Dan Brody Chief Information and Technology Officer CITO

Where Oh Where Should We Outsource!

There are several options when it comes to building a team and making things scalable. If we want to look at flexibility while maintaining cost, then the first place we should look is at an offshoring option. There is, of course, the possibility of building all the teams here locally and keeping everything under one roof. While this provides maximum control, it does have a higher cost and may not provide as much flexibility as scaling offshore. So let me suggest that we approach things with a hybrid model, allowing the most flexibility, controllable costs, and maximum scalability.

1. Offshoring options

The concept of offshoring a software development project has its place, and it offers opportunities and potential savings. The first is a substantially lower offshore labor rates and the second comes from the theory of elasticity in staffing. However, there are pitfalls to be well aware of before deciding to send our software development offshore. I have more than 15 years of working with outsourcing in various locations around the world. Ensure that we can quickly move to the hybrid model in a cost-effective and secure way. While avoiding many of the pitfalls and horror stories you hear from others.

All too often I do hear from people I know about these pitfalls and horror stories. Why do these companies and projects go awry when the offshore? The basic answer is that they have no idea what they’re doing when it comes to outsourcing and pick up a company that they have not build a long-term relationship and therefore do not have the ability to create a team with a vested interest in their business. They also do not have a local leader who communicates and controls the offshore team.

Here are some essential items that we will discuss in future articles:
• Lower labor rate
• Staffing elasticity
• Language and culture issue
• Non-disclosures and confidentiality
• Project communication

A. Outsourcing Contract Company

i. Working with a contract company provides the maximum flexibility. However, this does have a higher cost because you are relying on someone else to manage your team to the hiring and firing in general administration.
ii. With a high-quality shop and healthy relationships and agreements, this model can be very successful.
iii. The inherent risk is that you’ve allowed a third-party company to gain access to your source code, and they could potentially sell this in competition with you.
iv. Typical rack rate costs are 50% or higher than building our shop. I’ll discuss rates further on.
v. We can also create a dedicated branded team within an existing supplier. I have found this to be a very efficient model.

B. Build our own Offshore Development Center (ODC)

i. This model provides us with a solely dedicated team to our projects and provides protection to our company and our proprietary information.
ii. The team members operate in a separate physical location and are contractually obliged to keep strict confidentiality and nondisclosure.
iii. There are items to consider when setting up our shop, these costs are real-estate, hardware, software, and human resources; additionally, there are regulatory and tax implications to consider.
iv. Because we’re paying employees directly ourselves, we will not incur the multiple markups of labor costs.

2. Offshoring Locations

Since I’ve worked with teams around the world, let us discuss the various options on where to locate our satellite offshore development center.

i. India: Probably the best well-known as a center for outsourcing. India has a fascinating culture when it comes to doing business one has to understand that yes does not always mean that I’m going to do it or that I understand. Some basic language issues are depending on location around the country. Cost do very base on which city you locate an office. While India’s government has improved its efficiencies and dealing with businesses, there still is a very cumbersome bureaucracy.

The distinct advantage as an American or Canadian company is that the rule of law is based on British legal system and is very similar to Canada. Meaning that contracts signed with employees, and leases and other things will be similar to how we do business here. I do have a law office in Mumbai that I’ve used several times and have an excellent reputation.

There is a drawback as far as the image for our company when offshoring in India. Here we can see that the perceived quality is lower than what we can provide here domestically. Let me state that this is perceived quality, not the real quality that we get out of the people we hire.

Labor rates when using an outsourcing company will range from $12 US for QA and testing up to $25 US for mobile development, and these are a per hour cost. Be aware here that costs are rising in India.

ii. Eastern Europe and Russia: if you are looking for very high-quality programmers than this is certainly an option especially when it comes to mathematical and analytical type of programming. Culturally well they say on their face that they aim to please the environment can be very adversarial because of their "I am always right attitude." There are often significant language issues.

Security and the rule of law – is almost nonexistent. Holding a company or individual employees accountable to a North American company is next to impossible.

Labor rates for an outsourcing company range from $20-$50 an hour.

I believe that we would receive a negative perception in the marketplace and with investors if we were outsourcing in Eastern Europe.

iii. Israel: here’s an attractive option for several reasons; 1) The technology perception for investors would be very high as Israel perceived as a leader in almost every technology field. 2) With all the people who have moved to Israel from around the world, there is an advantage to having a truly multilingual development shop. 3) English is the language of business, and a vast majority of the population are English and French speaking. 4) Time zone offset is only six hours.

Security and the rule of law – in Israel we will not have the same level of issues regarding security as we may have in other countries. Based on a British rule of law all agreements would be similar to what we have here in North America.

I believe here that investors in the marketplace would perceive a very high value on having a technology team based in Israel. And it would certainly increase the valuation of the company.

Labor costs will be higher than in India, Eastern Europe, and Russia. Developers paid between $30,000 and $50,000 US per year.I believe that this option is worth investigating

I believe that this option is worth investigating, please contact me to discuss further.

3. Technology ORGANIZATION

Typical IT organization considering companies under rapid growth, I gave some consideration to the product development and information and technology organizational chart. Below is a relatively generic representation for discussion purposes. It does take into account the hybrid development model using both onshore and offshore teams.


My previous article on optimizing outsourcing may also be of assistance. Please see my article http://www.brody.ca/key-optimum-outsourcing/

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