When it comes to offshore outsourcing, remember what Mama said.
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Walk, don't run.
Of course, Mama was talking about your method of motion around the pool. Analysts with Gartner Inc. are talking about application development (AD). They think it's a bad idea to run those projects offshore. Instead, they recommend walking -- and looking at all the business factors involved.
A lot of firms evidently put a lot more value on cost savings than they should. And they think providers that use offshore labor are the only ones that can deliver those cut-rate costs. But Gartner analysts say that kind of thinking is off the mark. U.S.-based labor shouldn't be factored out, because there are factors other than cost to consider.
Gartner analysts look at a variety of factors to help develop an accurate comparison of different staffing approaches to outsourcing AD projects. The Stamford, Conn.-based firm starts with a formula to determine whether offshore or onshore is the best choice for AD. They take the total cost of labor and tweak it using factors that are governed by the outsourcer's geographical location. Communication and effectiveness are two of the most salient variables determined by geography.
Gartner defines communication as the differences between the client's and the service provider's conversational language skills and collaboration environment. Effectiveness represents the provider's technological, project management and business domain expertise.
When you consider those two factors -- not cost savings alone -- providers that use U.S.-based labor are going to have an advantage, analysts said in a statement. The communication and effectiveness gulf won't be nearly as wide (if there is a gulf at all), and having those areas covered may be well worth the extra money.
Poor effectiveness and communication mean greater AD cycle times and increased staff requirements. There's also a greater chance that the AD project will take longer with the same number of people, or more people might need to be involved to get the job done by the planned deadline. That could offset some initial savings. The impact of using more effective providers and providers with stronger communication skills is likely to decrease cycle times and reduce staff requirements, analysts said.
"ESPs [external service providers] using U.S.-based labor will find it impossible to compete with ESPs using offshore labor for the lowest billing rates, but they can compete in communication and effectiveness," said Audrey Apfel, a vice president and research fellow for Gartner, in a statement.
She said offshore providers that can maximize the volume of AD done offshore will have a better chance of winning bids for AD projects over U.S.-based providers. "But providers that use U.S.-based labor that target projects with on-site needs (for security, regulatory or other purposes) or require AD resources with high scores in effectiveness and communication will improve their chances at winning bids for those projects," she said.
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