Built on the promise of low-cost labor, the offshoring craze has taken hold across U.S. markets, from manufacturing to software. Today, however, many companies in the high tech sector are realizing offshoring’s not the panacea it was made out to be. Much of the anticipated cost savings for application development companies is not being realized.
According to Kana CEO Michael Fields, the IT company Gartner recently warned software firms of the complexities of a distributed application development: “The negative impact of miscommunication and ineffectiveness can be measured by increased application development cycle times and increased staff requirements.” In a recent Gartner report, one analyst noted that “while application delivery and maintenance by a globally distributed team is potentially cost-effective, companies must avoid risks from geographical and cultural obstacles to collaboration….and from the complexity of tracking project changes and progress.”
Fields says, in other words, communication across cultural barriers and dispersed time zones has proven exceedingly difficult—often far outweighing the initial cost savings. This is particularly difficult when development functions are being outsourced to another firm. Offshoring looks attractive on paper. Fields says, a tester in Bangalore costs about two thirds the rate as one in the Bay Area, but Fields asks what are the real costs of not having ownership of the intellectual knowledge of your products? He says, if you look at the total end-to-end costs of outsourcing, many companies are discovering it actually costs more than handling the entire process in-house. Offshoring involves considerable overhead in terms of program costs, travel costs, and project oversight involved in managing geographically dispersed teams.
Fields adds, on top of that, there is a significant disassociation between the programmer and the analyst that is designing the application—costing businesses dearly in time-to-market and product quality. This is much different than traditional manufacturing. Say, for example, you were outsourcing the manufacture of a car engine. The way the architect draws up the product schematics is clear and unambiguous so there’s no question about his intent and little room for error when it comes to the actual building of the product. Thus, says Fields, the outsourcing firm knows exactly how to build it the way the designer intended.
However, the world of software development is much more creative, according to Fields. It involves extensive collaboration between the programmer and the architect. There’s a tremendous amount of interchange and iterations involved with developing a quality product. Programmers may find as they begin development efforts that there are other ways to write the code than how the architect intended, so there’s a good deal of back and forth between the parties to find the best option.
Say, for example, your design work is kept in-house but your coding functions are performed offshore. A worker in Singapore writes several lines of code but is unclear about the designer’s instructions, or worse, misunderstands the instructions and writes the code in a different manner. Fields points out when the U.S. developer arrives at work the following morning, he discovers the mistake and conveys a message to Singapore that a fix is needed. But by then the Singapore office is asleep, causing further delays. Fields feels the lack of ability to have live conversations, or sit down and white board concepts, causes real impediments in the development process.
Fields proclaims, the high attrition rate among employees at offshore firms is causing alarm among software companies. Similar to the high tech boon in the Silicon Valley, employees are jumping from company to company, capitalizing on the demand for talent to boost their income. This loss of knowledge often results in pronounced setbacks.
Fields says, that’s why more and more software firms are backshoring. That is, bringing offshore functions back in-house for greater control and efficiency, and surprisingly, greater cost savings. Maintaining a cohesive team of developers, coders, and testers who can freely interact with one another helps foster collaboration and creativity.
Application development companies are finding this approach allows them to be more nimble and drive product innovation through better teaming and continued building of knowledge in-house.
Fields closes by saying while globalization of commerce can be very effective, in the case of application development, there’s a real value in maintaining key responsibilities in-house. These gains in product development, communication, and creativity result in greater return on investment, enabling software firms to continue to produce market-leading products.
About Verint:
Verint Systems is a provider of analytic software-based solutions for the security and business intelligence markets. Verint solutions transform voice, video, and text into actionable intelligence - mission-critical insights for achieving strategic goals. Verint solutions are used in global and diverse markets, including: governments, law enforcement, and transportation; global corporations and financial institutions; retail and gaming establishments; and telecommunications and utility providers.
Published: Monday, August 20, 2007
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