In my experience, outsourcing doesn’t really save any money and often costs quite a lot.
What usually ends up occurring is that it takes three overseas staff to mostly sort of replace one local person, quality suffers, customers depart in anger, and in IT at least, more critical outages occur.
So the end state is that the few higher-level, experienced local staff remaining start doing most of the work of the supposed same-level “colleagues” overseas and management thinks all is well — looks good on paper, after all! All the while not realizing that not only have they achieved 1/2 the work with four times the staff, all the best local people are on the way out the door, too, and existing customers are saying to prospects, “They used to be really good but have gone to hell since they shipped all the jobs overseas.”
Seen it so many times now.
If this is a pattern that repeats over and over, what’s the reason for it besides “saving money on paper”? The management can’t all be uniformly blind to the damage it does to the business.
Part of it is that executive bonuses/performance reviews are often tied to short term costs savings boosting profits temporarily — sometimes measured in time frames as short as a quarter, more often a year or so.
And there are indeed cost savings at first! Often 20 to 40 percent as the ramp-up of hiring to compensate for substandard service has not occurred in the outsourcing location yet and customers haven’t begun to leave. Looks great on paper for that year or maybe even two, and then the problems start to occur.
If the actual cost (including opportunity and goodwill costs) were included in the actual assessment over a ten-year period, it’d almost never make sense.
A boss of mine got in a lot of trouble once because he said on a call with executive management, “My team does twice the work with 1/3 of the labor as the team that is supposed to be ‘helping’ us. What exactly do we need them for again? We could hire three people here and replace 12 there. I know those people aren’t paid that poorly.”
And he was right — we’d done the math. But because the exec bonuses are tied to that illusion of profitability in the short term (what happens on spreadsheets is more important than what happens in the real world), nothing changed or will for a few years at least.
Often I see offshoring occur, customers start departing, and then offshoring gets scaled back or eliminated — by then, the execs who instigated it all are long gone with their nice golden parachutes.
Offshoring/outsourcing of many things would be 60-80% less I’d guess if somehow companies looked at a more than 1-2 year time span for these things, and considered opportunity cost and lost customers/reputation.