Keen to save 15 percent on software development costs in a large project, many companies jump at the opportunity of the offshore option, according to Powerlan managing director Tomislav Matic.
However, those savings, he said, are soon spent on simply managing a long-distance contract.
As the MD of a company that is made up of six software development and services businesses, Matic is on the frontline of the outsourcing debate but his view has an interesting twist.
Powerlan is one of the few successful Australian software development companies whose customer base is predominantly made up of overseas clients including one or two from India.
"We have Indian customers paying us thousands of dollars a day and that is because Australian software engineers are better skilled," Matic said. "What Australian developers can do in an hour would take an entire day in India."
Matic believes the cost of software development shouldn't be more than 30 percent of the total project cost.
"You might save 15 percent on cheaper offshore rates but you will spend those savings managing a remote contract; companies like Telstra will learn the hard way."
Matic said it is easy to underestimate the amount of effort, energy and resources required to effectively manage the relationship. This is especially true, he said, for companies that have hired multiple outsourcing vendors for different functions.
Abdicate management to the service provider and expect to pay the consequences, he said.
One option is to establish an in-house team to manage the contract.
For example, Nielsen Media Research, which in 1995 began outsourcing select application development work to Cognizant Technology Solutions, an outsourcer in India, created an in-house employee "anchor team" responsible for project control and quality assurance. Such initiatives can certainly erode any offshore labour-cost savings, Matic said.
"If a large project can be broken up into components and you pay on delivery this can work," he said, "but only as long as the pieces aren't interconnected, because if they are, you need control and visibility."
When contractors are located offshore, Matic said organizations incur extensive travel expenses for visits to evaluate services or to visit the contractor's site for weeks at a time.
Moreover, organizations that are replacing employees with outsourced staffs through layoffs or attrition could face human resources costs for severance pay and employee benefits.
(With Bob Violino.)
Dynamite research to ignite offshore debateThe Australian Computer Society (ACS) is set to release research on offshore outsourcing next month, and has described the findings as "dynamite". The report is being released at a time when industry groups are lobbying to reduce reliance on offshore outsourcing and unions are working to make it an election issue. According to ASC president Edward Mandla, the study is the first of its kind in Australia and will form the basis of an ACS policy. “I’m trying to drive some real rigour into this debate, because there is some really good stuff in [this survey], I think it’s dynamite,” Mandla said. “I’m trying to drive some real rigour into this debate, because there is some really good stuff in [this survey], I think it’s dynamite,” Mandla said. Prior to its release, Mandla said the research is being examined by economists and will go before a panel of IT leaders to formulate alternatives for organizations that simply choose the offshore option in a bid to cut costs. The research, among other things, looks at the rush that occurred with outsourcing, the life cycle of poor outsourcing, and when the use of offshore labour is a desperate alternative. Finally, the study asks the question ‘why not insource?’ - Siobhan McBride |