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Outsourcing makes sense if you think "software" is a fad

[This piece gets kind of dark. You've been warned.]

At the recent DOES15 conference (which was a great conference) many of success stories included the admission that outsourcing had been a big mistake. In some cases outsourcing had nearly sunk the company. What saved them? DevOps, in-sourcing, and vertical integration.

If you aren't familiar with the term "vertical integration" it is the MBA term for "if you want something done right, do it yourself."

The reason outsourcing had been such a disaster was not the skill of the outsourcing companies or the people. It was the fact that if you don't own your process, you can't control the quality. Quality comes from taking responsibility and ownership to make sure it happens. Without quality, you lose customers and go out of business.

Imagine trying to drive a car with someone else controlling the steering wheel. Now imagine that their incentives are perversely the opposite of yours. They get paid by how many turns they make. You get paid by how fast you get there. It just doesn't work. They control the wheel.

Outsourcing makes sense if you think "software" is a fad that will go away or if your MBA skipped the chapter on "vertical integration". If software was a fad and would be going away soon, you could ignore it and use outsourcing to get through the year or two that you had to "do software" until the fad dissipated.

However software isn't a fad. It drives your business more and more. If you are an auto dealer you might think you are in the business of selling cars. You are wrong. You manage the process that brings customers to you, takes their order, gets the car from inventory, and delivers the car to them. All of that is driven by software. If you don't control that software, what the fuck are you doing?

Therefore when software was "new" companies should have recognized the new challenges and asked: How can we develop the new skills required to be better at software than our competition?

Ironically the sales pitch from outsourcing vendors included the warning that technology was becoming more and more important. It just walked people to the wrong conclusion. They scared CEOs by telling them how important technology is, how it is only going to become more important, and then walked them to the ludicrous conclusion that it was so important that you shouldn't try to do it yourself!

That's like saying breathing is so important you shouldn't learn how to do it: live on a respirator that someone else controls.

These success stories told at DOES15 conference (which, again, I repeat was a great conference) boasted how DevOps had enabled them to do vertical integration, which improved quality and velocity. Oh, and those are the things that improved profits way more than cutting budgets. It turns out that "cost savings" is bullshit compared to the huge profits that resulted from having better products and services than the competitor.

The speakers on stage were so excited and proud to say that their company had overcome the terrible, terrible, terrible results of outsourced IT. The audience was happy for them.

And now... I need to get this off my chest.

I, however, had mixed emotions. I wanted to be happy for them but the feeling I felt was more along the lines of vindication. I'm embarrassed to confess it wasn't a happy kind of vindication. In the 1990s outsourcing craze, we warned you people that all of this would happen. We were mocked and made to feel like outcasts. Outsourcing companies were telling CEOs to fire anyone that got in the way of their outsourcing plans because "you don't want to go bankrupt after not outsourcing because a couple nerds were afraid to do it". Lucent's signed their outsourcing contract in secret, without telling anyone in their IT groups, so that "troublemakers couldn't get in the way and stop it." The contract didn't include a lot of basics things like data backups, which then had to be done at the much more expensive "out of plan" hourly rate. There are plenty of other stories I could tell... I'll save them for future blog posts.

My point is: Every damn prediction we made came true:

  • Outsourcing will strangle your company by making you less flexible, slower, less able to compete.
  • Tech is too important to leave to outsiders and should be a competency we develop throughout the company.
  • Outsourcing will be much more expensive than you expected.
  • Any cost savings from efficiency will go to the provider, not you.

Every time I hear a company talk about outsourcing being a mistake and how glad they are they've gotten out from under the dark times I become a two-faced asshole. On the outside I smile and say "congrats". On the inside I'm thinking: Fuck you for not listening to the people that tried to warn you. Fuck YOU.

Want to see the real "revenge of the nerds"? It is the trail of bankrupted companies that ignored us when we told you that the future was coming.

Posted by Tom Limoncelli in Rants



Great article, thank you for writing it.

Preach it! Thank you for saying this. Thank you for saying it all along.

Absolutely spot on Tom!

Great article, and I agree across the board. I will say that there are a couple of good reasons (MINOR good reasons!!) to outsource:

1) You are discontinuing a product...and the outsourcing company (may) buy it.

2) You are discontinuing a product, and there is known work to do before other outcomes (selling to a third party, selling to the customers, etc.).

Outsourcing can be used to buy *time*, but it cannot be used to buy competence.


And while they were outsourcing they weren't training internal talent. I wonder if the popularity of outsourcing is a significant factor in the current shortage of tech talent. India doesn't appear to have a shortage.