will give your manager: optimism, presentation and vice. What can you give him? Well, results presumably, but they come later. Up front you can only give him cautious estimates and a list of things that can go wrong. Why would anyone but a non-idiot manager choose a local team of engineers who know what they are talking about when he can have a free holiday to an exotic country and hear some really pleasing things?

Outsourcing companies are there to make money, pure and simple. Nice things cost money, that can be good engineers (local or overseas) or it can be the sales team and what the sales team and their junkets and presentations.

By they way, I'm obviously not North American, but I've worked with American engineers, a few of them have been really great, most of them have been quite ordinary, kind of like what you get here in terms of ability, but usually a little more methodical and steady. The advantage is mainly that you know what you're getting when you hire locally (or find your own talent overseas rather than relying on an agency).

Re:Faulty Reasoning

[scamper_22]

I sometimes wonder if it's that business is *evil* or if they simply don't know. I know it's easy to assume they're evil, but the more I work in this field, the more i think it is simply that they don't know.

Almost all of our business folks come from either a finance background or are a product of the industrial revolution.

Finance... well all they want is to plug in some equations and compare numbers and that's the end of their thinking.

Industrial management is all about GOOD PROCESS and fungible parts. You need a few skilled people to design the process and assembly line... then the people are replaceable cogs. 95% process, 5% people is they key to success in the industrial age. Because R&D costs are typically small relative to the manufacturing costs, R&D was typically allowed to do its own thing. If costs needed to be made, why cut the R&D... there's plenty of manufacturing workers (fungible parts) to cut.

Now what do you when manufacturing is no longer a key component of your business. As in software. When business looks at costs... the only thing they can replace the manufacturing worker with in their minds is... the people in R&D. They're the ones making things. They cannot conceive of a world without fungible parts. Even though the fungible parts have all been automated (the whole point of computing). The compiler does the manufacturing. Yes, there are still some parts that are not fully automated, but that's just waiting to happen.

They simply take all their old industrial age management techniques and try and apply it. Remember it is 95% process, 5% people. This is why you get such an emphasis on project manager, product manager, technical manager, programmer, workflow... They are trying their hardest to just build a process that will make projects successful.

Now some companies do get it. The industrial revolution is over. You need to learn new skills. So the big tech companies for example... get it. It is 95% people, 5% process. It has more in common with a guild of craftsman or a profession. They luckily only need to deal with the madness of finance people. But at least they've rid themselves of industrial age management.

And it is changing. The big companies that DO software do get it and have changed. Increasingly they're making their products into services (yay... cloud computing)... I don't see much of a future in outsourcing itself. Which I guess means if you feel threatened by outsourcing... I'd feel just as threatened being on the outsourcing side.

Off shoring is another issue all together. If they can get very skilled people in another country for cheaper...they will and that is not the same as outsourcing.

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

[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

[AK Marc]

But the investors aren't the shareholders. I have $200k+ in stock somewhere. But it's in mutual funds. One of the "requirements" when you join a mutual fund is that the fund manager is the shareholder, even if I own the shares. That simplifies their work and divorces me from any control of the entity I "own." So really, you are arguing against the current mutual fund trend, and not anything else.

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

[indian_rediff]

Mod parent up. The number of people that discount the short-term thinking of outsourcing cannot be overstated (parse that - hopefully I wrote it right).

I have looked time and again for over 10 years (having been laid off twice - once directly attributable to outsourcing and the second time to the current downswing) as to when this wave of outsourcng will change.

PHBs will look at the bottom line alone.

Let me give you an example. At a bank I worked at, we had a memo right from the top - for every local hire, there MUST be at least 7 overseas - otherwise the local hire is not allowed. I found the quality of work being done there sucked! Of the 800 odd people on various projects, there were more than 700 offshore - the rest were onshore - and I was privy to those rates. Offshore rates were 1/5 of the onshore equivalent. I remember one of the local bosses railing at one of the onshore representatives of the minions at the quality of code being delivered. It seems if a zero was entered into a field instead of a non-zero number, the web app would crash (or it was something equally stupid - please don't hold me to actual issue).

Given that these banks took such a large amount of money from US taxpayers, the least they should do is to ensure that any new jobs they have are given to onshore people. Instead, they have gone extreme - and are offshoring more than ever. Ingrates R Us.

Background: I am originally from India, one of the original outsourcers and have seen, with mine own eyes, the precipitous fall in quality of the offshore developers. Until about the mid- to late- 90s, things were not so bad. But Y2K changed all that. All and sundry became s/w developers. And the rest, as they say, is history.

Re:Faulty Reasoning

[mcmonkey]

> 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).

Actually, it's already happening. US companies that are moving IS jobs over seas are behind the curve. Companies that shipped jobs over in the 1990s are starting to bring them back.

One reason out-sourcing/off-shoring doesn't same money is management. You need on site management where ever the programmers are, but you still need the management structure at the home office to oversee projects.

Another reason is just we just haven't figured out how to work in remote teams. There certainly are exception, instances where teams of people geographically separate have turned out a successful project. But those are the exceptions. In most cases, conference calls and shared desktops just can't replace sitting next to someone and looking over their shoulder at the screen.

Re:Faulty Reasoning

[tompaulco]

Public companies exist soley to raise their stock price any means necessary by utilizing creative financial ratios. CEOs get their raises or get fired by them.
That's not what public companies USED to exist for. They USED to exist ti make profits and pay dividends. Now, every shareholder imagines themselves to be a daytrader and insists that if the stock price doesn't go up, then the company is doing something wrong.

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.

Re:Faulty Reasoning

[garyebickford]

Ha. I used to know (distantly) the scion of a self-made man (I've known several of those, actually). The founder of the company started out during the early days of the Depression. He was homeless, no education, either 1st or 2nd generation immigrant. He walked along the roads picking up bits of metal, and carrying them to the scrap recyclers to make a dime. He slept under bridges. Soon he found enough materials to build a little push cart, and he was able to pick up and bring more scrap in each trip. (I don't know but I assume he also picked up and sold or used stuff that was too good to go to the scrap guys.). Eventually he scrounged up enough money to buy a truck. By then he was able to afford a room in a small fleabag hotel.

By the time of WWII he had a rather successful business, recycling metal.

After WWII he got in to scrapping out war materiel - old ships, jeeps, etc., cutting them into pieces and sending them to the steel plants for reuse. By the time I was sentient Zidell Explorations was a huge presence on the waterfront in Portland OR, running a half mile or a mile along the waterfront. There were always from four to six old ships, military and commercial, getting torn apart. By the late 1960s most of the metal was getting loaded onto ships and sent to Japan, where it was turned into Toyotas. Zidell was one of the largest companies in Oregon by then.

He died. His son had no interest in the business AFAIK. From what I was told he just bought houses and cars, and white powder, and women. He was, by all accounts, a very rich and very bad MF. He did spend some time in jail, IIRC for felony assault.

And thus, just as in The Good Earth, the money recycles back through the system. Others made lots of money selling him toys.

Folks who grow up rich have a very serious disadvantage - they don't have that driving motivation to NOT BE POOR. So they don't work that extra hour. So, generally, they end up working for someone else. They may get paid a lot, but they are still working for the guy, or the family of the guy, who built the company.

And that is the point. Except for the very biggest corporations that were formed out of mergers, back in the day there was one person, or a few persons, who started from almost nothing and BUILT THAT SUCKER. And those are the CEOs and Chairman of MOST corporations. I'm not saying they are nice people - but most of them are indeed self-made, still to this day.

Outsourced Programming Flaws

[Nova Express]

Having been involved in many outsourced projects, a number of problems tend to crop up again and again:

1. Offshore programmers frequently lie about their programming skills
2. Competent Indian programmers tend to do fairly well if given very explicit instructions, but are at a loss if something unexpected comes up. They tend to be less adaptable and nimble than U.S. programmers.
3. It ends up taking longer than estimated, even for simple projects.
4. Hand-holding and rework end up eating up all time and money savings.
5. By the time an offshore programmer has skilled up enough to actually be useful, they leave for a better position. (Especially true for India.)

To my mind, outsourcing programming is a management fad that is (hopefully) already falling out of favor due to poor results.

Re:Outsourced Programming Flaws

[Rogerborg]

That's it, exactly. Same experience with Malaysia and Korean devs and managers. The answer is always "Yes, yes, of course, we will do that, no problem," to any question. I understand that it's partly cultural; it's considered rude to just say no. But it goes way beyond that: they will lie straight to your face (or over a video link) and actually get tetchy about being questioned, even when they have a track record of failures and screw ups behind them.

Other fun things to deal with are the rapid staff turnover, the guarantee that they'll take the code you paid them to write with them to a competitor, and that you might find that you don't even have a copy. Keep the source repository under your control, and no commitee, no payee.

From past experience, no.

[HappyHead]

I once did some contract work for a place that made the mistake of outsourcing a major programming job. My job was to maintain the outsourced code, and keep it functioning (barely) while the internal programming team worked on building a complete replacement from scratch, at half the cost, with the actual system requirements being fulfilled. I spent four months fixing bugs in deliberately obfuscated perl code, at consultant rates, because none of the internal staff they had hired was either able to figure out perl code in general, or willing to even try to sort out that mess. The outsourced programmers in question had the dodgy business practice of deliberately making their code difficult to read, and only including comments like:

# 16426-b

The code in question contained wonderful constructs such as pointless loops where a value would be iteratively divided by the numbers from one through a thousand, then restored to it's original value without being used in the altered form. I started the project with about 6 million lines of perl code, and by the time it was over and the replacement was ready, tested, and brought online, there were only 2 million lines in the outsourced code, including about ten thousand lines of comment code that had been added while I was working on it. I hadn't even looked at about half of the remaining code.

After the initial work was done (poorly), the outsourced programming company announced that their code maintenance fees were being increased, thinking that their poor coding style had essentially locked the client in, and left them unable to get help elsewhere. The only staff member the company had who was willing to make the attempt unfortunately committed suicide after only a month of trying. (Personally, I believe it was unrelated, but the other programmers there claimed she was perfectly fine until she started working on that code... after two months of it I could see why they would think that.)

So yeah, in my experience, outsourcing programming does not save money - if the company I did that work for had just had their own people write the original code, they would have saved a massive amount of money.

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.

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.

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.

They might as well be aliens

[rsilvergun]

for how much removed they are from the system. The owners that is, not necessarily the managers, but the owners set the policies and tones. Adam Smith lived in a time when it was safe to assume the capitalists would live near the means of production and thus suffer the consequences of their actions. He didn't see satellite communications coming. For what it's worth Karl Marx talked about this; e.g. how capital owners would be insulated by pitting labor in one economy against another; but all anyone can remember about him is that a bunch of dictatorships borrowed his books for rhetoric...