Satisfaction isn't guaranteed

A recent E-commerce Times article looks at some of the downside of outsourcing.

At the moment, many businesses are very excited about the potential of offshoring projects. When they learn of the marked wage differential between first world and developing world labor, an entrepreneurial business mind will start by thinking "What cannot be outsourced to India?"

Before rushing your company into its first offshored project, here are a few points to keep in mind.

• With any new project, an engineer will face an initial learning curve
• A newly assembled team will require time to work effectively together
• There can be many hidden costs in any outsourcing arrangement
• Lack of informal interaction between business and technology workers may suppress potential innovation

With any new project, an engineer will face an initial learning curve

Even the most skilled engineer, from the most famous university will need time to learn the business process and technology in a new company. Human knowledge and production is not operated in the same way that a water faucet is. It may take a week or a month or longer before an engineer can reach a period of peak productivity.

A newly assembled team will require time to work effectively together

Just as an engineer may requires an initiation period, so does a new team. Over time, leaders will emerge, as will the team dynamics. While team building exercises can help to make this faster, pushing too hard on a new team may have adverse consequences.

There can be many hidden costs in any outsourcing arrangement

In many outsourced businesses, labor costs will be the most costly expense. This is especially true when dealing with knowledge workers.

True, the actual cost of employing an engineer in India might be 10% of the cost of employing an engineer in Silicon Valley. However, don't forget to account for office equipment, an office, management costs, recruiting costs, the cost of international communication, and even the cost of lost sleep.

These costs are often hard to plan for. As a general rule, after you have estimated the cost of running your project with an offshore team, double that cost. Does it still make sense to proceed if the costs would reach this level?

Lack of informal interaction between business and technology workers may suppress potential innovation

There is no denying that innovation happens most effectively at the level of production. Workers or engineers who are building your product or providing a service are the ones who should have the best ideas for making improvements. How can you capture these ideas?

Summary

The E-commerce Times is very just to highlight the downside of outsourcing. A rational examination of the process of production or service when completed offshore shows that there are many inefficiencies that are easy to overlook.

Does your business make sense to offshore if costs are twice as much as expected?