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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?"

Thinking About Offshoring As a Solution: What's The Unit of Measure?

I continue to be surprised at the continuing flight many firms are making to offshore development, even as many of the early adopters of offshoring are returning to domestic sourcing of more services (See "Return to Sender"). I think much of the pressure for offshoring comes from flawed assumptions and possibly flawed logic, both of which merit discussion.

Possibly the most pernicious situation with offshore development is the preordination or blanket directives for using offshore development. As an example, about three years ago I was in discussions with a global manufacturer about contracting with my firm to build a reasonably complex software application. I knew what the complexity of the system was because my firm had already built a very, very similar application. As we are able to do with most of our engagements, I suggested that we could do this for a fixed fee, and ballparked a fixed fee cost of approximately 1/2 of the next best (primarily offshore) development estimate they had on the table. Seems like a no-brainer, right?

Business Sponsor Responsibility in Offshore Projects

David Blake and Lance Travis of AMR Research this week released a note titled: "Offshore Outsourcing: Get It Right the First Time." [PDF] It discusses the importance of getting a company's offshore arrangements right, especially given the political backlash against offshoring. They make no mention of the practical backlash against offshoring (i.e. that it doesn't tend to really be better, faster, and cheaper) as I discussed in "Return to Sender" a few days ago.Blake and Travis identify six suggestions for laying the right groundwork with the prospective offshore partner, including:

Return to Sender

Renee Boucher Ferguson reports in eWeek this week that companies are finding that offshoring might not be all it's cracked up to be. She cites research from AMR that only one-third of companies outsourcing are satisfied with the cost savings.

Some of the challenges companies experience are the language barriers, time-zone differences, and generic cultural differences. In my opinion, it is these cultural differences that sometimes become the key. As one person in the article said mentioned, the offshore developers may be good programmers, but they aren't very good at the business logic. This is very consistent with my experience as well.

Offshoring worked in some of the Y2K conversions. You could send a box over to India and say: "send me back exactly this software but with four-digit dates. Don't change anything else." It worked well most of the time. It was highly repetitive work with very clear boundaries. It also isn't work that a good programmer could really do much faster than a poor one, it was rote.

Based on that success some companies started to shift business system development abroad. In addition to incurring additional costs to manage those supplier relationships, they started to find that communicating business requirements and getting appropriate solutions back can be a challenge. What went wrong?