Outsourcing Savings Overestimated, Study Finds

Terry Olaes

Terry Olaes

I Used to be the [H] News Guy
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If you or your company is considering the cost benefits for offshoring software development work, you might want to read this PCWorld article. A study by Compass Management Consulting has found that most companies are overestimating the savings gained from outsourcing such work, citing challenges in understanding business requirements and productivity losses.

"This means that the decision to migrate development, when you include additional management control, increased infrastructure spend, employee attrition, language, and cultural issues, can end up costing up to 20 percent more than current in-house operations," said the consultant group.
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AVT said:
Too little too late.
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Not necessarily. One reason why you see offshoring/outsourcing has little to do with money, it has to do with getting skilled workers. The US is simply NOT producing enough scientists and engineers. Even now, though its a much tougher market now than just a year ago, if you are a decent software developer with just medium range skills like me, using .NET or Java for business development, there's still work out there that pays decently.

If you have in demand skills you'll always make a living. It's not easy all the time, but its possible.
 
heatlesssun said:
The US is simply NOT producing enough scientists and engineers.
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I love this assertion: Don't you mean the US is not producing the right type of scientists and engineers willing to do undervalued work for pennies.

A good friend of mine is finishing up a PhD in Chem, is published, has won awards, blah blah blah... the starting offers she is getting are 60-70K to do monkey work with a freaking PhD. I only have a MA and even I make more than her.

Anecdote:Data... whatever.
 
auspexd said:
I love this assertion: Don't you mean the US is not producing the right type of scientists and engineers willing to do undervalued work for pennies.

A good friend of mine is finishing up a PhD in Chem, is published, has won awards, blah blah blah... the starting offers she is getting are 60-70K to do monkey work with a freaking PhD. I only have a MA and even I make more than her.

Anecdote:Data... whatever.
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I never said there weren't price pressures caused by foreign competition. But a PhD in chemistry and all she can get is 70k for a monkey job? No that's not right, I to make more than that and I don't have a college degree. Does she have any work experience?
 
I could not agree more with this article! We just lost several of our best and most experienced software engineers. Management has blind faith in outsourced labor that has not been able to deliver a working product in over two years of development.
 
Onr thing though, 60k-70k is a fair amount of money these days. No its not great but there are plenty of people who would kill for this now. I know she has a PhD but still. Do you think that the US is producing enough technical talent? I don't. I see it everyday with my own eyes. Yes I understand the price pressures of foreign labor but we still have a shortage.
 
Shaggy3zx said:
I could not agree more with this article! We just lost several of our best and most experienced software engineers. Management has blind faith in outsourced labor that has not been able to deliver a working product in over two years of development.
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If they're good, they'll be better off! Good luck to them!:)
 
I figure in another 10 years the dollar will be worth so little they'll be flocking back to the US, so we all just have to hold out until then.
 
heatlesssun said:
I never said there weren't price pressures caused by foreign competition. But a PhD in chemistry and all she can get is 70k for a monkey job? No that's not right, I to make more than that and I don't have a college degree. Does she have any work experience?
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I hear that pain. I'm in the same boat. Chemists are getting screwed right now with outsourcing. 5 years beyond BS of 60-70 hr weeks to get a PhD and now the jobs are gone. Such is life I guess.
 
Tokamak said:
I hear that pain. I'm in the same boat. Chemists are getting screwed right now with outsourcing. 5 years beyond BS of 60-70 hr weeks to get a PhD and now the jobs are gone. Such is life I guess.
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Exactly. My friend even has work experience by way of running a lab for 3 yrs. My point is this: I'm all for doing what you love / are good at but sometimes you have to weigh time vs benefit. Should I invest the 5+ years in getting a PhD and all the bs that it entails with little compensation as a result unless you are very lucky and/or connected?

Hmmm tons of bs, schooling, publishing, monkey lab work and the like for little reward or get a quick MBA or JD and make the same amount or more in less time. Real tough choice. As I said, I see nothing wrong with paying your dues and working in the trenches for a while but a PhD in chem making 70K is bloody ridiculous. And people wonder why we don't produce tons of scientists anymore...
 
auspexd said:
Exactly. My friend even has work experience by way of running a lab for 3 yrs. My point is this: I'm all for doing what you love / are good at but sometimes you have to weigh time vs benefit. Should I invest the 5+ years in getting a PhD and all the bs that it entails with little compensation as a result unless you are very lucky and/or connected?

Hmmm tons of bs, schooling, publishing, monkey lab work and the like for little reward or get a quick MBA or JD and make the same amount or more in less time. Real tough choice. As I said, I see nothing wrong with paying your dues and working in the trenches for a while but a PhD in chem making 70K is bloody ridiculous. And people wonder why we don't produce tons of scientists anymore...
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We have to het the scientists from somewhere however kind of a catch 22. I wish that things were better for pure scientists because we need them!
 
i bet this study was funded by the companies that have shipped jobs overseas
 
heatlesssun said:
We have to het the scientists from somewhere however kind of a catch 22. I wish that things were better for pure scientists because we need them!
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You seem like a reasonable person and yes we do need them but will government and corporations pay for them when a cheap alt exists? Probably not.

This is why both of us discourage people who ask for specific career advice. Are you a white male thinking about teaching K-12? Don't do it. Thinking about pure science research? Don't even think about it unless your last name is on a library. A career in systems programming? It sucks.

Heh, you should have seen her on career day at her daughters school. "Real science is hard and doesn't pay. Go applied sciences or project management kids, that is where the money is"
 
It's about time. This free market economy is BS. Yeah I agree to a riddance of a tariff, but it should be a equal market economy based on the number of nations agreeable on peaceable trade, not just on which nation has the most population.
 
auspexd said:
A good friend of mine is finishing up a PhD in Chem, is published, has won awards, blah blah blah... the starting offers she is getting are 60-70K to do monkey work with a freaking PhD. I only have a MA and even I make more than her.
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And for that reason right there, is why less and less kids are actually completing college. Why on earth do you want to get a good education, when you can be a hired hand for the same kind of money?

It's two things.
A) Bachelors degrees are the new high school education. High school nowadays is a freaking joke.
B) Companies undervaluing the skilled positions (as per the example you gave).

I'm just wondering how long it's going to take America to wake up.

heatlesssun said:
Onr thing though, 60k-70k is a fair amount of money these days. No its not great but there are plenty of people who would kill for this now.
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60-70K is slightly above average. 60-70K is what your "typical" office worker in a good company should be making.
The problem along with this, as I said above, you can go work in an oil field for $45/hr and make some serious money. Granted, obviously right now they aren't hiring as fast though.
 
TechieSooner said:
60-70K is slightly above average. 60-70K is what your "typical" office worker in a good company should be making.
The problem along with this, as I said above, you can go work in an oil field for $45/hr and make some serious money. Granted, obviously right now they aren't hiring as fast though.
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You could also get a snoozer of a job as an installer for AT&T at $30 too and save yourself the pains of grunt labor!
 
ZDPhoenix said:
You could also get a snoozer of a job as an installer for AT&T at $30 too and save yourself the pains of grunt labor!
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Exactly. Lots of examples. The point is that things aren't exactly encouraging kids to go through college anymore.
 
If you guys want to see the frustration that is occuring in the American IT industry, check out the forums on dice.com, where people who have been unable to land an interview for months go to vent.

If I was Indian I would almost fear for my life in this country after reading some of the posts on there.
 
heatlesssun said:
I never said there weren't price pressures caused by foreign competition. But a PhD in chemistry and all she can get is 70k for a monkey job? No that's not right, I to make more than that and I don't have a college degree. Does she have any work experience?
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There are many people who seemingly equate cost of education or educational achievement with deserved salary. That is not the case. The market decides.
 
TechieSooner said:
Exactly. Lots of examples. The point is that things aren't exactly encouraging kids to go through college anymore.
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When the priority on education in this nation is just rhetoric that's gonna happen.

But hey, they could go to school in Texas and learn about Jesus and his dinosaur buddies in biology class!:D
 
ianken said:
When the priority on education in this nation is just rhetoric that's gonna happen.

But hey, they could go to school in Texas and learn about Jesus and his dinosaur buddies in biology class!:D
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:rolleyes:
 
KingPariah777 said:
US not producing enough engineers? Get real. :rolleyes:

http://www.youtube.com/watch?v=TCbFEgFajGU
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I've seen this a hundred times. I'm not saying that this doesn't happen. The thins is in my industry, plain old business software development, everyone I know, have know for years, have had problems finding jobs. Even after the dot com bust it would only take me a day or two to find a good paying contract job.

Yes, there is a lot of foreign labor in the business these days, much more so than just five years ago. But everyone SEEMS to be working. How can all of this foreign labor come and there still be a good job supply. Granted things are tight now, but still, without the influx of foreign labor, I have no idea where the bodies would come.
 
ianken said:
There are many people who seemingly equate cost of education or educational achievement with deserved salary. That is not the case. The market decides.
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That's very true. But as we've seen, the market's not always right. It'll be interesting to see what happens when our country suddenly needs a ton of highly educated people like in WWII and everyone realizes there's a 30 year lag time between supply and demand. Free market's great when you're trading oil or corn, but 25 years of education? Kind of tough to bounce that around like commodities. But like I said earlier, such is life.
 
As someone who interfaces with overseas IT service providers on a regular basis, its like anything. Some of them are real good, and some of them are so bad they literally cannot do the job they promised to do. The biggest thing is the distance and communication issues.

However, even in the case when they are technically competent, there are other issues. How does it save our company money if a project takes 2-3 times as long as it should because we constantly have to re-explain our specifications, and every conference call has to be made on *their* schedule 11-12 hours opposite ours, over crappy IP phone connections?

Outsourcing is only good if you don't know the work is outsourced. As a customer, we should provide our specs and timeline requirements, and they should provide the results, on time and on cost. If they continually fail to do that, what exactly are we saving?
 
Monkey God said:
As someone who interfaces with overseas IT service providers on a regular basis, its like anything. Some of them are real good, and some of them are so bad they literally cannot do the job they promised to do. The biggest thing is the distance and communication issues.

However, even in the case when they are technically competent, there are other issues. How does it save our company money if a project takes 2-3 times as long as it should because we constantly have to re-explain our specifications, and every conference call has to be made on *their* schedule 11-12 hours opposite ours, over crappy IP phone connections?

Outsourcing is only good if you don't know the work is outsourced. As a customer, we should provide our specs and timeline requirements, and they should provide the results, on time and on cost. If they continually fail to do that, what exactly are we saving?
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Very true.

I interact with no less then five seperate departments who are "half way" outsourced in my job, and it's very frustrating. There are a few folks who I know are very competent based on my interaction with them, and I can trust to help with my customer's issue. However, for the most part, they just have no idea what's going on because it is not in their script. Beyond that, there is a horrible latency on their VoIP systems and some language barrier issues that just will never be overcome, despite what our management says. As such, I have to play a retention agent in addition to my normal duties as a rep. Our field technicians, collectively, will not deal with them.

I understand the all-consuming desire to save money to help the bottom line. I may make three times what they do over seas, however, I do three times the work in a quicker amount of a time and I have the capability to think outside the box, all the while carrying on a pleasant conversation and laughing with the person having issues.

As far as the US not producing enough engineers and such, I believe that to be a fallacy despite what research shows mainly because I know more then a few people who cannot find jobs for one reason or another, any where in the country.
 
ianken said:
When the priority on education in this nation is just rhetoric that's gonna happen.

But hey, they could go to school in Texas and learn about Jesus and his dinosaur buddies in biology class!:D
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:rolleyes:
The second part of that post was ridiculously off track.


To the above few posts... I can't stand the Indian programmers. I've had more than one case where A) they didn't text their fixes B) they installed it and it glitched out, didn't text it and C) It broke something else and they didn't fix it.

And obviously, being in a different time zone, good luck getting hold of them.

They're cheap labor. As with anything, you get what you pay for.
 
The company I used to work for jumped on the outsourcing bandwagon early on. We all knew it was a mistake but you cant tell dumb execs with a wallet for a brain.

By the end of my time there about a year ago, a developer in the UK cost around £200 a day and the developer in India £300 a day. That and the fact the works took three times as long in India cos they 'like to do their own thing' there.

Suffice to say most of the India sector has been quietly dropped.
 
ZDPhoenix said:
Well yeah. You know... hindsight?
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I'm not sure what hindsight has to do with it. It wasn't hard to predict the outcome back then.

The period you cite is when I started to notice a shift in recruitment practices from identifying 'transferrable skills' (e.g. programming) to insisting on unreasonable expertise (e.g. 5 years of Java experience on a language release in 1995).

Apparently, someone in HR World made the observation that there was a glut of generalists and they could afford to a) be picky, or b) re-hire @ entry-level.

It's not just an IT problem, of course. A friend of mine with 10+ years running a magazine was turned away from an editorial job for not having 'newspaper' experience. This was in 1998.
 
heatlesssun said:
The US is simply NOT producing enough scientists and engineers.
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As an engineer I would like to call a bullshit on that one, the US produces tons of engineers then promptly pisses them off to the point where they go into other fields such as food preparation service, sanitation technician, jiz mopper, etc. why, it pays better. Engineers in the US get farked hard in pay these days, what I get paid right now should be a crime thus I have fallen into the mindset of you get the effort you paid for just like the rest of the engineers in the US.
 
Nanan said:
As an engineer I would like to call a bullshit on that one, the US produces tons of engineers then promptly pisses them off to the point where they go into other fields such as food preparation service, sanitation technician, jiz mopper, etc. why, it pays better. Engineers in the US get farked hard in pay these days, what I get paid right now should be a crime thus I have fallen into the mindset of you get the effort you paid for just like the rest of the engineers in the US.
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I dunno, I was in an ASCE (civil) meeting up in Baltimore a few years ago, and the speaker was already "warning" us about this. It came across as almost a rally speech, something along the lines of "the US needs leaders like you" lol. But if I'm hearing this in the civil industry 3 years, it's kind of disturbing. I mean, civil really can't be outsourced since civil = site work. And good luck managing site work somewhere across an ocean.
 
When you lay off the people that can afford to buy your product and sing its praises, suddenly you're not selling as much product. Might want to think about that next time.

I think QA is a big deal too. When Dell offshored several years back, support was so bad I resolved I'd make them pay any money they saved by requiring that a tech come out to fix the machines, rather than telling them to just send me a part. That starts to add up --the corporate backlash in poor quality eventually forced Dell to move its business support back here. Also, the U.S. call centers solved my issues in 1/4 the time the overseas ones did, negating some of the advantage of cheaper labor.

Outsourcing looks good for about 6-12 months on a balance sheet some beancounter may be reading, but those that understand the big picture ought to know better.
 
Nanan said:
As an engineer I would like to call a bullshit on that one, the US produces tons of engineers then promptly pisses them off to the point where they go into other fields such as food preparation service, sanitation technician, jiz mopper, etc. why, it pays better. Engineers in the US get farked hard in pay these days, what I get paid right now should be a crime thus I have fallen into the mindset of you get the effort you paid for just like the rest of the engineers in the US.
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Sure some of this happens but we are only producing half the number of engineers per capita as China and India each with the real number being about three times more.

This IS a problem from every study and all the numbers I've seen and from what I see in my on field. The bodies are not coming from onshore and yes compensation is a big part of the problem.
 
Tokamak said:
That's very true. But as we've seen, the market's not always right. It'll be interesting to see what happens when our country suddenly needs a ton of highly educated people like in WWII and everyone realizes there's a 30 year lag time between supply and demand. Free market's great when you're trading oil or corn, but 25 years of education? Kind of tough to bounce that around like commodities. But like I said earlier, such is life.
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Ding ding ding, the winner is you. People need to get over this 'free market' messiah complex. First, no market is really free because human nature being what it is will always find some way to game the system. Second, the free market is great for trading commodities and specie assets but it runs into serious problems when faced with long maturation rate soft investments like skilled workers.

I pose this question again. If you could attend a MBA or JD graduate school for 2-3 years and make the same or more in less time and hassle (not to mention effort) than getting certified or a degree as an engineer or a PhD in a hard science... what would you choose?

I know what I would do. That is why I have been taking positions which move me further and further away from IT.

/Rant on
Industry people talk about bodies this and bodies that, numbers this and numbers that. The thing they overlook is China and India have a different type and style of university. The whole mindset and philosophy runs counter to our own, not necessarily bad or unskilled, mind you, just different. I have worked with h1bs in the past and most of them are horrible in the same way: No critical thinking or transferable soft skills; however, they are great at following exact directions or scripts. The exception being a prodigy from China who was super cool, personable and could code anything out of anything.
/Rant off
 
The real point, in a strategic or "National Economic Security" sense that the decision makers either miss or don't give a fuck about is:

China can feild, today, a college educated workforce for export that can replace EVERY SINGLE WORKER in the United States. From the toilet cleaner to the Chairman of the board.... 145,000,000 workers.

And the Chinese wouldn't even notice they were gone.

I have an idea.... we hire them, all of them, for 1/3 what we pay the current workforce, and then we split the remaining 2/3rds with the Government 70/30, and we all stay home and enjoy ourselves. Learn a hobby, take up a musical instrument, read some books, whatever... we'll never have to work again!!!

The government will cost alot less, afterall, we replaced all the Americans with Chinese anyway.

100% retirement for everyone.... yeeeeeehaw! All the shit still gets done, and American's are officially retired.

We'll keep the defense industries and military staffed by Americans, but for sport, not as a job. If you would LIKE to go shoot Hajji's.... volunteer, enjoy your retirement abroad, with luxury accomodations aboard US Navy ships, or at 5 star resorts the Army runs "incountry". :eek::rolleyes::p
 
If I knew you in real life, I would probably be arguing with you all day and night. Lol. I hope these aren't your real sentiments. If they are, you need to study political economy a little more. Maybe get a degree in it like I did. :D

xX_Jack_Carver_Xx said:
The real point, in a strategic or "National Economic Security" sense that the decision makers either miss or don't give a fuck about is:

China can feild, today, a college educated workforce for export that can replace EVERY SINGLE WORKER in the United States. From the toilet cleaner to the Chairman of the board.... 145,000,000 workers.

And the Chinese wouldn't even notice they were gone.

I have an idea.... we hire them, all of them, for 1/3 what we pay the current workforce, and then we split the remaining 2/3rds with the Government 70/30, and we all stay home and enjoy ourselves. Learn a hobby, take up a musical instrument, read some books, whatever... we'll never have to work again!!!

The government will cost alot less, afterall, we replaced all the Americans with Chinese anyway.

100% retirement for everyone.... yeeeeeehaw! All the shit still gets done, and American's are officially retired.

We'll keep the defense industries and military staffed by Americans, but for sport, not as a job. If you would LIKE to go shoot Hajji's.... volunteer, enjoy your retirement abroad, with luxury accomodations aboard US Navy ships, or at 5 star resorts the Army runs "incountry". :eek::rolleyes::p
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