The Case for Offshoring

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November 01, 2009
CounterPoint
Luis Segredo

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© 2009 Hospitality Upgrade. No reproduction without written permission.

I run a small software development firm that focuses on SaaS solutions for the hospitality industry.  Back in the late '90s, I found it very difficult to staff development positions.  Perhaps it was the dot-com boom, or some other reason, but it seemed that everyone I interviewed expected daily foot massages and a company Porsche.  When I did finally staff positions, I had little certainty that the new staff members would last for the long term.   With labor costs soaring and a cost of living in Miami ascending at the same pace, it was not possible to staff with sufficient depth to properly cover turnover or even to properly estimate development projects.  Development was a costly and risky proposition; an unenviable position to be in when your bread and butter is software.
I set out to find a better way.  I tried to contract short-term resources that I could bring in-house to assist with projects.  While these were still expensive resources, albeit less risky, I found that the people who were willing to relocate for short assignments were not of the highest caliber.  Once again I found myself with a conundrum; one whose solution would be found in the most unlikely of places.  I would like to take credit for our ultimate course, but fate had much more to do with it.  I had a customer who lived in Russia and wanted to move to the U.S.  At the time, his employer, a U.S. company, was unable to bring him over.  After hearing stories of Miami from my director of operations, he decided to vacation in Miami.  We got together for drinks, and as they say, that began the start of a beautiful friendship.  He relocated with his family shortly thereafter to join us in sunny South Florida.

Part of his mission was to help us staff development with talented resources in Russia.  Russians, in particular, hold education in very high regard, so we would be able to hire some highly trained individuals with a great deal of drive and desire.  Although we contemplated hiring our own resources and simply offshore these positions, we decided to engage a firm to manage the resources.  This option freed us from a great part of the HR processes and gave us full flexibility to scale our group.

Getting the people would not be the problem but making them productive would be.  As a company with a rapidly evolving product line, we did not have the discipline of documentation required to work eight time zones away.  Again, we adapted and learned and found it to be quite liberating.  Structured software development and proper specification processes were required for success, but the by-products were far more important.  We found that we were able to develop software with fewer bugs far faster.  This pace was further accelerated by the additional resources that we could afford with the lower costs.  With the heavy lifting confidently poised in Russia, we left all product specification work and any development that required significant communications with a customer or other vendor in our headquarters in Miami.

We adopted this approach seven years ago with our development partner in Russia, and our next logical step was to extend the outsourcing concept to address the pain of specialization.  We have since established relationships with at least half a dozen firms, each with a specialty.  We have also extended the concept to hospitality consultants stateside. These are the folks who assist subscribers with their implementations.  We have retained them as contractors, and as such they get to select their assignments and live wherever they wish.  These people, who travel extensively, appreciate the flexibility and independence of not being tied to us, and we get the additional benefit of making their costs variable to us.

So where are the downsides?  From the company perspective, it does take greater discipline in the specification, and we do run the risk of becoming at odds with our development partner.  These are understood and addressed by distributing the work, while the disciplined specification effort also assists in handing the development work from one partner to another.  Thankfully, we have not had to do this, however, should that day come, it would not be too different from having to train internal staff.

From a macro perspective, the argument could be made that we are moving jobs away from our home country and negatively impacting the country’s economy.  First, the ability to build solutions faster has allowed us to grow our company faster.  Today, we have more developers in-house than we did when we started.  The only difference is that they are managing a much larger codebase.  Headcount for other departments has grown commensurately, thereby aiding our local economy.  Second and more important is that our company serves global clients and faces global competitors.  We have shown how our abilities to lower our cost structure and expand our labor resources have allowed us to grow our company.  With global competitors lurking, the converse holds true.  If we don’t employ all measures to lower our cost structures, competitors will.

Our results have shown that what started as an exercise to hire a few more people has become a strategic advantage.

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