My first brush with “cheap offshore software development” occurred shortly after the acquisition of Interface Systems, where I was VP. My new boss came to meet with me from California and told me about the success he was having with an offshore firm. He described the low rates and the skilled talent and made it sound like things were going really well. He went on to describe, however, that the projects they work on often fail the first or second time, but because they are 60% cheaper than the US talent, he’s still ahead of the game even after two failures.

I asked him, “What about the time that’s involved? Are we at risk for missing market windows because of the failures?” He said, “Yeah, that’s a problem, but we’re still saving lots of money.”

I describe this approach as a CFO win that leads to a CEO disaster. The CFO feels like saving money is the #1 goal, and therefore this feels like a victory. The CEO is trying to increase top line revenue and market share, and missing deadlines is a disaster.

How did we get here?

I’m sure there have been many papers written and theories espoused about the effectiveness of cheap offshore labor. I will offer my own theory, one that James Goebel and I have talked about often.

Leading up to Y2K there was a tremendous need for extra hands to help with this immutable deadline. Many programmers were brought in from India to help with this gargantuan project. Just about the time Y2K came and went, the IT economy melted down and the Indian programmers were sent home. This story is told quite well by Thomas Friedman in his book, “The World is Flat.”  As things started heating up again, the companies that used those Indian programmers found they could continue using them without bringing them back to the US. I believe this worked for one simple reason: There was an existing relationship between those resources and the teams they worked with here in the US. Once that human relationship was built, it was much easier to work with someone who was 12,000 miles and 12 time zones away.

Somewhere along the way someone leapt to the conclusion that the human relationships didn’t matter and software development resources were a commodity that simply needed to be bought at the lowest price. It might be worth noting that Y2K may well have been the best example of a commodity-like software project, the likes of which we may never see again. This American experiment of procuring commodity-priced software development resources has been going on now for a decade.  About a third of the companies that show up at our door are people who tried this approach. Their statement to me is, “I will never do that again.”

This is not a reflection or judgment on the talent that exists around the world, but rather a statement about the need to create true teams that have personal relationships in order to build complex software. CFO wins probably feel like battlefield victories, but the CEO needs to win the war. In an age of hyper-competitive global markets, bringing a high quality product that thrills end users to market in a timely fashion is the only way to win. There are no short cuts. It’s just plain hard work.

Now go out and win!