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Offshore application development becoming popular option

A new study finds an increase in offshoring the development of commoditized applications as companies hone in on mission-critical development.

A growing number of CIOs are adding application development to the short list of projects they'll move offshore.

In fact, a recent survey by Evans Data Corp. in Santa Cruz, Calif., finds that 37% of North American companies are currently engaged in offshore application development -- that's an increase of 20% from six months ago. Evans surveyed 400 developers within U.S. companies this spring.

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Evans Data Corp. president John Andrews said companies are sending more commoditized applications, such as customer relationship management tools, overseas so they can concentrate on developing specific core business applications.

"The largest driver is the overall increase in spending on application development today," Andrews said. "The more that they can push commodity work offshore, the bigger the cost benefit." Andrews also said that offshore application development service providers run their shops 24 hours a day, making them more productive than the typical in-house development team.

Andrews said outsourcing application development in general will continue to trend upwards. He said the markets for offshoring and outsourced development services have matured significantly over the last three years.

"The pressure on IT is only going to continue increasing as companies look to grow and innovate," Andrews said. "That's taxing IT staffs. Application development budgets have increased, but the distinction is on how much of that increase is going to outsourcing and offshoring or internal staff. Less of it is going to internal staff."

SmartTix Entertainment Services Inc., a New York City-based ticketing agency, has experienced 30% annual growth during the past eight years. SmartTix president William Lipscomb said he has been seeking the right service provider to revamp his company's core business application.

"We have proprietary software that we use to take care of everything from inventory control for clients to internal operations," Lipscomb said. "We basically need to enhance our tools."

Lipscomb recently agreed to outsource development to Southfield, Mich.-based firm TechTeam Global Inc. SmartTix's applications will be developed by TechTeam's overseas development shop located in Romania.

Lipscomb said he liked TechTeam's U.S. presence. Although the company develops applications in Romania, it has U.S.-based business analysts on staff who serve as liaisons to clients.

"I was looking for somebody that had the ability to do business analysis as well as a certain amount of systems architecture. And they could integrate those two skill sets to basically help us come up with a five-year plan."

Lipscomb said his company originally developed its applications in-house. Over the years he has outsourced development of certain components, but when the time came for a comprehensive review of his proprietary software, he first looked for an onshore outsourcing provider.

"I came to TechTeam after having a horror story from a previous outsource," Lipscomb said. He declined to identify the vendor but said it was a U.S.-based company. "They talked a great story and they were generally good with customer service. But they ended up hugely late and the code was so bad that they couldn't even manage it."

The previous vendor came highly recommended, Lipscomb said. But the lack of an in-house project manager may have been the culprit.

"What happened was we didn't have the appropriate checkpoints, milestones and goals. My recommendation would be to spend the money getting a project manager" to measure and quantify expectations within an established time frame.

Andrews, of Evans Data, said outsourcing and offshoring have been done for years. There is no lack of guidelines, best practices and templates for offshore application development. He said CIOs can pluck them off the Internet, but any vendor that pitches their services should be ready with a portfolio of best practices as well.

"You have to educate yourself somehow so you can make decisions," Lipscomb said. "You have to ask good questions and listen to the answers carefully."

Let us know what you think about the story; e-mail: Shamus McGillicuddy, News Writer

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