For years, the push to offshore has been a mantra of cost savings and access to talent that has touched most aspects of business but especially technology and operations. The magic-carrot of average cost per head is beloved by procurement groups everywhere.
Many managers made their reputations by moving functions offshore but much of this was 20 years ago and the next generation of leaders are now facing the consequences of those decisions. Many new leaders are starting to question the validity of those choices, many things have changed and with years of experience they have a good view of the relative merits of operating far-shore. In some instances, it has become an anti-pattern.
Many firms are actively looking at reshoring programs, sometimes driven by terrible attrition rates, sometimes by efficiency and sometimes by cost.
The whole cost per head metric is truly an anti-pattern, the crude measure is a classic case of an isolated data point lacking context. We and other firms like us, have had repeated success cutting costs by taking functions or applications teams out of far-shore locations and moving them to regions with higher cost per head. To be clear when I say cutting costs, there is nothing marginal about it, services can be upwards of 30% cheaper.
Far from being oxymoronic, it simply illustrates the value of viewing data holistically and contextually, not by a simple, single metric. The obvious conclusion is that there is not a 1:1 staffing relationship and that has nothing to do with the far-shore individuals or their skills, it’s the environment they work in. There are other factors at play here as well.
In technology, the way we approach code is different today, it is all about agile practices and small teams. This is a challenge for all scale providers – their business models rely on large teams with a lot of management, nothing else has an impact on their bottom lines. There are cultural challenges in those firms; status is viewed by the number of people reporting to you; this leads to layers and layers of management. It may have started life close to the 1:1 ratio but over time, been allowed to weaken.
On top of that you have attrition and this is particularly bad in the operational teams where knowledge retention has become so weak, firms are questioning their ability to continue to operate in the region. This is no longer a post-covid reaction; it has become the norm and as skill shortages become deeper it will only get worse.
There is a place for far-shore services and many things work perfectly well there but many things do not. Business leaders need to encourage their procurement teams to see the wood for the trees; the obsession with cost per head is actually costing them money let alone business efficiency, agility, velocity and loss of IP.