OK, we have been hearing horror stories about the crazy market for software developers and the antics some companies employ to recruit and retain their existing staff. The foosball tables are old news, and, quite frankly, I question their effectiveness, but free beer and bring your dog to work policies, well, now you’re talkin’!
The challenge for corporate CIO’s has never been greater as they compete for limited software development talent to staff mission critical projects. Scarcity of qualified software developers and rising compensation for in-house employees, combined with increased staff turnover, leaves development teams inadequately staffed, pokes holes in already strained budgets and pushes delivery deadlines to the right with alarming regularity. To counter this trend, many have rushed to establish offshore development centers, primarily in India. Let’s face it, some things look really good on paper. While initially successful, that trend has slowed, or even reversed as data analysis of longer term cost and quality metrics associated with offshoring become available and CIO’s question whether they are getting the best bang for their buck.
Enter Rural Outsourcing
Searching for the perfect balance of low cost and high quality, CIO’s have started to embrace the concept of Rural Outsourcing. Rural Outsourcing, also known as insourcing, domestic sourcing, rural sourcing or onshore outsourcing, is an established trend in the software industry, which delivers software development services from providers located in rural, mid-sized U.S. cities. Rural Outsourcing providers promise to deliver high quality software development services using a low cost delivery model, thus creating an attractive alternative to offshore outsourcing and metro area consulting firms.
Last time I checked, you couldn’t buy software development teams on Amazon.com yet (for those of you searching Amazon right now, trust me, I checked). One of my favorite Amazon features is the ability to scan the reviews to get the “real skinny” on a product I would like to purchase. Product claims are sometimes re-enforced or shot to smithereens by legitimate reviewers. I find the negative reviews particularly beneficial. Wouldn’t it be great if a similar feature existed for software development teams? The truth is, claims are easy to make, but to create a positive business case for Rural Outsourcing, the services and solutions received must provide significant value to overcome the quantifiable cost advantages provided by offshore software development providers. The process of choosing an outsourcing provider shouldn’t focus primarily on who’s the cheapest and who promises to meet your objectives in the shortest amount of time. The selection process should be based on who can verifiably provide the best value product at minimal overall short and long-term risk. Assessing overall value is a complex process which involves both quantifiable analysis and subjective considerations. Review the comparison factors below to better understand the primary differences between Rural Outsourcing and offshore service providers.
Hourly Rates – Offshore providers still have the lowest hourly rates, but have lost much of their price advantage in recent years as employee wages have increased. Rural Outsourcing rates are higher than offshore providers but typically 20-40% lower than metro area firms.
Accessibility – Located within U.S. Time Zones, Rural Outsourcing firms offer timely access during regular business hours. Offshore resources may not be available during normal business hours.
Culture – Rural Outsourcing providers are more culturally in-tune with American businesses and have the ability to take make the most of collaborative efforts and Agile software development processes.
Staff Turnover – High staff turnover is a well-documented issue/business practice in offshore labor markets and highly competitive U.S. markets. Staff turnover raises costs and causes missed delivery deadlines. Rural Outsourcing firms typically have lower staff turnover rates due to their rural location, which limits employee job mobility.
Management Effort – This is one of the most critical and underestimated predictors of software project success. Cultural similarity, interpersonal communications and time zone proximity provides an inherent advantage to Project Managers in Rural Outsourcing environments.
Total Cost of Ownership (TCO) – For offshore firms, remote management costs, travel expenses, internal costs related to accommodating time zone differences, and software quality and maintenance issues can increase total cost of ownership and offset lower hourly rates.
Data and Intellectual Property Security – Information and geo-political security is always a critical customer concern and there are inherent risks when sending your data and intellectual property outside of U.S. borders.
Project Risk – Risk is a complex summation of objective facts and subjective opinions based on the factors considered above. Each decision maker has a responsibility to establish an acceptable project reward/risk ratio.
Software development outsourcing is yet another tool at the decision maker’s disposal that can be used to meet the relentless drive to procure staff and reduce costs, while delivering quality software products and services in support of their organization’s business goals. Someday, we may be able to review and purchase software development teams on Amazon like the latest, best-selling book or game (currently “Exploding Kittens”). But until that day, the purchase decision should be based on which provider has the proven ability to deliver the best short and long-term value.