On the surface, it appears that offshore IT rates have remained relatively stable over the last 10 – 15 years. That is only partially true
In my experience, the average rate of an inexperienced resource for IT work is still about $18 an hour, but the rates for a high-end resource are now over $50 per hour, so the overall offshore cost depends on the project and the company.
If you have a large, long-term project, the outsourcing provider can leverage more junior people to be part of the team, and the average cost per hour will stay low. For “one-off” projects that are smaller and shorter in duration, the service provider will have to use more experienced staff to get a small but complex project done, and the rate will be above $30 per hour. This is still not bad, but when you consider some of the hidden costs of this service, the cost climbs to over $50 per hour in many cases.
But the market has become a little more confusing as the demand has changed.
How Offshore Cost Has Changed Over The Past 20 Years
Twenty years ago, when custom software development was more common for any given enterprise, expansive teams were needed to work over a longer period of time on large, complex server-based applications.
Now, much of the work has shifted to web apps, mobile apps, and desktop apps which are predominately more narrowly focused, smaller, and lighter, and the work no longer focuses on the “heavy lifting” on the back end that many of the ERP type of solutions that were implemented in the early 2000s focused on. Therefore, a smaller, more specialized project requires a smaller, more specialized team that does not come at $18/hour.
Given that the rate per hour changes based on the mix of the demand and subsequently the mix of the talent on the team if you couple that with the now more experienced buyer who understands many of the hidden costs, management issues, and quality issues that come with the territory, then the cost gap closes significantly.
How Quality Decline Changes How We Utilize Low-Cost Offshore Labor
Despite having said all of this, sending work offshore is still significantly cheaper for tasks that are definable, repetitive, and high volume. Those attributes are also the same things that make similar work a good candidate for automation, which we will discuss later. It’s important to discuss the “value for the buck” variable. Lower cost for a similar result is always a compelling argument. Over the last 15 years, companies have learned that there is a price to be paid for low-cost resources. These lessons learned are not invalidating the offshore outsourcing industry, but they are impacting it.
Quality is an issue. This is not necessarily an indictment of the offshore service providers, but many IT services (e.g., software development, support, etc.) are difficult in the best of situations where the IT team is co-located and speaks the same language in the same time zone.
Recognition of this has led to some interesting changes in utilizing low-cost labor abroad:
- Increasing use of captive offshore solution centers. Larger enterprises have shifted to building their own centers in low-cost locations to better control the effort. Many of the same issues remain, but it is far easier to control staffing, quality, and expectations.
- Moving offshore efforts back onshore. This has been happening for some time. The offshore cost advantage is compelling, but if the project does not get done or the service is not effective, then you have wasted time and money despite the savings on labor.
- Making significant onshore changes and investments to develop better processes, improve methodology, and increase management staff to oversee the process. Companies that have been successful have made these changes and investments. Also, these companies have invested years of experience to become effective at doing work offshore. It is a skill like any other. All these things add cost to the effort which further erodes the cost advantage.
- Focusing on automation. At the end of the day, automating a process will always trump low-cost labor. It’s the way the US and European manufacturing companies have been able to survive the low-cost labor arbitrage of the last 30 years. The same now applies to IT. Over the same period, IT organizations have implemented tools to automate infrastructure management and are now moving up the value chain in IT with new automation technology.
Given these lessons learned and the maturation of the industry, companies must ask if they are really getting the desired value and quality of service from their offshore providers. In some cases, they are. Companies that have made investments in time, people, and technology have found value in certain areas because they have become good at it.
However, if you add up the cost of that journey and its final state, it is not $18/hour. So, while the cost or rate per hour may have remained somewhat steady at the low end, companies who are now good at utilizing offshore resources realize that the true cost has increased from their initial perception.
How To Ensure You Still Get The Service Quality You Deserve
If a company has not made the investments of time, money, and know-how, does the low cost really outweigh the poor quality, amount of management attention required, and missed expectations? Many would say “No.”
So, the smart approach is to develop a strategy for offshoring that includes preparing the organization for a new way of doing business. The way companies became good at utilizing offshore resources was by adding the necessary structure, processes, and tools to make the effort more predictable and manageable. These happen to be the same attributes that make an IT function an excellent candidate for automation.
IT organizations who embark on this path should never lose sight of the fact that the end goal is cost reduction while providing a quality service to the enterprise. As companies go through the steps to identify candidate processes/projects and make all the necessary changes to improve efficiency and control, they must consider automation first and view offshoring for cheap labor as a last resort. While some companies have become good at it and may have a captive center, it’s not as good or cost-effective as automation. Technology is increasingly available to automate the more routine or repetitive IT tasks.
As an organization realizes the true cost of offshoring and considers offshore outsourcing to offload cost and management attention, progressive enterprises no longer approach this decision in a haphazard way. The first step is to analyze the current state and a host of recommended changes to processes to be moved offshore. The next step must be to assess the viability of automating those processes. Again, automation trumps even the cheapest of labor.
Twenty-five years ago, tools began to hit the market to help manage IT infrastructure by automating functions that were predictable and repeatable, like network or server monitoring. These automation tools made infrastructure so dependable and inexpensive that they gave rise to cloud services. Now, using technology to manage a resource without increasing labor, IT infrastructure has become a stable, dependable commodity. The same is happening now farther up the value chain in IT.
How Access ITUSA Can Help
With tools and services from providers like Access IT USA, the functions of testing, deploying, and monitoring increasingly vast networks of desktop apps and their users can be automated, making this key IT function better, faster, and cheaper. With so much power in the hands of end-users and all the applications, they need to be productive, the environment has become overly complex and is constantly changing. Now there are tools to manage this environment that has, until this point, required highly skilled professionals to keep the trains running on time.
For example, Access Capture can routinely search and discover apps on a variety of devices and determine their readiness and need for an upgrade or patch. Access IT tools can make all the necessary modifications and automatically deploy a new version to the device so the end-user sometimes never sees the upgrade.
In more complex scenarios, Access Symphony can provide end-user testing for the user to test the new app and make sure it is ready for their use. Now valuable IT resources are freed up and the end-user has a higher degree of confidence in the upgraded app since they were in control of the testing. So, imagine a major Windows upgrade. They often go wrong and key business applications on the desktop often stop working, but with automated tools to test and deploy items as critical as a new desktop OS and related applications, a Windows upgrade does not need to be the major business disruption it has been in the past.
In addition, Access IT USA can provide tools that put the help desk function in the hands of the user. A high percentage of help desk tickets are recurring problems with recurring fixes. Access Symphony lets end users diagnose and fix technology problems themselves without having to wait for a call back from the help desk. Oftentimes, Access Fix Engine can detect and fix a problem without the user even knowing there was a problem.
Access IT USA has a family of IT automation products and consulting services that can help any IT organization take the next step in dramatically improving the quality and cost of delivering the critical day-to-day processes that the business expects to be “automatic”. Access IT USA consultants can work with you to develop a roadmap to IT automation that makes sense for your company. When it comes to experience in this area, our team has as much as or more than anyone. It’s what we do and all we do.