So it is with no small sense of irony that I find myself managing the delivery of a strategic software product for a client who has elected to hire an off-shore firm to provide the software development resources for the effort. My client made this decision because they are a start-up without the necessary capital to go out and hire an entire team of American developers. So in order to get their latest version of software developed they have made the strategic decision to incorporate a Chinese development team.

The difference between my client and the majority of companies that have chosen off-shoring as a solution is that my client consciously made the decision to opt for lower cost over speed and quality. The problem with most off-shore projects is that the person who sold the project promised – whether implicitly or explicitly – that the customer could actually get better, faster and cheaper all at the same time. This misstatement of the potential of off-shore projects is one of the leading causes of the many stories we read about outright failures, cost overruns and projects delivered without meeting the specification – sounds a little like the majority of on-shore projects.

Cheaper is easy to accomplish and is achieved via off-shoring because off-shore developers simply make far less than American developers – the average Chinese software developer makes  $13,400 per year, the average Indian developer makes $10,300 while the average American developer makes around $80,000.

The hard truth is that better, faster and cheaper cannot exist in the same space and time regardless of whether you are using off-shoring or not. In the very best of circumstances a project could deliver better and faster simultaneously – though I have seen no evidence that these two can happen in an off-shore model. The only certain way to get better and faster is with dedicated on-site development resources who are very senior, have a great deal of domain experience and are very skilled at Agile delivery. Even with these ingredients delivering better and faster together is very challenging.

The achievement of better and faster requires a high performance, integrated team of developers, business analysts and testers working out of the same location as the customer all using a well honed agile methodology. This obviously doesn’t happen in an off-shore model since developers are half a world and up to 15 hours removed. Further, most off-shore teams have little successful experience with Agile methodologies.

All of that being said, I can tell you that I am having significant success with my off-shore team. We have successfully transitioned from a mentality of rigid adherence to CMMI to a more flexible acceptance of Agile principles. We have gone from a velocity of 4 – velocity is the number of productive hours within an 8 hour day – 3 months ago to a current velocity of 6.

None of this happened overnight and it has required a great deal of management work and iteration – in the true spirit of Agile – on how we run the team. The biggest contributor to the success of the team was that we brought them to American and had them work on site with the customer for a 3 months and when we sent them back we sent a highly experienced American Agile team lead with them to live and work in China for four months. I can assure you that without this last part the project would have failed. There is no replacement for this boots-on-the-ground team coach in the same time zone as the team.

Ultimately we have a blended team with all development and functional testing happening in China while business analysis and architecture occur here in the US. The other key component is that I have shifted my hours so that I overlap with the Chinese team in order to provide management oversight and to represent the customer. This isn’t a whole lot of fun for me and instead of working less I now feel like I work half-again as much but it is working.

The moral of the story is that off-shoring can work in the right situation but it has to involve a conscious decision to choose cheaper over faster and better and it must be well planned, well managed and well executed in order to achieve it.

I will post more later regarding a process you can uses to determine if the project you are running or are planning to undertake can benefit from an off-shore component.

With the many challenges facing large pharmaceutical companies nowadays there is a need to reduce development costs by as much as 30-40%, while at the same time significantly shortening development cycle times. If outsourcing is to meet these challenges, new models of collaborative and cooperative working are needed. (http://www.outsourcing-weblog.com/50226711/research_and_markets_offers_outsourcing_clinical_development.php)

Frankly I disagree completely. The answer lies not in sending work and jobs overseas but in improving the way we do what we do here in America. Experience teaches us that just shipping work and jobs to a country whose standard of living is considerably less than ours does not automatically equate to gains in efficiency and reduction in development costs. In fact, there is plenty of evidence that projects done by Indian, Chinese and Russian firms don’t result in any real savings at all and in some cases cost more than if we had simply done those projects here in America.

The bottom line is that modern projects cannot be planned, managed and executed through stubborn reliance on outdated and inapplicable processes.  Today’s business evolves in an organic manner and projects have to be managed with this in mind – as functionality is developed and validated new and altered requirements are discovered and must be incorporated.  Traditional processes have no mechanism for dealing with this real-time evolution.

That’s where Insourcing comes in. Insourcing is more than just a catchy title.  Insourcing is a new way of approaching the work of projects.  It involves changing the fundamental paradigm of managing project based work.  Insourcing is about changing the way we think about the work we do and how we do it and, as a result, increasing performance and efficiency.

There are two hemispheres to insourcing.  The first hemisphere is about people, and about one’s ability to lead, motivate, inspire and reward.  This hemisphere deals with how to become an effective leader who can revolutionize the efficiency and productivity of staff members.

In order to solve the fundamental problems of software development we must first acknowledge that most leaders don’t do a very good job of leading.  Most leaders, if they were totally honest, would not be able to affirmatively answer, “Would you follow you as a leader?”

Effective leadership is a key factor in project success.   Every project has to have a leader.  The leader is responsible for the tone of the project and is the one person who can get the project staff to achieve remarkable results.

The second hemisphere is about process.  Insourcing is not process reengineering – it is a process revolution.  Agile processes begin to address this need but they go only so far and typically deal only with software development.  In order to increase efficiency and keep work in the US where it belongs we need to apply the principles of Agility to all work products not just to software development.

Unfortunately, the solution du jour – off-shoring – has proven to be no better than the status quo.  The majority of off-shore projects experience cost and schedule overruns and the quality of work product being produced is sub par.

So what’s the solution?  Is there a way for American companies to solve the problems inherent in modern project based work?  And is there a way to solve these problems and get work and jobs back inside American companies?

The answer to both questions is yes and the solution is insourcing.  Insourcing is more than just a catchy title.  Insourcing is a new way of approaching the work of projects.  It involves changing the fundamental paradigm of managing project based work.  Insourcing is about changing the way we think about the work we do and how we do it and, as a result, increasing performance and efficiency.

Insourcing isn’t necessarily the antithesis of Outsourcing but it is a concept that if embraced can stem the unnecessary flow of jobs out of America and can help stop the hemorrhaging of money from companies coffers and shareholders pockets.