The outsourcing market is undergoing constant evolution. Traditionally, cost reduction was the key driver for software development outsourcing, but now it doesn't even make the top five, according to Deloitte's 2018 Global Outsourcing Survey.
Instead, the top five reasons organizations opt for IT outsourcing are:
Furthermore, an increasing number of organizations are embracing a variety of disruptive outsourcing tech such as robotic process automation (72%) and cloud (93%). So, while cost reduction might not be the direct primary goal anymore and has been replaced by innovation and efficiency, the end result is still a better bottom line and an increased competitive advantage. However, all these benefits of outsourcing go up in smoke if your organization doesn't (or can't) employ agile software development.
Many organizations believe they are Agile, even when they opt for offshore outsourcing. Unfortunately, offshoring simply does not allow for an Agile approach to software development, which is why PSL recommends nearshore outsourcing.
India has long been one of the most popular IT outsourcing destinations thanks to their solid tech education, high availability of engineers who speak English, and very low costs. However, high demand has led to a very competitive market in which it's not unusual for clients to experience churn rates as high as 30% per year. It has also led to a dramatic increase in rates so that hiring a software development outsourcing team in India can cost as much as hiring one in Latin America or Eastern Europe. Even if rates were still lower in India, for companies in North America, it simply doesn't make sense to opt for offshore IT outsourcing because it makes it practically impossible to stick to Agile development.
Traditionally, IT outsourcing relied in large part on a lot of formal documentation and establishing a clear plan in advance with all the big requirements. The plan was not to be deviated from. So, when working with an offshore software development team, the client would have to work with the vendor to create the plan. The outsourcing team would then work on the project based on the plan with no deviation. Finally, delivery of the completed project would be made. For larger projects, this cycle would be repeated a number of times.
The key to this approach, and why it worked even when the vendor was in a far-off time zone, was because of the lack of deviation and the creation of highly detailed documentation. The problem is that this in no way complies with agile software development. Furthermore, studies have found that these traditional approaches to software development often lead to poor results. The fact is that time to market has become more important than ever. The longer you take to get your product into the hands of consumers, the more likely you are to fail.
Consider that companies like Google and Amazon are rolling out dozens of updates almost every day. Other organizations are taking a minimum viable product approach. Even small businesses are rolling out updates every few weeks. Taking a traditional approach to software development makes this impossible. By the time you finish the documentation, your competition will have launched their product. By the time your project is completed (often at a higher cost and with less functionality), they'll have rolled out numerous updates and likely even launched a new product.
Plus, agile software development employs a very important principal that traditional methodologies don't allow for, namely improving the product based on the customer's needs and desires. Agile is all about multiple iterations of a product, with changes and improvements made to each iteration based on, among other things, customer feedback. With traditional waterfall development, this is impossible to do, which is why a product created with this approach will never be able to compete with one using Agile.
Communication is essential to agile software development. And not just any form of communication. It has to be in real-time. Your team needs to have access to you, and vice versa, throughout the workday so that you can work through issues immediately.
This is impossible to achieve with offshoring. If your team is in Mumbai, for example, and you're in Chicago, they're ahead of you by 10.5 hours. That means that your workday will never overlap. So, communication will have to be scheduled and, for the sake of efficiency, it will have to meet a specific agenda. This type of communication is the exact opposite of what Agile principles require, seeing as it's a form of communication that puts tools and processes first. However, with offshore, you have no other choice.
Conversely, nearshore outsourcing eliminates this problem. Bogota Colombia, for example, is in the same time zone as Chicago. In other words, you and your IT outsourcing team will be able to communicate in real-time through the workday via Skype. It's almost as good as having them in the office with you.
Another advantage to nearshore outsourcing is that cultural differences aren't quite as extreme. The proximity also means that your vendor understands your culture and vice versa. At PSL, we work mainly with North American organizations, which is why we recommend Latin American vendors, especially for organizations looking for innovation. Some vendors tend to offer less creativity than others because of cultural precepts. For example, in some Asian countries, disagreeing with someone in authority is not done because it's considered a lack of respect. Innovation is often the result of someone having a different idea, but if you're working with a team who won't express those ideas, innovation won't happen.
Conversely, people in Latin America are not only highly creative, but they're also not shy when expressing themselves. This is not only because of their culture, but also because they understand North American culture and what's expected of them. Nearshore outsourcing is really the only way to remain Agile. Minimal or non-existent time differences support the communication necessary to achieve agile software development. Plus, the benefits of cultural similarities aren't to be overlooked, especially when innovation is a key driver of your IT outsourcing endeavors.