Several years ago, I joined a major PLC here in the Twin Cities as the Chief Technology Officer for Minneapolis & Chicago. On day 1, I was told that this division’s Outsourcing was failing, but that all the other divisions had theirs working just fine.

So, I gathered all the CTOs from the other 5 US divisions of the company, to share what I had found and to hear their feedback.

After I had explained my findings, everyone looked shocked, and there was a stunned silence in the room. Then the CTO for Atlanta raised his hand and said “I thought I was the only one having these problems”. The VP for Philadelphia raised his hand and said “No, I thought I was the only one having trouble”.  So it went on around the room. Each of the 5 divisions of the PLC was having the same problems with Outsourcing, but the vendor had told each one that they were the only division that was failing.

As a result of this, I set up a cross-divisional task force to crack that PLC’s problem with Outsourcing, and after 6-9 months, Outsourcing was working like clockwork for every division.

So, where does successful outsourcing start? It starts with the Big-Picture Strategy for Outsourcing. What do you want to get out of Outsourcing, be it onshore, nearshore or offshore?

If the whole goal is simply to spread the work around a cheaper labor force to reduce costs, then you may be disappointed by the results.

Depending on the country you select, vendors tell me that it takes 1.6 offshore developers to do the work of 1 onshore developer. Depending on the offshore country, I have seen that factor go as high as 3 offshore developers to match 1 onshore developer. I seriously doubt anyone who says that onshore to offshore headcount is a 1-for-1 ratio. There are many factors involved here. Language skills, knowledge of your company’s business, years of experience in IT, etc.

There are also cultural factors. In some cultures it is expected that a software developer will move “up” to a project manager, and that if they have not made that transition in (say) 3-5 years, that there is something wrong with them. In that culture, it is therefore very hard to find a developer with 10+ years of experience, and if you do find one, they will be billed at a high premium, often making them no cheaper than onshore.

So can outsourcing really work? YES it can. But I recommend having a much broader Big-picture strategy than just moving headcount offshore. The kind of strategy where you will see significant benefits is a twofold strategy. The first part (as many people will know) is moving legacy or maintenance software development offshore. By the very nature of maintenance, the modifications will likely be simpler, and can be handled by less experienced offshore staff. But the second part, which is most important, is that you will freeing up the time of onshore talent - people highly experienced in your business - to work on next generation products and services, using innovation to meet the needs of clients in the years ahead. So now, even if offshoring only creates minor cost savings, there is a huge win because you are protecting the future, increasing your industry leadership & dominance, and winning new business.

So let me ask you: What is YOUR Big-picture strategy for Outsourcing?