Posted on 04/13/2006 10:53:57 AM PDT by TigerLikesRooster
Outsourcing saves less than claimed
Thu Apr 13, 4:32 AM ET
Outsourcing of information technology and business services delivers average cost savings of 15 percent, a survey found on Thursday, disproving market claims that outsourcing can reduce costs by over 60 percent.
After professional fees, severance pay and governance costs, savings range between 10 percent and 39 percent, with the average level at 15 percent when contracts are first let, according to outsourcing advisory firm TPI.
"This research proves that the promise of massive operational savings is unrealistic when you take into account the costs of procurement and ongoing contract management," Duncan Aitchison, TPI's managing director, said in a statement.
"In our experience, outsourcing arrangements which focus solely on delivering huge savings often fail to meet client expectations," he added.
Cost reduction remains the primary motivation behind current outsourcing contracts, but an increasing number of companies are outsourcing primarily to improve quality, at 21 percent now versus 11 percent in 2004.
The first three months of 2006 had the largest number of outsourcing contracts ever signed in the first quarter of a year. TPI found that 83 contracts were signed, valued globally at over 18 billion euros ($21.9 billion), compared with 76 deals worth just over 13 billion euros over the same period last year.
IBM, EDS and T-Systems were the main beneficiaries of contracts let in the first quarter of 2006, winning total contract values of 3.7 billion euros, 3.6 billion euros and 1.1 billion euros, respectively.
The pipeline of deals on which TPI is currently advising is led by EDS, IBM and CSC, which are competing for deals totaling 6.4 billion euros, 6 billion and 4 billion, respectively, it added.
And no mention of the extra cost of maintaining software written by a bunch of high school equivalents with no work experience.
You get what you pay for.
Imagine that.
What say you, Gordon Gecko wing of the GOP ?
Outsourcing makes sense for routine, non-critical applications, but you should NEVER outsource your competitive advantage.
Also outsourcing requires more management skills to make it work, and most time and investment in upfront analysis gathering.
Anybody who's ever actually worked "in the trenches" on an outsourced project knows that outsourcing isn't the magic bullet that bean-counting CIOs think it is. Yes, it can help cut costs, but it can also balloon them out of control; it depends on the shop you choose for the outsourcing. A good outsourcing shop with skilled programmers, and good management, can deliver cheaply. A bad one will destroy your timelines and your budget with bad quality and constant re-work. And that's the same whether you're outsourcing to Bangalore or Bangor.
}:-)4
I disagree with you. Software coding is usually outsourced to India. They are very educated, and actually they do a very good job.
Plan on having to wait more than a day for a fix. You can't just call or email Bangalore. The programmers are asleep when you want a bug fix. You have to wait until their next work day to get an answer, then their reply has to wait until you are back at work. 2+ days to get anything done, and that is if they understand what's needed the first time.
Oliver Stone? Is that really you?
What?
Let's see, if every year a new 200,000 IT jobs (or whatever number) are created in India that weren't there last year, you probably need about 200,000 inexperienced IT people to do the work.
They are big on academic achievement and short on practical experience and creativity. If you just compare classes attended and certifications, you'll get burned. Check their track record including meeting deadlines, defects per 1000 lines of code and the picture changes. Factor in the cost of re-work by state side personnel who actually know how to do the job and the "advantage" disappears.
Please share your actual experience with meeting deadlines, completing code with all features properly tested and your test/debug metrics. What number of defects per 1000 lines of code did your outsourced programmers produce for YOU. What was the actual savings vs a qualified U.S. based person?
I'm assuming you speak from experience and you're not just spouting an unsupported opinion. You wouldn't do that would you?
Some shops have people working graveyard shifts in India so they're immediately accessible to US or EU customers. Most of the time, I do agree with you, there's a time lag there, but some companies do try and adjust their outsourced schedules to accomodate faster response to their customers. Now, granted, I wouldn't want to necessarily test the code written by somebody on the 12-8 shift in Mumbai...
}:-)4
Sorry, but I think 15% grossly overstates it, by the time you factor in longer cycles, communication miscues, poorer quality product out the back end, outsourcing is pretty much a loser... but don't tell management that... facts mean little to them.
I read a couple of years ago about a guy who has a very successful business in the Chicago area fixing the code written elsewhere.
I am not so sure that this is entirely true. Outsourcing removes a ton of Government regulation, OSHA, EEOC, Employee taxes, labor expense,retirement plans, Medical insurance ( ala Massachusetts ), Jackson blackmail, legal problems resulting from employee vindictiveness, Blacks, Homosexuals, Sexual harassments, on and on.
I refuse to increase the size of my business and hire new employee. The grief is not worth it. You have to employ a Human resource person of firm just to keep up with the changes. Employee relation rule are approaching the income tax regulation problem. This year I am a LLC, next year I have to be a Limited Partnership, next year a proprietorship, insane.
Not in my experience, India outsourcing generall means 9 babies in a month approach.. forget architecture, forget scalability, just break it up into a bunch of small parts, hand the small parts out to C grade developers and then slap it all together and send it back to the states.... to then watch it completely fall apart under real world load.
If you are writing a desktop application, perhaps you can deal with spaghetti crap with no major issues... after all if folks get a blue screen of death every once in a while who cares.. but large scale distributed systems... its an absolute money loser, and guaranteed second or third rate product coming out the back end.
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