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The Limitations of Offshore
Considering the limits of offshore outsourcing plus looking at a new paradigm, that of hybrid nearshore

by Jim Diorio, Venice Consulting Group
Tuesday, October 04, 2005

Over the past decade we have seen a technology expansion that has touched all industries and created new demands and often unrealistic expectations for Information Technology groups. Technology professionals were faced with new demands to build product faster, better and cheaper than ever before.


When the bubble burst, the impact was especially damaging to the reputation of the class known as "consultants". Couple this with a dubious business environment fueled by corporate corruption, credibility issues in the backbone of accounting and consulting and a crawling economy and suddenly the technology sector became an ink blot on the finest of enterprises.

The use of technology is no longer a business advantage for most, but rather a competitive necessity. In the face of this new environment, budgets shrank, belts tightened and CIOs were told to deliver more with less.

The IT Solution

Reaching outside of the US to offshore development suddenly became a great idea. Firms could send work to nameless, faceless workers who had no real interest or bias other than delivering applications at a cost lower than imagined.

Of course, the idea of going offshore was not new. For years companies had reached across the ocean to supplement their workforce for large scale projects. But now offshoring as a strategy had suddenly achieved new awareness and was perceived by many as a panacea, a great way to deliver on projects with shoestring budgets.

Offshore Challenges

Historically the US has always looked to outside its borders for cheaper labor as she forged ahead as a global innovator. The challenges of IT development, however, make this generally well-regarded business approach dubious at best. Sending work to India, China or Russia is not a new idea and does have some immediately seen advantages, the main one being cheaper labor. But the risks associated are not inconsequential.

Time Zone: Offshore teams are in a different part of the world and thus a different time zone. While US constituents are working from 7am to 6pm, the offshore team is sleeping. And when your local technology manager is going to bed bleary-eyed, the offshore team is getting up fresh. This is in addition to the fact that in-person collaboration is made problematic at best. Differing time zones present management challenges, increased cost of travel, and communication breakdowns.

Language Barriers: Communication has long been a barrier to project success in the best of circumstances, when everyone on the team has the same native language and culture. Working with offshore teams can amplify miscommunication; it is common that ideas can be missed and issues can be misinterpreted. Offshore teams add additional risk via language barriers.

Cost Bloating: Offshore resources can be 75% cheaper than stateside resources. However, when calculating the Total Engagement Cost a few things often overlooked include travel time and cost, re-work required because of confusion, inefficiencies in the development team, and US team checks and balances to name a few. So while it is cheaper to go offshore, it is generally not the discount that it seems once all is said and done. Offshore projects include costs above and beyond the discounted hourly rate.

Efficiency: Why have one person do the work, when two can do it just as inefficiently? In order to deliver on shrinking schedules, the obvious solution is to staff up a team. Technology professionals have long known that more resources is simply not the answer. However, when resources are so inexpensive, it often seems a logical solution. The reality is, offshore teams are simply not as efficient as local teams who have direct access to the project stakeholders, managers, networking and infrastructure staff.

Quality: Call almost any PC vendor help desk these days and you will be connected with a very polite agent committed to solving your problem. They will be very happy to take all of your information and spend as much time on the phone with you while walking through the a script to coddle you, the frustrated client, with the hopes that the issue falls inside of one of the "50 most common" concerns for that make, model or product. The same is true for development as it is for a help desk. The culture is different, the training is different and the knowledge base is different. Offshore quality is an issue

Manageability: If managed properly all of the above should be non-issues. In reality, the factors above yield a real management challenge. Project management is challenging enough with the team in the next room, never mind halfway around the world. Offshore managers are finding themselves working swing shifts, handing off plans with other managers, wrestling with achieving results over the phone, wasting hours trying to find information, etc. The list goes on and on. Offshore teams are hard to manage.

Companies who went full bore across the water to find a better, cheaper, faster technology team soon found out that it was more risk prone than ever, and the challenges identified above provided a whole new way for project mangers to augment their already amplified stress levels. Throughout my career I have logged my share of sleepless nights "managing" projects.

The Nearshore Model

For the most part, technology development has gone from innovation to a commodity. Having said that, the risks outlined above about moving offshore are very real. To that end, I propose a real solution: the Nearshore Hybrid Model.

First, what is "nearshore"? Nearshore is an "across border" team that is on the same continent, in a country such as Mexico. Mexico is a rapidly developing country with incredible resources, and a deep and talented labor base. Nearshore partners provide dramatic costs savings for commoditized development while at the same time mitigating many of the challenges of going offshore.

Timezone: Nearshore partners are in the North America and work in the Central time zone. This means that not only is the whole team working together geocentrically, team members are only a few hours away from each other if need be. Nearshore resources often join the US teams as needed, but may return to their home development center when their presence is not required, further reducing travel costs while at the same time promoting high bandwidth communication.

Language Barriers: Culturally our North American neighbors share many commonalities with us. The language gap is greatly reduced and, in many cases, all but unnoticeable.

Cost Bloating: Ironically, given the proximity, cost bloating is greatly reduced. Cost overruns due to design challenges can be caught early. Resources can collaborate via phone, video or live much more effectively and team sizes can be optimized instead of maximized.

Efficiency: With the nearshore hybrid model, in general, fewer resources are required to accomplish the same task. There are reduced management costs and less need for "overflow" developers who are on deck specifically to address some of the risk points identified in this discussion. And fewer developers mean real cost and time savings.

Quality: There is a tremendous push on quality from nearshore firms, and a diligence and attention to detail that is really exceptional. Knowledge and abilities rival that of the US, and nearshore vendors also strive for and have achieved standards qualifications such as CMM level 5.

Manageability: All of the above factors yield a much more manageable team and project. The ability to have real business day exchanges between technical counterparts is tremendous. There is no substitute for real-time communication, and when combined with a highly focused, optimized team, a good portion of project risk is reduced.

Of course, there is still risk. It's not quite as easy as sending a project south of the border and getting a working application 8 weeks later. This leads to the final topic of this brief.

The Nearshore Hybrid Model

One of the biggest ways to mitigate risk is to have a local team. A better way is to have a team of experienced, seasoned, senior professionals who facilitate all of the application design and management, and then ensure that any work done nearshore is done properly.

This is the heart of the new nearshore hybrid model. Local, US-based, senior consultants can directly interface with the client and address all requirement gathering, analysis, design and project management. This same team then manages a nearshore team at substantial cost savings to the client. The result is the cost benefit of going nearshore without the headaches seen with offshore projects --the process is typically completely transparent. Finding consultants who have been successfully delivering on this model for many years and have a proven track record of satisfied clients is critical. For many companies, the nearshore hybrid model may be just what the doctor ordered.