Many of the cost advantages of offshore development are offset by the barriers of time, distance, and culture. When a project involves a large quantity of repetitive work that requires a skilled workforce following a well defined process, there are numerous examples of success using offshore staff. Many of these successes are directly attributable to the lower cost of qualified staff offshore, rather than any clear improvement in productivity over local staff.
Cost advantages of offshore operations
The radically reduced costs of data communication have allowed remote sites to operate as if they were close to the customer through email, voice, and video conferencing. The very separation of an offshore development team from the customer enforces a level of process control that may not be required for in-house projects. These process controls often limit the scope of projects in ways which reduce cost and complexity. As long as qualified people are available offshore at a lower cost than on-site staff, there will continue to be a strong market for offshore services. Nevertheless, there are increasingly some areas where offshore models are not as well suited to success as on-site models.
Hidden offshore overheads
There is a degree of overhead associated with any offshore project because the staff is not familiar with the subject matter, cultural preferences, and implicit expectations of remote customers. In addition, the use of the software factory approach by offshore service providers is common, in order to reduce the impact of staff turnover and maintain strong process controls. Software factories treat development staff as standardized components, even though experience in software development (as in other knowledge worker jobs) shows that differences in individual skill and team dynamics are far more important than sheer numbers. Productivity, and even more importantly quality, is closely linked to team dynamics. In long-term highly-structured projects these limitations can be overcome by an increased focus on project management and process control, or by combining offshore factories with local sales and service functions.
Rapid response favors local service providers
When projects must be deployed quickly, involve rapid business change, and do not require large amounts of repetitive development work, the advantage shifts from large, remote software factories to specialized local partners - who can deliver a more individual service, quickly. Mass market fast food chains are unbeatable at producing low cost meals, and similarly offshore factories excel at producing cheap lines of code. Just as individually cooked meals made from fresh ingredients are more satisfying than fast food, so customer solutions tailored to meet specific business needs have more value than factory produced software.
A new market for On Demand services
On Demand services are creating a new market for local service providers, who can deliver rapid solutions to meet specific customer needs based on common application services. Customers enjoy the benefits of custom development and rapid deployment, while retaining the scalability, performance, reliability, and longevity of large scale standardized systems. By utilizing robust industry-standard platforms which are shared by a large number of customers with varied needs, On Demand service providers insulate their customers from the complexities of infrastructure deployment and change management. On Demand solutions that customers can control through configuration settings (as opposed to programming) further reduce the dependency of customers on the service provider for application maintenance.
Business applications benefit from rapid, phased implementations
Unlike operating systems software, or vendor business systems packages, most business applications are intimately connected with the specific culture and practices of an organization. Changing business practices takes time, and most businesses have a time horizon of months, rather than the years it may take to implement a large scale system. As a result, local service providers implementing On Demand applications in a series of phases will enjoy the most advantage over offshore providers. The complexities of integrating with multiple legacy systems, identifying the essential business requirements, and managing the changes a new application introduces to the business culture all require a close collaborative partnership between the systems implementers and the customer. Far from saving money and time, the greater number of lower-cost staff of the typical offshore project may actually increase project cost and complexity. Larger project teams have greater internal communications overhead, and the need to manage work remotely places a premium on developing formal project documentation which is the antithesis of rapid application development.
In house development versus local service providers
At the same time the relatively rapid deployments typical of On Demand solutions, and the practical experience gained from multiple customer implementations give local service providers an advantage over in-house development. The tendency of in-house teams to build new systems from scratch rather than leveraging standard solutions continues the practice that has led to the current application maintenance backlog, which in many companies has reduced new application development to a trickle. In contrast, the On Demand approach places a premium on the speed and effectiveness of the implementation of the solution. As the On Demand market evolves, satellite solutions spring up to meet specific niche needs, tied together by the need to integrate with the core On Demand application. Customers can expect new systems to be delivered on time, to meet their expectations, and not to impose additional maintenance burdens on their IT staff.