The impact of offshoring on your businessDe invloed van offshoring op uw bedrijfInverkan av offshoring på ditt företagDie Auswirkungen von Offshoring auf ihr Unternehmen

I recently published an article on the famous Dutch IT magazine ‘Computable‘. In response to this article, I received some questions from Reza Sarshar of interaccess. The questions are interesting and I want to address all of them in this article.

1. What is the utility of offshoring?

There are many benefits for companies engaging offshore resources. The extent to which each applies to your company depends on whether you set up your own offshore office, work with a supplier based on fixed price/SLA, hire dedicated people from a supplier or work with freelancers. In general the benefits are (and please add to this if I missed something):

Onlangs publiceerde ik een artikel over het beroemde Nederlandse  IT – tijdschrift  ‘Computable‘.  In reactie op dit artikel ontving ik enkele vragen van Reza Sarshar  van interaccess.  De vragen zijn interessant en ik wil ze allemaal beantwoorden  in dit artikel.

1. Wat is het nut van offshoring?
Er zijn veel voordelen voor bedrijven die offshore middelen aanwerven. In hoeverre uw bedrijf deze voordelen geniet is afhankelijk van of u een eigen offshore kantoor opzet, werkt met een leverancier op basis van vaste prijzen/SLA,  toegewijde mensen inhuurt van een leverancier of dat u werkt met freelancers.  Over het algemeen zijn de voordelen ( mocht ik iets missen vul me svp aan):

Jag publicerade nyligen en artikel i kända holländska IT-magasinet ”Computable”. Som respons på denna artikel fick jag några frågor från Reza Sarshar på interaccess. Frågorna var intressanta och jag skulle vilja addressera dem i denna artikel.

1. Vad är nyttan av outsourcing?

Det finns många fördelar för företag som utnyttjar resurser offshore. Omfattningen av dessa fördelar beror av om du etablerar ditt eget kontor offshore, arbetar mot en leverantör till fastpris/SLA, anlitar dedikerad personal från en leverantör eller arbeta med frilansare. Generellt består nyttan i (och lägg gärna till om jag missat någonting):

I recently published an article on the famous Dutch IT magazine ‘Computable‘. In response to this article, I received some questions from Reza Sarshar of interaccess. The questions are interesting and I want to address all of them in this article.

1. What is the utility of offshoring?

There are many benefits for companies engaging offshore resources. The extent to which each applies to your company depends on whether you set up your own offshore office, work with a supplier based on fixed price/SLA, hire dedicated people from a supplier or work with freelancers. In general the benefits are (and please add to this if I missed something): a. Engaging talented people (access to a big labor pool)
b. Flexibility in scaling up and down (no long term employment contracts)
c. Ability to grow your company and (software) products faster
d. Lower costs
e. Flexible cost structure
f.  Focus on core activities

2. How to approach offshoring?

This question is hard to answer in a short article. I believe the first fundamental choice is whether you want to set up your own office or work with a supplier. In my experience, setting up your own office works for big companies and takes too much focus away from the core business for SME’s. Working with a supplier that has the right people and gives you guidance in how to manage people on a distance gives you a fast track to success.

Once you have decided on the basic setup, there are 5 key success factors:

a. People: The most important factor in building an offshore cooperation is to select the right people.
b. Process:  All people need to have a common understanding of ‘how we work’
c. Preparation: Take the time to prepare everything well and don’t rush into it
d.  Profit: Monitor continuously whether the cooperation is delivering results
e. Performance:  Regular evaluations of the team members on aspects like productivity, quality

3. What is the effect of offshoring on your business model?

I will answer this question from the perspective of my own typical customer: a web or software company. The impact on a few parts of the business model:
a. The way of working: people need to create a structure, process and way of communicating that supports working with people on a distance. You need more structure than with people in one location. And this has a positive spin off on the whole company. An example is one of our new customers, an internet project company from Holland. They were used to do all communication through email. Right now, a need to feel in ‘control’ of the progress of a project (which they usually did by talking in the corridor) arises. For this purpose, they will start using an online issue tracker. If this works well, they plan to use this in all their projects and maybe even give their clients access to the system. This improves their added value towards their clients.
b. Speed of delivery: you can engage more people to your projects when needed, so products and projects get launched faster
c. Cost structure: the costs of programming go down, leading to more profit or a lower price for the end customer
d. Flexibility: engaging more or less people in the production, which also impacts your cost structure. Employees keep receiving a salary. External contracts can be stopped when needed.
e. Beyond technology: my own company employs some marketeers from India, does part of the lead creation/sales process from India, invoices are sent from India. Once you have the technologists in place, you can further change your business model. You also get access to the local markets where you may be able to sell your products or services.

4. What are the pitfalls of offshoring?

In my experience all pitfalls can be grouped into 2:
a. Hiring the wrong people. I believe many companies make the mistake of looking at offshoring from a company perspective: they send a big RFP asking how many people work in the office, what technologies they know, etc. Although you do need to know this, eventually your work gets done by people. And you want to hire the best possible people, so you want to have a voice in who’s working on your project and you want to communicate directly with them.
b. Miscommunication. Assumed that the people working for you are the right ones, things may still go wrong if communication contains flaws. Software development in itself is already hard, essentially because it is hard to know upfront what needs to be developed. And if one person knows what needs to be built, the next person may understand this in another way. Add to these complexity different locations, time zones, language and cultures and you’ve got a mix of factors that affect communication. I have written an article about this earlier.

5. What is the influence of the cloud on offshoring? 

I wrote an article about this last year. My general thought on this is that we will always need people to produce software. Of course things get automated, the cloud gives companies access to software on demand as they need it. But still the systems need to be built and still there will always be companies that believe they need their own systems.