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Why outsourcing often fails

I am a developer at one of the Eastern Europe provider of software development services.

Several companies in USA and EU outsource software development to us.


I have noticed that many people in this forum say that the quality of the outsourced work is bad.

I notice what is happening around here. We do most projects right, but there are some projects that we deliver and are of bad quality.


In most of the times, this happens because the clients insist to get an extremely low price.

Example:

An US company wants some software done. They shop around in the US, and determine they can get the software done by an US firm, if they pay $ 200,000.

Then, they come to us.

We say, ok, we can do your software for $ 80,000.

At this price, we can write quality software, and make some profit for ourselves.

They say the price is too large, and push and push and push and push until they get the price down to $ 40,000.

Now, this is absurd! The truth is that we can not produce their software, with good quality, at that price.

This adds to the fact that US companies often are very impatient and want things done yesterday.

But, sometimes, our company CEO accepts the deal, and then has an under-manned and over-worked team to get the software done.

The result is, of course, of bad quality.

I know - our CEO shouldn't accept this kind of deals, but sometimes we have to.

For example, in the summer there are usually 3 months with very few projects, usually, and we sometimes have to accept a "bad" project in order to get trough summer without losses.


So - my point is - if you want to get an extremely low price, the quality of the product will have to suffer.

If US companies accepted to spend a little more money and wait a little longer to get the software, they would get higher quality projects done, and still be less expensive than doing them in the US.

Master Blaster
Friday, September 12, 2003

I have much the same problem quoting for work.  If I quote too high, some software cowboy will under quote just to get the job and Ill lose the work.  If I quote too low I am scratching to make a living.

Ive lost 2 jobs recently to outsourced work, both of which I was informed of the value of the winning quote and it was approx 1/5 of what it could reasonably have been done for and far less than I could do and still make a profit on.

So Im on your side :)  The software industry needs a standard formula for setting the value of a quote.  An independent group perhaps, created for the sole person of putting prices on work that are reasonable and consistent with delivering a quality solution for a reasonable profit.

Within that framework companies could compete on quality and service.

FullNameRequired
Friday, September 12, 2003

Master Blaster. Negotiation. Just say no. They wil come back to you.


Friday, September 12, 2003

About the negotiation - yes, our CEO usually refuses such projects.

But there are situations when he accepts them - for example, in the summer months, as I explained.

And no, they won't come back to us - the people determined to get an absolutely low price will shop around and find a company who is desperate for clients at that moment, and outsource to them.

They would still get low quality work, tough.

Master Blaster
Friday, September 12, 2003

~ Ive lost 2 jobs recently to outsourced work

You can offer things the outsourcing companies can't offer:

1. On-site presence - seek projects where an on-site presence is important

2. Be an expert in a field. For example, if you work in the auto industry, learn as much as you can about the auto industry.

Even if an Indian or East Europe programmer learns as much as he can about the auto industry in his country, he won't be able to compete with you, because around here the industry is very different from the industry in US - different ways of doing business, different regulations, etc.

Also, if you are an expert in your field, you can do some analysis of the problem (in order to extract correct requirements), which is impossible to do remotely.


Another strategy would be for you to work with a small outsourcing company or individual in East Europe or India, and use them as your sidekick.

You would get the work, make the requirements, then send most of the work to them.

This way you can lower your costs.

It's easier than you think, but you have to shop around a little.


~ So Im on your side :)  The software industry
~ needs a standard formula for setting the
~ value of a quote.

Being realistic, I don't think this will ever happen. :-(

Master Blaster
Friday, September 12, 2003

We post our rates directly on the web site. Customers know what they are dealing with. I never took projects below these rates and we always* done the job.

Evgeny Gesin /Javadesk/
Friday, September 12, 2003

~ Ive lost 2 jobs recently to outsourced work

"You can offer things the outsourcing companies can't offer:

yes, and I have built up a list of clients who keep returning...Im a ways yet from being seriously threatened by outsourcing but i can see problems looming in the horizen if things continue the way they are.

"nother strategy would be for you to work with a small outsourcing company or individual in East Europe or India, and use them as your sidekick."

I am very seriously considering this...becoming essentially a front for a company based elsewhere.  There are advantages and disadvantages in this of course.  <g> mostly what puts me off is a stubborn desire to charge reasonable prices for reasonable work...I have no doubt this desire will lessen as/if the pressure grows.


"t's easier than you think, but you have to shop around a little."

totally agree :)


~ So Im on your side :)  The software industry
~ needs a standard formula for setting the
~ value of a quote.

Being realistic, I don't think this will ever happen. :-(


no, not a chance.  <g> and even if it did, companies based elsewhere would happily ignore it and continue to set their own cheaper prices.

Not sure what the solution is....fry the brain mass of underpricing managers in the microwave perhaps...

FullNameRequired
Friday, September 12, 2003

Master Blaster, where are you from, which city? Just curious if you located in Budapest or not :?

na
Friday, September 12, 2003

MB, welcome to the real world.

Dino
Friday, September 12, 2003

"I know - our CEO shouldn't accept this kind of deals, but sometimes we have to."

I agree, everyone needs to eat, but to do poor quality is a poor excuse.  The issue becomes one of let the guy willing to do it for $2/hour do it.  They will soon disappear. 

If you decide to do it for $40,000 then do a quality job.  Clients do not expect to pay more for it and those that do will soon find they have unrealistic expectations.  However, they will not be going back to the people who gave them poor code.  They will go to "better" providers.

The only thing it your CEO is doing today is killing your company.  These clients become clients you cannot reference because they think you do a poor job.  Rather than getting more business because of the job you get less.

MSHack
Friday, September 12, 2003

The more things change, the more they stay the same.

Building contractors in the U.S. use the "low-bid" tactic all the time. And over time it has the same effect. I have a contractor that I return to time and again to do work, because although he isn't the cheapest, he provides quality and finishes on-time. I could hire someone dirt cheap, but I'd probably get what I paid for...

Rob VH
Friday, September 12, 2003

"If US companies accepted to spend a little more money and wait a little longer to get the software, they would get higher quality projects done, and still be less expensive than doing them in the US."

Yes, in some instances I believe that would be true. But, the reality is business people are very much like children.

If you want to know what it is generally like to work at/for an American corporation you should read this book, "The Career Programmer: Guerilla Tactics for an Imperfect World".  Basically, the only thing that you will learn from reading this book is what a clusterf*ck just about all corporate business environments really are.

Imo, many outsourcing projects simply allow American corporations to fail more inexpensively. Their appealing to corporate decision makers because someone at corporate headquarters almost always profits from them (i.e. bonus, promotion, etc.).

"So - my point is - if you want to get an extremely low price, the quality of the product will have to suffer."

To be honest, you shouldn't worry to much about producing a quality product unless the company you work for relies heavily on repeat business.  I say this because upper management at your client's company will typically only notice this fact when maintenance costs start to spiral out of control.  Hopefully, for your sake, your company will have already been paid in full.

One Programmer's Opinion
Friday, September 12, 2003

> I am very seriously considering this...
> becoming essentially a front for a
> company based elsewhere.  There
> are advantages and disadvantages
> in this of course.

You don't have to become a front to a company based elsewhere. You could just have them help you with some time consuming tasks.

It's a liberating experience to be able to offload some work to someone else, especially if a project is long and hard.

Master Blaster
Friday, September 12, 2003

> To be honest, you shouldn't worry
> to much about producing a quality
> product unless the company you
> work for relies heavily on repeat
> business.

The company I work at does care a lot about producing quality products.

But, sometimes, when we have a client which request an impossibly low price, we have to compromise somewhere! This is logical!


I can't understand the thinking of some of our clients.

I mean - it's common sense:

Let's say somebody wants to buy shoes. He goes shopping and discovers that a reasonable pair of shoes is $ 40 (just an example).

Now, what happens if he decides he wants to get $ 10 shoes?!

I tell you what - he will find some $ 10 shoes, buy them, and they will be extremely low quality and break on the way home!

This is common sense stuff that 99.9% of the people understand.

Why don't our clients understand this?!

Master Blaster
Friday, September 12, 2003

Hi Master Blaster,

"The company I work at does care a lot about producing quality products."

Just to keep the record straight, I wasn't implying that your employer didn't care

I suppose I don't understand the problem you are having.  Are your cheapo clients (the ones where you have no choice but to do some quick n' dirty coding) complaining and telling your employer that they will never do business with them again?

"This is common sense stuff that 99.9% of the people understand."

My guess is that in many instances, the person who decides to outsource work to your company is rarely held responsible for his/her decisions/actions.  It is called accountablity and many people believe it is severely lacking within corporate entities.

One Programmer's Opinion
Friday, September 12, 2003

> Why don't our clients understand this?!

I could be wrong, but the fact that the press is selling outsourcing (esp. offshore outsourcing) as magically giving these huge cost reductions could be creating the notion that "work is cheap" ("cheap" as in "next to nothing") out there.

There are even "game shows" - Where is the best place to outsource to? See it tonight on
http://www.silicon.com/news/500021-500001/1/5975.html?rolling=2

--
"Suravye ninto manshima taishite (Peace favor your sword)" (Shienaran salute)
"Life is a dream from which we all must wake before we can dream again" (Amys, Aiel Wise One)

Paulo Caetano
Friday, September 12, 2003

It sounds to me that you are complaining that your boss accepts bad deals.  There are certain people/clients you learn to avoid- the ones fixed purely on cost are up there.  The fact of the matter is your firm accepted the work and it should be done at what level is agreed to.  Face it, U.S. companies are outsourcing because it is (perceived to be) CHEAP, they all haven't quite figured out that being cheap usually means poor quality or done half-assed and it becomes alot more expensive down the road.  From a selfish perspective (being in the US), I hope there are alot of those stories out there- That just means I will make more in the future cleaning up the mess...  The trick for the outsourcing firms that are CHEAP today is to deliver reliable products and in the future you will be able to jack up those rates (because you will be competing on something other than price). 

>>So - my point is - if you want to get an extremely low price, the quality of the product will have to  suffer.
--

My point is: You wouldn't have the US business today if you weren't so cheap in price, your boss accepted it, deal with it.  Companies will ring you for everything they can.  Learn to say no and you (company) won't sound so desparate.

>>If US companies accepted to spend a little more money and wait a little longer to get the software, they would get higher quality projects done, and still be less expensive than doing them in the US.
--

News flash.  If they accepted to spend "a little more money", you most likely wouldn't have their business. (I would argue that a job that is $200,000 in the states and $80,000 overseas would end up costing the corporation about the same/or be negligible if they accounted for all expenses honestly...)

MikeG
Friday, September 12, 2003

By accepting low-balled projects and delivering crap, your company gets a bad name which increases the chance that they will have more dry spells in which they'll be pressured to accept more low-balled projects.

If you're starving and you're offered rotten meat, eating it won't help you.  You'll just regurgitate and excrete the entire contents of your alimentary canal, and become unable to keep anything in your stomach for days, making you end up hungrier than before.

T. Norman
Friday, September 12, 2003

>"My guess is that in many instances, the person who decides to outsource work to your company is rarely held responsible for his/her decisions/actions.  It is called accountablity and many people believe it is severely lacking within corporate entities."

Not only they aren't held accountable for these kinds of decisions, they are often rewarded for it.  By spending $40K offshore instead of $200K locally, they can get a bonus by claiming they saved the company $160K in this quarter.  They don't care that it will cost a half-million over the next year as a result of the time spent fixing it or the consequences of the system's flaws.

T. Norman
Friday, September 12, 2003

The problem of clients accepting low-ball offers is endemic, I've noticed, to the construction industry, as well as the software industry. It's very hard to pay $120,000 when you've got another quote for $80,000.

As a contractor, you can fight it the same way construction contractors fight it: lowball in the quote and make it up in the change orders. You start with a lowball quote and during the final negotiations make sure that you have a procedure that allows the client to make changes as long as they sign a change order for which they get charged more.

These change orders are never worth individually negotiating, so every chance you get and the client wants something in Verdana instead of Tahoma you get them to sign a change order and charge another $500. Eventually you can make up the difference.

If you're doing good work and the client is happy, they probably won't even mind this method...

Joel Spolsky
Friday, September 12, 2003

http://www.silicon.com/news/500021-500001/1/5975.html?rolling=2

That page has an interesting use of Javascript and should make clear why I normally keep Javascript disabled, as should everyone else in the world.

Dissatisfied
Friday, September 12, 2003

This is the same problem most insourced IT shops face. Given more X they could have had more Y. Ususally the business side has only one or two main agenda items with their project. The other stuff comes up later in production. Quality must be a requirement!

m
Saturday, September 13, 2003

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