Sunday, May 5, 2013

Flawed expectations for outsourcing

A recent slideshare on the IT industry in India stated some things that anyone here in the US that has worked with outsourcing firms already knows... that what you get is buy-the-hour paid bodies that generally lack creativity and initiative.

In my current position I work for a company that uses outsourced resources; some offshore some onshore.  I hear some people in the industry say 'you get what you pay for', but I disagree. I think that U.S. companies are getting what they bargained for, not what they paid for.  Think about it... A company goes to a service provider, says that they want them to provide people with given skill sets in order to fulfill their IT needs - AND THEN - proceeds to negotiate the lowest price possible for said services.

The service providers bid against each other in this process essentially meaning that the winner of the deal often has a) trimmed their margins thin b) made assumptions about the difficultly of the engagement that often are incorrect and c) calculated their cost based on having the lowest skilled people with the given skill listed on their resume.  And to exacerbate the issue, often outsource contracts are written such that 'support' is billed differently from 'enhancement' work and the enhancement work is often where the service providers make their money.

The problem here isn't that the US company is trying to get the lowest price for the job, it is  that the outsource company is motivated incorrectly.  They have no incentive to do anything beyond the bare minimum to keep the lights on under their 'support' contract because charging for 'enhancements' to take care of things like pre-existing defects and performance problems translates to more billable hours.

On the 'enhancements' side of the equation, they often bill as time and materials so using less skilled workers often means lower salaries (costs) but also usually means a higher number of hours billed.  Experienced IT workers often lament that, 'I could do that in 1/4 of the time.' and they might be right.  However, even if 1 hour of a US worker's time = $200 billed and 4 hours of a offshore worker's time = $200 billed, the margins on the offshore work are likely higher.  And to make the situation even worse, the outsource company essentially gets rewarded for the low-quality, inexperienced work because they bill more hours towards fixing the bugs than if the code were flawless.

Now I'm sure that there are some contracts out there that address these issues, but from what I've seen and what my colleagues have told me, they aren't common.

I don't blame the individual workers at these companies.  I have several friends that work for these companies and most, if not all, of the people I have encountered at these firms are genuine and have no malicious intent.  Like I said, the problem is that the overall motivating factors of the relationship work against what is in both parties best interests.

That leads me to back to the original point - creativity and initiative.  US employers and the US born people that work for them, have an inherent expectation of workers (especially of workers in IT) - that they will be independent thinkers.  Therein lies a few problems when it comes to outsourcing...

First, as we have discussed, there is no motivation for the outsource worker to think creatively.  Contractually speaking, they are paid to deliver on precisely what you ask them to do.  Delivering extra cuts into margin and nothing in the relationship encourages thinking outside of the box.

Second, I believe there is a cultural and educational barrier to most India-based workers' ability to be creative and take initiative. Most of the people I have met that came into IT through the educational system in India were set in front of a computer and told, 'here is how you do X and here is how you do Y'. They have little to no exposure to the world of computers outside of their area of training. This breeds workers that are 'purpose-built' for specific tasks and struggle greatly when troubleshooting falls outside of their comfort zone. Another contributing factor is fact that many homes in India do not have computers at home to 'play' with - which I would argue is where many US IT workers learned how to troubleshoot issues.  This training paradigm would be like teaching a chef only how to make one type of soup and then expecting them to run an entire restaurant.

The cultural aspect should not be forgotten either. The mentality and work ethic that we grow up with here in the US is not the prevailing culture in India.  Here we are taught that if you work hard and go above and beyond, you will be rewarded.  We are encouraged to question authority, to understand the 'why', and to speak up when we have ideas.  I've found Indian culture to be much more top-down.  Sit in a business meeting with 3 workers, their boss, and that guy's boss - chances are that the later two are the only two people you'll hear from.  And if you do hear from one of the 'real workers' chances are that it's because their boss asked them to speak up or that they gave their boss an 'ask for permission glance' before they spoke.  I've even seen workers chastised for doing more than they were asked to do, even if it was something that the client considered a positive.

So when it comes down to it, the people that work for these big outsourcing firms aren't paid to think outside the box, they aren't trained to be creative free-thinkers, sometimes they are even punished for applying extra effort; and the companies they work for are monetarily motivated to stay within the lines and only do specifically what they are contractually obligated to do while using the least efficient, cheapest labor available.

I am not saying that companies shouldn't outsource - I'm just saying they need to understand what to expect and what they are getting for their money; and they might be well advised to re-think how they structure the contracts.

When it comes to choosing between employed labor vs. outsourcing vs. near-shoring, companies just need to remember that the comparison isn't just about the money... it's about whether their expectations are going to be met.