Best practice in IT outsourcing: achieving real cost savings – part 1

date: 3 January 2011
reading time: 3 min

IT outsourcing is not a new concept and you would hope that suppliers and customers alike have learnt from the mistakes of previous deals.

IT outsourcing is not a new concept and you would hope that suppliers and customers alike have learnt from the mistakes of previous deals. However, reading the trade press this is not necessarily the impression one gets. On both sides of the outsourcing contract companies seem to be making the same mistakes again and again. It appears that one of the biggest slip ups is around achieving real cost savings. While cost reduction remains the main driver for most IT outsourcing, there is clear evidence that innovation and quality improvement are becoming more important than ever.  Companies need to take a long hard look at how focused they are on cost cutting and why. Push cost savings too hard and the quality and innovation in your software will suffer.

Here in Poland it is still possible to achieve 50% cost savings on in-house or UK-based software development. I think that is pretty good. Push that to 65% or 70% and you are likely to be unhappy with elements of your final product. Over-zealous bargain hunting can, in fact, cost you more. Look at testing for example. This is the area that most frequently gets cut when customers put downward pressure on prices. Yet it is one of the most important elements of best practice in IT outsourcing and in particular software development. Skimping on testing or not taking time to incorporate the results of QA testing results in bug-ridden code that will cause greater problems when the software needs to be upgraded or developed further.

Cutting testing time directly results in poor quality software which in turn generally makes for unhappy customers who view the project as a failure. Additionally, a lack of testing can end up costing more as it takes much longer to fix poor code in the future than to release it correctly initially. While I urge offshore developers and outsourcers of all types to resist pressure to cut testing time or at the very least to explain the consequences to customers, I also urge these customers to question their suppliers closely about testing and make sure that they feel satisfied that there is sufficient testing in the outsourcer’s development process.

Here is another example of what can happen if you look too hard for cost savings: some companies come to IT outsourcing just to build up teams at a lower cost. Recently this practice has received a fair amount of negative press in the UK. In terms of best practice it is certainly not the way to go. Most IT outsourcers have developers with fantastic skills, if customers are just body shopping they are not taking advantage of them or of the general knowledge and experience of the supplier. In other words while the customer thinks this is a cheap option they are not really getting value for money. Again, body shopping usually gives the developers themselves no control over their work and can become boring and demotivating.  This does not result in the best code being produced.

As we know, fixing poor code costs much more than doing it properly in the first place. So, if extra press on cost is poor practice and not the way to save money, what is?  Well how about, a relationship between outsourcer and customer that results in greater cost savings than a lower initial contract price? More on that my next post.

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