Gartner on Why IT Offshore Deals Fail

Gartner released some research last week, summarized in this Computerworld article ("Gartner: Five reasons why offshore deals go bust"). I think they are charitable in a number of ways, but the five main reasons they identify are:

Unrealized cost savings. As they point out, while offshore salaries may be lower, the additional costs of management, travel and infrastructure can rapidly eat into those savings, and for shorter-term projects (they suggest those less than one year, for certain) these costs may actually exceed the labor savings. For a more elaborate discussion of this issue, see my comments in late '04 "Thinking About Offshoring As a Solution: What's The Unit of Measure?"

Loss of Productivity for a variety of reasons. Because of how hot the outsourcing market is, turnover in major offshore areas is higher (and high turnover is a productivity killer in large projects). They further suggest that the negative morale impact in the home office can further drain the net productivity of the offshore deal.

Lack of Commitment by management during the course of the deal. I can very much understand this. Some managers have an out-of-sight, out-of-mind view of software development, and may pay no attention to a business-critical project as long as there isn't a crisis; of course it's too late by then. See my comments on "Business Sponsor Responsibility in Offshore Projects" from last September.

Cultural Differences. I discuss some of this issue in "Return to Sender," but Gartner does point out a key thing that a lot of people forget (and some maybe view as a benefit): many big offshore regions are culturally biased against any form of disagreement, so developers can be prone to pushing ahead with an idea they know is flawed rather than point out the error in the requirements. Gartner's solution to this problem is cultural training and cultural exchanges. Somehow I feel like that will only feed into the ancillary costs of offshoring.

Lack of Offshore Expertise. Basically, companies seem to embark on an offshore deal before they really understand what is involved with managing it. As usual, silver bullets rarely are.

Gartner also suggests that a company consider their own software development capabilities. They don't come out and say it this way, but the bottom line is that offshoring application development is fundamentally different than contracting development to a project-based custom software development firm. In the latter case, the firm is paying for the expertise to deliver a business solution. In the case of offshoring, the firm is really buying programming labor and maybe some line-level management labor, so if the buyer can't manage a software development project on their own corporate campus, then good luck doing it twelve timezones away.

Comments

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