Matt Fuller: Taking Care of Business On-Shore vs. Off-Shore

The initial shock among IT departments and technology consulting firms of losing business to offshore workers has come and gone. Future consideration for offshore development will continue for companies in Madison and across the United States. The big question is how do IT consulting firms compete with their foes across the sea?

Firms both large and small have developed partnerships with offshore companies or outright bought their own offshore firm. They’ve taken the “if you can’t beat them, join them” approach. Others have chosen to ignore the inevitable while still others have risen to the healthy challenge.

Forrester Research is predicting 500,000 IT jobs to be outsourced overseas this year and a steady increase through 2005 for a total of 3.4 million cumulative IT jobs outsourced overseas. IT Association of America predicts by year-end 2004, one out of every 10 jobs within U.S.-based IT vendors and IT service providers will move to emerging markets, as will one out of every 20 IT jobs within user enterprises. Given these trends, how do companies compete against the offshore market? First, let’s touch on the shortcomings of offshore development.

Many companies have learned through experience that offshore outsourcing can include sizeable costs upfront and throughout the project. For example, companies that send work offshore typically find that five to seven percent of the contract value needs to be set aside for program management. And that is just the start of the added costs! Business and application security risks must be considered. Business continuity, software testing, and travel are costs typically not included in the negotiated contract and will quickly close the gap between projected and actual savings.

Meta Group, a highly regarded U.S. research firm, cites that costly time lags increase substantially because off-shore employees often do no have adequate training and experience. This results in longer testing and delayed timeframes. Other issues include remoteness of vendor staff, time zone differences, rotation of vender staff, legal contract problems, physical communication, vendor staff training, language difficulties and lack of managerial experience.

While the offshore market has matured, many challenges remain. Cultural issues, service-level expectations, ongoing management is expensive and labor-intensive. The total costs of establishing and maintaining a relationship can significantly reduce the development savings.

These concerns have provided IT departments and on-shore consulting organizations with critical business decisions. The question remains, how do you compete with lower cost offshore resources?

Our firm, Isthmus Group, Inc. looked at reasons why companies are opting for the off-shore extravaganza. We found there is a definite offshore cost savings for organizations to capitalize on now and in the future. However these cost saving were found most often with trivial development tasks that have very well defined requirements and test cases. Other cost savings could be found in helpdesk services and system maintenance requests.

Based on our own customer experience and the assessments by leading industry analysts, our position is that offshore development approaches are best suited to traditional maintenance and system evolution projects where requirements are static and extremely well documented.

Today’s small and enterprise- sized development projects, however, are increasingly complex. Business users require shorter, more frequent delivery cycles. Team members need constant visibility into project status. This explains why traditional offshore approaches to enterprise class projects often deliver short-term cost savings at the expense of system quality, time-to-market, and project risk.

A large part of our firm’s success is within our agile development methodologies, part of the development team is on-site, working closely with decision-makers and business users to carefully manage requirements over the course of a project, as requirements mature. The other part of the team works in our Madison, Wisconsin office. Off-site team members have the same deep technology skills and core practices as their team members on-site. This dual-located approach provides organizations with the ability to minimize risks on highly complex projects while leveraging remote development. Instead of on-shore and offshore, we took the on-site and off-site approach. It’s working. Our clients see results much faster and with greater satisfaction.

Isthmus Group looked at why in-sourced projects are thought to cost so much more. We found if IT organizations could successfully develop systems with a clear vision and methodology, they could regain the lost respect due to unsuccessful projects and reduce the cost of project development. We decided to focus on helping organizations improve their development processes and methodologies. We look at core principles of an IT organization, how IT does business, and determines what methods are in place to ensure successful and repeatable development and deployment of applications.

Offshore development may have its place in the market, for some functions, but on-shore development has a great future, if executed correctly.



— Fuller is president of The Isthmus Group, Inc., a technology consulting company in Madison.