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Outsourcing Doesn’t Make Sense Anymore

Outsourcing doesn’t make sense in the context that many IT executives think of it – namely labor arbitrage. In this context outsourcing is a tactical short-term strategy; what do you do to reduce costs once you’ve replaced all your expensive people with cheap ones?  Furthermore, the wage differences around the world are not as great as they once were.  When coupled with the loss of information from the communication gap, the result is lower quality and rework which quickly consumes any benefits that you might have had. So what does make sense?

The reality is that IT work is performed in a global marketplace these days; even for relatively small enterprises.  This perspective was reinforced in a recent Time Magazine article by Fareed Zakaria:

“America’s great corporations access global markets, easy credit, new technologies and high-quality labor at a low price. Many have had to cut jobs at home, where demand is weak, and have added them in the emerging markets that are booming. They are not “outsourcing” jobs. That word makes little sense anymore. They simply invest in growth areas and cut back in places where the economy is weak.”

The traditional mindset was to outsource commodity work such as software development or maintenance.  But this totally misses the opportunity of effectively using talent that exists around the world.

What DOES make sense is to adopt a sustainable strategy by applying Lean principles.  The focus on waste elimination and continuous improvement drives cost reductions every year – not just one-time.  Furthermore, the principle of automation reduces the communication gap by using structured metadata, model-driven development, and integrated workflow to enforce good practices and ensure that miss-interpretation across time zones, languages and cultures is minimized. Finally, by using the Lean principle of team empowerment, offshore resources are treated like first-class team members with just as much opportunity to drive innovations as the on-site staff.

For further reading, check out chapter 6 in Lean Integration for important practices that help enable empowered team and chapter 9 for ideas on how to leverage tools and automation to truly achieve a sun-never-sets development model.

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