Why Software Outsourcing Works Differently Than You Think [Op-Ed]

Outsourcing companies are usually viewed as a mere manpower reservoir, with no stance of their own. As a part of such a company, however, I feel that this opinion is not valid anymore. A while ago I came across an article by Yegor Bugayenko.

It’s yet another voice in the ongoing discussion on outsourcing web development services (especially to the developing countries e.g. in Eastern Europe) and the author takes quite an interesting position.

On the one hand, he refutes the allegations made against outsourcing, and on the other hand he tries to prove that outsourcing is a thing of the past.

Is Outsourcing Really Over?

I’d like to add my opinion to the discussion as a professional, dealing with web development for about 7 years and leading a team of web developers for 4 years, and also as a businessman talking and working with numerous Magently.com clients.

From my point of view outsourcing still works, but in a different way than 10 years ago, which the previous participants of the discussion failed to notice.

The service sector keeps evolving and we need to keep pace with it. The market laws don’t change, but the business conditions and the needs of our clients certainly do.

Is Outsourcing Shedding the Responsibility?

Yegor Bugayenko claims that outsourcing is never a win-win situation, because the objectives of both parties are very different. As he puts it:

“Your business interests can’t be aligned with the interests of your outsourcing partner.”

“That’s why a good customer for them is a paying customer. Not a customer with a successful project. Not a customer with a properly solved problem. Not a customer with optimized costs. Not a customer with the best possible technology utilized. Not at all. The best customer is the one that pays, pays a lot, and pays on time. Period.”

“That’s the root cause of all problems with outsourcing.”

Is it so? Not really. Let’s compare it to an everyday situation, say – eating out. Are we always disappointed when going to a restaurant instead of preparing a meal ourselves?

If Yegor’s statement was a universal law, the only thing the restaurant managers should care about would be making money and paying their employees.

They wouldn’t care if their customers enjoyed their meal and had a good time, the only thing that matters would be ripping them off, even if they ended with a stomachache. Is this how it works? Of course not!

When eating out, you outsource the preparation of your meal and (unless you go to a place where nobody wants to eat) it usually turns out that everyone wants you to enjoy it.

It’s in their interest to deliver a tasty dish and make you happy with their service. Today, if a company treats their clients as cash cows, it usually doesn’t get very far. Such an approach results in failed projects, unhappy customers who never come back, delayed payments and refunds.

Is Outsourcing Profitable for the Customers?

A good project requires cooperation from all parties involved. It has to be properly executed, well-managed and the clients must be kept in the loop from start to end. What’s more important, however, is that a good project is a commercial success for the client.

If the customers are satisfied with our work, then:

1. They are happy to pay. We are rewarded for our hard work and the customers feel that they profited from the cooperation. Satisfaction and the sense of money well spent are crucial if you want your customers to come back.
2. They spread the word. We gain new clients and our reputation skyrockets.
3. They come back. Whether they want to develop their project further or to start a new one, returning customers are great power.
4. They are happy. A successful project is a massive motivation for any entrepreneur.

This is true for virtually all businesses, from corner shops to shoemakers, restaurants and web development companies.

Is It All About Money?

All businesses also know that there is always a budget and a deadline and that balancing the two is not always that easy. It is especially true for web development companies, where the projects sometimes tend to take unexpected turns.

Yegor Bugayenko has his own theory on how web developers are motivated:

Thus, your lone motivation is to keep that cash flow coming. No matter what. The longer the project, the better. The lower the quality of code, the better ‘” more money for maintenance. The more phone calls, meetings and other time-wasting events, the better. The more mess in specs, the better. Just do whatever it takes to suck money from the customer.

Having managed a group of developers at Magently for a while now, I know that the above is a recipe for total disaster and a massive loss for the company.

I can’t imagine leaving a client in the lurch – a client who has already invested thousands of dollars in their project (quite often from their own savings) and who would then be left with unfinished code and an inoperative product.

It’s in our best interest to sort out the documentation and explain everything to the clients at the pre-sale meetings so that they know what they’re paying for, what they’ll receive and what they can expect from our partnership.

Any other approach would be very irresponsible and I sincerely believe I’m not the only one in this business to think that way.

To make a reference to real-life situations again: it’s as if somebody said that if a car broke every week, its owner would slavishly buy expensive repair parts from the manufacturer each time instead of thinking of a new vehicle. Or if a creative agency came up with ineffective campaigns, its customers would come back for more.

It simply doesn’t work this way

The key to success is a strong, trusted brand, and such a brand is built on great products and excellent services. Lying to your customers or ripping them off will lead you nowhere because with such fierce competition on the market, nobody will stick with you.

The Times Are Changing

Having said all that, I want to return to what I mentioned at the beginning: the times are changing and so is the way outsourcing works.

Gone are the days when you could hire a developer from Ukraine or Poland, pay them a dollar and make $100,000 on your product. The economic situation in the countries previously famous for their cheap manpower has changed and the hourly rates have increased.

The companies in the developing countries became more ambitious and now they can compete with almost anyone in the world.

They are not just manpower, they are a real alternative with equally good marketing, ideas, design, language proficiency, etc. This way they skipped one stage in the process and started to cooperate directly with the end clients.

They understand the experience economy, because they read the same books, take part in the same conferences and share the same knowledge – they are simply located in a different place.

Big corporations still have their departments in the developing countries, but it’s not beneficial anymore for small and medium-sized companies.

We’re witnessing a change of the target group for companies like Magently – the target is not an IT firm from a rich country, but the end clients who want us to manage their projects.

This is the progress of outsourcing: now you don’t search for a company that will speak with a foreign supplier on your behalf, but you speak directly with development companies, because they have matured and are ready to step in.

I am sure that this is the reason why the companies that previously used cheap workforce from abroad now believe that outsourcing doesn’t make sense. They’re right – it doesn’t work for them, because they are not the target group anymore.

Conclusion: Where Are We Now?

To sum up, I don’t think that outsourcing is dead by any means. I believe that it has changed significantly and will continue to evolve.

The outsourcing companies have come a long way from cheap manpower to equal partners in the discussion and in today’s world your location doesn’t limit you in choosing the talented people you want to work with.

The old school outsourcing brands can still be found for example in India or China if you want to go to the cheap side, but perhaps choosing more expensive options can take your company to a whole new level and get you some amazing associates.