Beyond that, management and accountant types make the assumption that everyone with the same job title is interchangeable. The result is that they take the work of local engineers with a substantial amount of domain knowledge (experience, which maps to higher salaries) and try to offshore it to engineers with no domain knowledge (inexperienced in the field of the application, and often inexperienced period).
Because of their assumption of interchangeability, they end up with a lose-lose model of costs. For illustration, assume a (local) domain expert takes 1 hour to do a job and costs $100/hour. Assume the outsourced inexperienced engineer only costs $33/hour, but takes 3 hours to do the same job because first they have to learn the problem domain.
When you outsource this job, it takes three hours and costs $99. Doing the math, this means the company "saved" $201 because the assumption of interchangeability implies (incorrectly) that the domain expert would also have taken 3 hours.
When you "insource" the job, it takes one our and costs $100. By the math, the accountants figure they left $67 on the table because the assumption of interchangeability implies (again, incorrectly) that the outsourced engineer would also have taken 1 hour.
actually, I feel you may have made the case for outsourcing.
In your example - it was a single task. Working with the assumption that domain expertise can be acquired on the job, the costs of doing subsequent jobs will be lower for the outsourced engineer.
The more times the same task needs to be performed by the engineer, the cheaper outsourcing becomes. Your example just accounted for the startup cost, which can be assumed to be a one-off*
*Is it that way in practice? at least in some projects, it is.
As others in this discussion have noted, there is a lot of churn in engineers at outsourcing shops, so the "start up" costs are forever.
The outsourcing engineers I have worked with have been smart, but inexperienced. [edit] The ones I didn't work with were smart, experienced, and substantially more expensive.
My gross extrapolation from my limited experience with outsourcing is that the engineers gain experience, but that experience makes them more valuable. Since they are smart, they use the outsourcing shop experience as a springboard into a better job, probably not in the outsourcing business or in a "higher up the food chain" (and thus more expensive) outsourcing shop.
Outsourcing is like having a perpetual intern program - all the training costs but never getting the benefit of that training with a long term employee.
Comments
Beyond that, management and accountant types make the assumption that everyone with the same job title is interchangeable. The result is that they take the work of local engineers with a substantial amount of domain knowledge (experience, which maps to higher salaries) and try to offshore it to engineers with no domain knowledge (inexperienced in the field of the application, and often inexperienced period).
Because of their assumption of interchangeability, they end up with a lose-lose model of costs. For illustration, assume a (local) domain expert takes 1 hour to do a job and costs $100/hour. Assume the outsourced inexperienced engineer only costs $33/hour, but takes 3 hours to do the same job because first they have to learn the problem domain.
When you outsource this job, it takes three hours and costs $99. Doing the math, this means the company "saved" $201 because the assumption of interchangeability implies (incorrectly) that the domain expert would also have taken 3 hours.
When you "insource" the job, it takes one our and costs $100. By the math, the accountants figure they left $67 on the table because the assumption of interchangeability implies (again, incorrectly) that the outsourced engineer would also have taken 1 hour.
The only way to win this game is to not play it.
actually, I feel you may have made the case for outsourcing.
In your example - it was a single task. Working with the assumption that domain expertise can be acquired on the job, the costs of doing subsequent jobs will be lower for the outsourced engineer.
The more times the same task needs to be performed by the engineer, the cheaper outsourcing becomes. Your example just accounted for the startup cost, which can be assumed to be a one-off*
*Is it that way in practice? at least in some projects, it is.
As others in this discussion have noted, there is a lot of churn in engineers at outsourcing shops, so the "start up" costs are forever.
The outsourcing engineers I have worked with have been smart, but inexperienced. [edit] The ones I didn't work with were smart, experienced, and substantially more expensive.
My gross extrapolation from my limited experience with outsourcing is that the engineers gain experience, but that experience makes them more valuable. Since they are smart, they use the outsourcing shop experience as a springboard into a better job, probably not in the outsourcing business or in a "higher up the food chain" (and thus more expensive) outsourcing shop.
Outsourcing is like having a perpetual intern program - all the training costs but never getting the benefit of that training with a long term employee.