Outsourcing Human Sources for IT: What You Save When You Pay

by Modis on December 12, 2011

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Offshore outsourcing has been the hottest trend in the business market for years. At face value, overseas workers’ lower salaries and production costs made outsourcing seem like a no-brainer. Yet modern companies are quickly discovering that when it comes to IT work, you get what you pay for–and many are scrambling to bring their IT departments back to their own shores.

So what’s with the recent change-of-heart? Why are modern companies investing in highly-skilled, in-house IT workers? Simply put, businesses are finding out all the hidden costs associated with a too-good-to-be-true price tag. Here are some of the biggest reasons employers have begun hiring IT workers on native shores again.

Cost

Though outsourcing IT work may look like a bargain, the price of selecting, training and maintaining an overseas operation is much larger than the initial price tag indicates. If anything, outsourcing is a long-term investment–for the first few years, outsourcing is actually more expensive than having an in-house team. These are just a few of the many hidden costs associated with offshore outsourcing:

  1. The Lengthy Vendor Selection Process
    Once a business decides to outsource, they’ve got to choose an outside vendor and draw up a contract. This means travel expenditures, legal fees, project manager salaries, advisor fees and hundreds of hours spent on the process. The vendor selection process can take up to six to twelve months.
  2. The Costly Transitional Period
    Now that a vendor’s been selected, companies often expect the savings to start rolling in right away. However, businesses now must undergo the transitional period for taking their in-house IT overseas. This means paying two sets of salaries: one for the in-house trainers and one for the trainees. The transitional period can take anywhere from three months to a year, so it’s a long, costly road to undergo.
  3. Infrastructure Costs
    Next, businesses are forced to design, build and maintain overseas infrastructure in order to get operations up and running.
  4. Severance Packages and Retention Bonuses
    Plenty of laid-off employees mean plenty of severance packages to shell out. Thanks to the necessary transitional period, companies need employees to stay on the payroll until the transitional period is complete. Without retention bonuses, paid employees start dropping like flies.
  5. Software Management
    Every few years, a software update is required…and nine times out of ten, this software update isn’t listed in a company’s vendor contract.

Quality 

Perhaps even more important than cost, quality is one of the biggest reasons IT jobs are currently flourishing. Here are some of the ways quality suffers under outsourcing:

  1. Quality Assurance
    Companies who outsource are forced to ramp up their quality assurance departments, and it often turns into one (or several) full-time quality assurance positions. Everything must be regulated, from incoming invoices to work productivity to monitoring outgoing production.
  2. Brand Management
    Outsourced employees have no knowledge or connection to a company’s brand, whereas an in-house IT department maintains a direct and constant connection to the company.
  3. Management Difficulties
    How does one manage an overseas corporation? Companies who outsource are still struggling to answer this. The answer generally lies in a lot more communicational upkeep (phone calls, email, video conferences) and a lot more travel expenses.

Knowledge

Onshore IT workers are armed with native knowledge that offshore workers just don’t have. Some of the issues companies face with outsourced employees are:

  1. Language Barriers Most outsourced employees speak English as a second language, and the linguistic differences are difficult to overcome.
  2. Currency/Payment IssuesIn addition to being faced with fluctuating exchange rates, it’s difficult to train for certain concepts that onshore IT workers face every day: for example, creating a payment system using American credit cards.
  3. Cultural DifferencesWorkers from the United States are expected to be open about their experience and knowledge. If they spot a problem or an easier way to go about programming, they’re going to speak up and say so. Even if it doesn’t make sense or won’t work, offshore workers often prefer to respect their client’s demands without speaking up or offering another solution.

Productivity

Many businesses who outsource suffer a huge blow to their productivity rates. From low morale to an increased lag time, here are some of outsourcing’s impacts on company productivity:

  1. High Turnover
    Offshore companies experience much higher turnover than those onshore. For example, India has about a 35% turnover rate (according to the National Association of Software and Service Companies), while the United States’ turnover rate is about 3% (according to the U.S. Department of Labor).
  2. Low Morale.
    It’s rare you’ll find an employee actually in favor of outsourcing, and laying off many of their co-workers doesn’t help morale. In-house employee productivity often dips, especially when faced with new procedures and job descriptions.
  3. Training
    Company training becomes a lot more intensive with overseas workers, and businesses are also forced to spend more hours developing, testing and implementing enhanced training programs.
  4. Lag Time
    When something goes wrong, companies quickly find out the difference between an outsourced IT department and an in-house one. Major problems take weeks or months longer to correct, and starting over means a whole new round of training.

What’s the Future of IT in the United States?

According to Modis.com, IT jobs are making a comeback on the home front, especially in Houston and major cities in the Northeast. Here’s their assessment of the 2011 IT job market (click to see full graphic): 

Conclusion: Bringing Techies Back
Things are definitely looking up for the American IT worker. Modern companies are giving outsourcing the axe and turning to in-house departments. Programmers and coding geeks rejoice: they’re bringing techies back.

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{ 1 comment… read it below or add one }

Kevin January 18, 2012 at 1:47 am

This may be true, but from what I’ve seen in the last few years, these companies aren’t actually hiring anyone! They are contracting a majority of their employees so they don’t have to pay for all the things a regular FTE would get like paid holidays, vacation, sick time, health care, social security and workers compensation.

Then the companies that they contract through only pay the employee about half of what they are really worth! So they can’t even afford to pay for their own health care out of pocket!

So what incentive does one have to really dedicate themselves to that company? NONE! They will take the next job that pays more money at the drop of a hat! So they end up having to go through training someone all over again!

I can understand bringing in someone under a contract in order to see if they are competent in their job and gets along with the other employees. That shouldn’t take anything more than 6 months MAX! After that they should be hired as a FTE and given the benefits that IT employees deserve! Then you will have a devoted employee that really cares about their job!

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