As a financial department, your primary goal is to manage costs and ensure the financial health of your organization.

When proposing offshore or nearshore software development as a cost-saving measure, you may encounter significant pushback from the IT department. It’s essential to understand the underlying concerns of the IT team to evaluate the proposal thoroughly and make an informed decision. This article aims to shed light on the real concerns that IT departments have regarding offshore and nearshore development and why these should be carefully considered before making a move with any cost cutting or spending decisions.

The Concerns of the IT Department Worth Considering

Quality of Work

• Concern: Offshore and nearshore development teams may not consistently meet the same quality standards as onshore teams.
• Explanation: IT departments that have leaders that have experience with onshore and offshore teams often worry about the consistency of code produced by offshore teams. Differences in educational backgrounds and dictated coding practices (best and “street”) that fit or bypass industry standards. Add the recent surge of U.S. companies looking for lower rates and you may get a good hourly rate for someone that is juggling three or four clients, leading to lack of attention to code quality, resulting in increased bug rates, longer testing cycles, and more frequent rewrites, negating the cost savings that were the reason for going offshore or nearshore in the first place. Add the constant movement of talent and you will find you don’t always end with the team you started the project with. This is a valid concern that should be remembered as the project unfolds.

Communication Barriers

• Concern: Timezone differences and, not as common on the surface, but also language barriers based on technical terms and expectations can lead to communication challenges.
• Explanation: Effective communication is critical in software development. Timezone differences can cause delays in getting questions answered and issues resolved, leading to slower project progress, developer turnover as the offshore firm tries to keep the employee busy while waiting for an answer, or decisions made without proper context from the company, leading to issues and cost overruns down the road. In addition, translation issues, which have improved in recent years with more onshore based sales representation that translates and passes along notes, can still result in misunderstandings and misinterpretations of project requirements.

Security and Confidentiality

• Concern: This is always mentioned but should be considered. Offshore development may pose risks to data security, intellectual property protection, and competitive information that can easily be sold without anyone knowing about it with little that can be done after the fact.
• Explanation: IT departments are responsible for safeguarding the company’s data and intellectual property, while improving the competitive edge. Offshore and nearshore outsourcing can introduce risks related to data breaches, unauthorized access, and compliance with local data protection laws, not to mention data mining and sale to competitors paying the right price. Ensuring that offshore teams adhere to the same security standards as onshore teams can be challenging. make sure you are completely confident in the resource you select. Legal action after the fact is near impossible in most countries these firms operate from, and for good reason.

Turnover and Continuity

• Concern: High turnover rates in offshore teams can disrupt project continuity and knowledge transfer.
• Explanation: Offshore and nearshore teams often experience higher turnover rates than onshore teams. Imagine you are senior developers receiving $20 an hour (out of the $55 or $60 the onshore company is paying). An offer of $3 or $5 an hour more by another firm short on help, which is more prevalent in South American due to lack of resources, is more than enough to make you move. Frequent changes in personnel can lead to loss of project knowledge, disrupted workflows, and the need for additional onboarding and training, which can delay project timelines and increase the costs and decrease the cost savings.

Project Management and Oversight

• Concern: Managing offshore teams requires more robust project management and oversight.
• Explanation: Coordinating and overseeing offshore teams is more complex and time-consuming. IT departments may need to invest in specialized project management resources that are onsite or work extended hours to ensure that offshore teams stay aligned with project goals, timelines, and quality standards on their schedule, not only yours. This added layer needs to be boiled into the equation.

Fees and Extended Due Dates

• Concern: With development on another continent and access difficult, if deadlines are missed or fees added that are not foreseen, there is little you can do but pay or loose your work entirely.
• Explanation: A commonly recorded problem with offshore and nearshore firms that are not owned by the parent company and controlled, are the hidden fees and stranglehold on deadlines. In most cases there is little action that you can take against the firm since they are protected by distance and local laws that may not be as easy to navigate or enforce as in the United States, plus your team is now reliant on their delivery. However, this is part of any cost saving or money making gamble once it is out of your hands.

Company Employee Satisfaction and Turnover

• Concern: The move to offshore or nearshore development can affect the morale and satisfaction of existing FTE developers, potentially leading to higher turnover rates.
• Explanation: Changes in work dynamics, increased oversight requirements, and potential additional workload to manage offshore teams or fix issues can lead to dissatisfaction among onshore employees. This can result in higher turnover rates, which further disrupt project continuity and increases recruitment and training costs. Not typically a concern since one of the reason some companies go overseas is to eliminate positions, but it should be considered when redefining job descriptions.

Reputation of IT Leaders

• Concern: Probably one of the biggest reasons you will get pushback is Reputation. The success or failure of an offshore or nearshore initiative can significantly impact the reputation of the IT leaders.
• Explanation: Unfortunately, IT leaders are often held accountable for the outcomes of major strategic decisions. If the move to offshore or nearshore development results in poor quality, project delays, or increased costs, it can tarnish their reputation and credibility within the organization. It is important to clarify that both departments hold responsibility for the outcome so there is shared responsibility in the savings and the potential challenges.

Quality Assurance Measures

• Action: Establish strict quality assurance processes and standards that offshore teams must adhere to. Consider setting up regular code reviews, automated testing, and continuous integration practices. These are typically already part of your internal and onshore outsourcing process but take the time to make sure you use some of the hourly cost savings to have some in QA that can evaluate on an ongoing bases the code and resulting software that is being created.

Communication Strategies

• Action: Implement robust communication tools and practices to facilitate real-time collaboration. Schedule regular meetings that accommodate timezone differences and use collaboration platforms that support clear and effective communication. Make sure that someone with an entire picture of what is trying to be accomplished and has the power to make decisions is available 24 hours a day.

Cultural Training

• Action: Provide cultural training for both onshore and offshore teams to improve mutual understanding and collaboration. Foster a culture of open communication and encourage proactive problem-solving. This can help with retention and understanding of project goals and potential reasons for delays.

Security Protocols

• Action: Enforce stringent security protocols and data protection measures for offshore teams. Ensure that all team members are trained on security best practices and comply with relevant regulations. In many cases, once you send your data it is out of your hands, but look for any way to protect that data and implement these procedures, and do your best to find a trusted company that has been in business for a long time.

Retention Strategies

• Action: Develop strategies to retain key offshore personnel, such as offering competitive compensation, career development opportunities, and performance-based incentives for offshore and nearshore talent that is important to your project. In many cases these offset the savings for one or more individual but help to retain the knowledge base and the people you want on your project. You must remember that a $3 to $5 dollar an hour pay increase in some of these countries will make someone leave and move to another company without a second thought. Incentives to try and secure your assets and knowledge base.

Enhanced Project Management

• Action: Invest in experienced project managers who can effectively oversee offshore teams on their schedule as well as yours. Utilize project management tools that provide visibility into project progress, track milestones, and manage risks. Hire delivery managers that understand the technology that are set up to offer assistance 24 hours a day and have the knowledge to make important decisions for the company.

While offshore and nearshore software development can offer significant cost savings in proposed hourly rates, it’s essential to recognize and address the valid concerns of the IT department. By understanding these concerns and implementing strategies to mitigate them, the financial department can make a more informed decision that balances cost efficiency with project success. Collaborative discussions and careful planning can help ensure that any move to offshore or nearshore development aligns with the overall goals and standards of the organization, ultimately leading to a more successful outcome for all stakeholders.