I just can’t take it any more. I’ve had it to the point where I’m actually sitting down to write this blog. I’m doing this with the sincere hope that some others out there may see things the same way I do, and feel compelled to comment. I can no longer sit back and do or say nothing. I have a need to engage. It may be somewhat naive and idealistic, but I believe I can get a conversation going that might lead to some constructive conversation and perhaps reshape some decision making.
I’ve been in the I.T. staff augmentation business for over 22 years serving as the Vice President of Sales for an I.T. staff augmentation firm. For about the last 4 1/2 years, I’ve been shouting from the roof tops about how domestic Knowledge workers could compete with offshore resources. I published a website outlining a domestic offshore alternative model, (www.ITOnshore.com), wrote a white paper, been quoted in various publications, and even appeared on national television discussing the subject. I’ve even coined the term “HOM”, which stands for Homeland Onshore Model. In addition, some of our clients actually implemented the model, saving them between 30% to 40% of what they were paying.
Getting any traction has been very difficult. And I keep asking myself the same question: WHY?
First, I should explain the essence of HOM. About 5 years ago, when everyone was running overseas as fast as they could so they could save all this money by replacing their domestic workers with offshore resources, I made two interesting discoveries: People would work for less if they could work from home, and a dollar was usually worth more between the coasts, which could help lower hourly rates even further.
Now Let’s Fast Forward To May, 2008.
After about 7 years of the I.T. offshore experiment, we can say that in certain situations, I.T. offshore outsourcing does work well. My clients tell me that when their applications are repetitive (like many QA tasks) or Java applications with fantastic specs, (not mission critical) offshore outsourcing works great. Of course they don’t see the savings right away, but over time they may get a 2x to 3x savings with these types of applications. From what I can tell, that figures to be about 15 to 20% of a large shops applications. As for the rest of the applications that go overseas, many of the managers I speak to talk about long ramp up times, communications issues, the “yes we can do that” syndrome, 2:00 am phone calls, rework, etc. Recently, many managers have commented to me that productivity is now becoming an issue. In other words, if it takes the offshore resource 2 to 4 times longer to accomplish the same task as an internal resource, AND I need on-site consultants to oversee the off-site consultants, then where’s the value?
Wasn’t the whole point of this to SAVE MONEY?
All this led me to believe that if I could prove to these overworked and sleep deprived I.T. managers that our domestic I.T. workers could strongly compete on a value proposition (productivity) if you allowed them to work remotely, they would immediately seize the day and take full advantage of the HOM model. I mean, not only would they be saving money, but they be able to communicate with their workers AND in a similar time zone. They wouldn’t even have to download Skype if they didn’t want to. It seemed like a no-brainer.
Over the years, I have been able to implement HOM with a small number of clients, and I’m happy report it the results have been excellent. Everybody won. However, this hasn’t gone a long way to convince prospective customers or even existing clients that the model could work on a larger scale. They tell me about exclusive commitments, or upper executive managements directives, or my personal favorite, which is how the offshore resources aren’t productive now but will become much more so as time goes on.
And That’s Where I Completely Lose It….
The one thing that helps me keep my sanity is my belief that:
It’s All About To Change
I believe there are many reasons this will occur, beginning with:
Economic laws are not suspended in developing nations, and neither is wage inflation.
Why should it surprise anyone that people in other countries are constantly trying to better their own standard of living? As foreign I.T. workers move up the value chain, their services become more in demand because of the scarcity of their skills. It really doesn’t matter how many people a country has, what matters is how many trained people a country has in the disciplines you want to employ. The news flash here is that there are still a limited amount of experienced and highly trained knowledge workers in developing nations. With increasing dollars chasing limited resources you get something called wage inflation, as the best workers continually sell their services to the highest bidder (just like what happened here from 1997 to 2000). At some point, the offshore vendors will have to raise their prices, as they can only absorb so much margin erosion. But wait, there’s more as nobody counted on:
The Dollar Devaluation.
The ever declining dollar represents a double whammy for offshore suppliers as now takes more dollars to pay their resources without any corresponding increase in worker productivity. At some point, rates will have to be raised as the absorption of these costs and the margin erosion that will occurr will become unsustainable.
The Talent Dilution/Delusion
Yes, I mean that both ways. As I previously discussed there’s a limited amount of superior talent that any one country can produce. The thing I find most interesting is that a lot of U.S. management seems to forget this fact and operates under the delusion there’s a much bigger percentage of superior talent overseas than exists in this country. It’s like the 80/20 rule doesn’t seem to apply overseas. And just like in this country, the “A” players are very much in demand, and are constantly being courted by other firms to join their team. Of course, this does tend to put premiums on “A” players, and perhaps more damaging, it creates turnover.
And Turnover Is Bad…
Enough said on that subject.
Domestic Staff Burnout
This seems to be the dirty little secret that nobody likes to publicly acknowledge. In my observation, there is a direct inverse relationship between the performance of the offshore vendor and the stress levels of the existing domestic staff. If the offshore vendor isn’t performing, the onshore domestic staff will pick up the slack at almost any cost. Customers, both internal and external, expect the work to get done and get done well, and aren’t interested in excuses when I.T. falls short of the mark, or misses deadlines.
Now More Than Ever, Companies Really Need To Save Money
We all understand the need for companies to continually find ways to cut expenses. Current economic conditions demand strict attention to the bottom line. However, given the challenges outlined above, it may be difficult (especially for smaller to medium size firms) to realize consistent savings from offshore outsourcing arrangements. Furthermore, I don’t believe the further burdening of an already stretched to the limit domestic staff to compensate for the shortcomings of an offshore team is sustainable in the long run.
Why Not Take What The Economy Gives You?
If you’ve ever played or watched football, you know that an offensive designs plays to exploit defensive weaknesses, because a smart coach knows that a defensive can’t possibly defend every type of play. For example, if a team is set up to stop the run, a quarterback may elect to pass. A smart coach will take what the defensive gives them, and make adjustments as necessary.
If you look at the current economy has your defensive opponent, (trying to extract more money from you for less service), then it would be wise to take a look at where other opportunities to score may be. For example, recently a client was looking to fill an I.T. position. The requirement called for experience with a software package rarely found on the West Coast. In addition, the client wanted to pay less than the prevailing market price for the candidate when one was located. Of course, this proved to be a very challenging assignment. The client was able to find a few qualified candidates, only to be disappointed when he wasn’t able to come close to the salary requirements of the applicants.
People Will Work For Less If They Can Work From Home
Sensing frustration from the client, I suggested that he take a look at utilizing the Homeland Onshore Model or HOM (allowing the successful candidate work remotely). This would have advantage of opening a difficult position to the entire country thus greatly increasing the pool of candidates, as well as allowing the client to take advantage of lower cost areas that exist throughout the U.S. Within one day of being given the go ahead, we were able to find a candidate with the exact combination of experience he was looking for at the price that fit his budget, which was well below the West Coast market price. The irony is that the candidate lived on the West Coast but was willing to take considerable less than market because he could work from home. By the way, this candidate had over 20 years of I.T. experience.
Energy Prices Will Accelerate A Sea Change In The Way Companies Hire
As gas prices continue what seems to be a painful never ending northward climb, they may provide the catalyst that will change the landscape of corporate hiring forever. People that once accepted commutes of 50 miles or more will no longer be able to do so, without a significant increase pay that most companies will be unable or unwilling to accommodate. More and more, managers will have to deal with the inevitable stream of employees coming into their offices demanding more money just to afford the commute. However, I firmly believe that these same employees will be soon be actively looking for opportunities to work remotely, and would even be willing to take less for the privilege. Soon the best and the brightest will be insisting on the option.
Fear Of Managing Remote Workers? Get Over It
It always amazes me when I hear a manager say that their organization doesn’t like to hire telecommuting workers because they “they’re really uncomfortable managing remotely”, but they’re more than willing to hire people half a world away because “they’re cheaper”. Economics has a way forcing change, and there’s little doubt that the manager that can learn how to utilize the Homeland Onshore Model to save money and become more productive will be a hero in their organization.
Yes, it will require a somewhat different way of thinking, but everyone will win. The employer will win because they’ll get happier, less expensive and more price stable resources in the same or very similar time zone. In addition, their real estate needs are reduced as are the infrastructure costs. The employee will win because they’ll be able to stay off the road and eliminate the stress and expense that goes with it, have more family time and perhaps a better quality of life by choosing to live in a part of the country were living expenses are much more reasonable. The country wins as more cars are taken off the roads and energy demand lessens.
If you’d like to know more about HOM, please see our web site at: www.ITOnshore.com.
What do you think? Please leave a comment…