
Why Companies Have Stopped Outsourcing IT - frostmatthew
http://blogs.wsj.com/experts/2015/10/14/why-companies-have-stopped-outsourcing-it/
======
geebee
I wish I had the link, but I remember reading an article years ago (maybe 7 or
8 years ago?) titled (roughly) "Don't outsource your software development",
focusing mainly on Walmart. The article described a project at Walmart where
they had their software developers actually go to stores and work the cash
registers for a while to develop the kind of empathy and understanding of a
job to design a good system.

While Walmart labor practices definitely get a bad rap (not necessarily
undeserved), I found this story very encouraging. It's kind of ironic, but
having developers work the cash registers actually suggests that these
developers have a very high status in the business - they are not viewed as
glorified typists, or even as technically talented but limited people where it
comes to business. They are viewed as people who need to understand business
processes deeply and who have the autonomy and authority to act on that
understanding. And from what I understand, Walmart did rise to prominence at
least in part on the effectiveness of its IT systems (which enabled more
efficient supply chains, in particular).

This was a long time ago (and the WSJ article certainly acknowledges that some
companies have been aware of this for a long time). Personally, it took me a
long time to understand how software outsourcing could ever be anything other
than a disaster, and I slowly came to realize that this is because I worked in
the jobs that hadn't been outsourced, that required a lot of business context.

Even then, it's been pretty clear to me at times that decision makers higher
up on the org chart really don't understand what I do. Or, more cynically, you
could say they absolutely do understand it, but are aware that it would take a
few years for the hidden costs of their decision to catch up with them, by
which point they've made their numbers and can use it to move up another rung
(ie., if a highly competent software developer who truly understands the
business has built robust, well documented, well tested systems, that person
could be replaced with someone more limited in ability and business
understanding, and it could actually be a few years before critical systems no
longer effectively support the business).

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tsotha
There's outsourcing and there's outsourcing. There may be fewer companies
trying to build internal applications using contractors on another continent,
but it seems like more companies are getting rid of data center operations in
favor of services like AWS.

~~~
jrs235
> more companies are getting rid of data center operations in favor of
> services like AWS.

That's not really outsourcing. That's shifting from capital expenses to
operating expenses which has tax and cash flow advantages.

~~~
stephenr
Smaller companies doing this (and possibly some big ones) are essentially
outsourcing "Ops" by using "cloud" providers.

The number of people that think somehow using AWS means you no longer need Ops
staff is amazing. In a bad way. How often does "we can't afford our own Ops so
we use AWS/Azure/etc" come up as a reason to accept the associated vendor lock
in with a given provider?

~~~
grogenaut
there are ops and there are ops... are you speaking to ops regarding managing
the hardware itself, or ops re the applications you are running on the
hardware? Cloud definitely doesn't remove the latter. Unless your company runs
on just a database with no app code.

~~~
stephenr
> Cloud definitely doesn't remove the latter.

Many would disagree with you, and run their business as if that is the case.

I'm not saying they are right, I'm saying thats the reality of how a number of
decision makers act.

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rmason
Why outsource when you can insource instead? Thanks to lobbying both parties
support ever increasing numbers of H-1B visas. You can even get the departing
developers to train their replacements ;<(.

[http://www.nytimes.com/2015/06/04/us/last-task-after-
layoff-...](http://www.nytimes.com/2015/06/04/us/last-task-after-layoff-at-
disney-train-foreign-replacements.html?_r=0)

[http://www.computerworld.com/article/2879083/southern-
califo...](http://www.computerworld.com/article/2879083/southern-california-
edison-it-workers-beyond-furious-over-h-1b-replacements.html)

~~~
johnloeber
I don't know if you're trolling, but in this case H-1Bs are being used to
outsource: large consulting companies obtain H-1Bs for their (stereotypically
Indian) employees, bring the employees into the US for 3-6 months to learn how
to do the job, then send them back to India, from where they complete the job
remotely, and where they can of course be paid much less due to the lower
prevailing wages/cost of life.

This is a classic outsourcing strategy. Insourcing is the complete opposite,
see
[https://en.wikipedia.org/wiki/Insourcing](https://en.wikipedia.org/wiki/Insourcing).

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chronid
Actually in my experience (in the EU) they still outsource everything they
can, and outsource 90%+ of everything they cannot outsource. And they put a
shiny new remedy instance in between to "help".

And then they wonder, when they have to push out new releases/features, why no
one got the capacity and why only half of the features work - half the time
(returning maybe confidential customer data of _others_ customers, ohh).

But then it's the "moral duty" (management words...) of the remaining "local"
teams to work 20/24 7/7 for a month to try to salvage what can be salvaged.

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pjmlp
Well, here in Europe the outsourcing and off-shoring is still playing catch up
with US.

I see no signs of it stopping. :\

~~~
throwaway13337
In Europe, it makes a lot less sense as developer salaries are likely half of
that in the US.

Even in western countries like Finland, Denmark, and Austria, mid-level
developers and other technically inclined can expect to make
1500-4000euros/month. Compare that to US developer salaries and you can see
why.

~~~
seren
Most of the time there are more employer's contribution in Europe compared to
US. Depending on the local law, you have to pay for social healthcare,
retirement, jobless benefits... At the end of the day, the difference of cost
for the employer is less than the difference in paycheck would make you
believe.

~~~
Avalaxy
The numbers he mentioned are gross salaries, not net salaries. The things you
mentioned are already paid by the difference (the highest income tax bracket
here is 52%). You would expect the gross income to be much higher.

~~~
jbergens
And at least some countries adds taxes to the salary that the companies has to
pay.

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lukasm
Developers are not cost centre. They are wealth creators.

~~~
ucaetano
For internal systems they are cost centers, since there's no revenue
associated with them, even if they create wealth. Don't mix accounting and
economics.

~~~
lsaferite
That seems a bit short-sighted though, no?

Even if you cannot put an accounting profit line with them, they facilitate
the profit of the other departments.

~~~
tharax
right, but then so does support - by making sure that your customers are happy
and therefore recommend your brand and become repeat customers. so do your
cleaners - by making the workplace a tidier building so that your other staff
are more productive. every team ultimately is there to "facilitate" another
team to work better and make more money.

where do you draw the line?

~~~
nkassis
It's hard for cleaners to make a company more competitive and profitable by
cleaning harder but it's not hard to see how better software can do so.

~~~
GFischer
Elaborating: both better software and better support can be competitive
advantages.

Better cleaning, not so much - it's just a cost/requirement of doing business
.

Some companies don't consider their software or developers to be sources of
competitive advantage, and you should try to avoid those if your goal is to
work on cool stuff and have better chances of making more money. Some people
do like the challenge of maximizing operational efficiency and might get a
good job that way, but it's harder and fraught with politics.

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mironathetin
That's good news!

I could never image to work for a company that works for companies. Doing good
work is rarely honoured or even noticed. And who cares. Good, that even non-
tech people start to understand. How long did it take.

~~~
distances
Some of the very best workplaces are IT contractors. Generally there are
limits to hourly invoicing, so the pay ranges are quite limited compared to
product companies. Thus, in order to attract top talent the companies simply
have to be nice places to work at. Also, hourly invoicing means sane working
hours.

Then again, some of the contracting agencies are probably among the worst
places, too, employing people with limited choices. Just need to identify the
good ones.

~~~
mironathetin
Good to read that there are good contractors. How do you identify the good
ones? Just apply and see?

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planetjones
Should be entitled why some companies have stopped outsourcing. From my
viewpoint in Europe it's still every managers' preferred route to promotion
and a big bonus.

Also, what about the practice of bringing in cheaper labour to undercut the
local workforce. This seems to be growing everywhere?

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fauigerzigerk
_> Software-as-a-service and cloud-based operations mean that companies
decreasingly have data centers, so there isn’t anything to outsource._

That leaves me scratching my head a little bit. It sounds like he's saying
that outsourcing is dead because everything has been outsourced already.

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hmottestad
Im getting really tiny font. 10px to be exact, for the main article text. Is
this just me?

~~~
rejschaap
It is not just you, the article is completely unreadable for me as well. It's
not just small font, it's also the line spacing and paragraph spaces that are
off. I had to copy-paste it to a text editor to read.

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inthewoods
I'm surprised an article like this can be published with zero data - is
outsourcing really on the decline?

~~~
asdfzxc
This is exactly what I wanted to ask. The article only mentions things like "a
company did so and so" etc. Other than big companies like Netflix closing down
their in house data center operations, which has been in the news lately and
companies like Uber running entirely off Salesforce, I've not heard of major
decline in IT outsourcing activities.

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wil421
I think it's time to find a new job. Most of the people I work with are
outsourced IT or contractors.

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foolinaround
it feels like management needs to act busy and do something, and therefore
there is this current trend of bringing in the outsourced parts.

the technology landscape has changed since the outsourcing was initiated, some
gains will be realized and bonuses will be distributed.

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seivan
I still consider using an (ad)-agency for software to be "outsourcing".

Like when taxi companies are outsourcing their iOS applications to agencies
while Uber has in-house engineering(?)

~~~
stephenr
> Like when taxi companies are outsourcing their iOS applications to agencies

Uber keeps trying to tell us that it's drivers aren't employees, so they're
trying to outsource the drivers themselves.

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petra
So isn't the next step opening branch offices in India, etc ? That way a
company can enjoy both world ?

~~~
stephenr
The next step for a lot of office-based work should be "accept that remote
working is a viable option, and hire staff regardless of where they live".

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yCloser
they have NOT stopped

