Outsourcing vendors often use “blended rates” to calculate the monthly / quarterly amounts due by their customers. Simply put, the blended rate is an hourly rate that applies to any single team member, regardless of seniority, from the less experienced developer to the most senior manager, with the possible exception of the top management.

Beware!

The apparent advantages of blended rates are increased invoice readability, better cash flow predictability, and the illusion for the customer that they are getting the most senior resources at a very attractive price.

What usually happens is the opposite.

Blended rates are first determined by averaging the average hourly rates of the initial team, a team that usually comprises a higher percentage of senior individuals to help reduce the learning curve and the transition times.

Chances are that, after a few months, the vendor will start pulling out senior personal from the team, and replace them by less experienced ones. Some vendors have become experts of this, and decrease in quality will happen very gradually.

When changes in quality become visible, a common solution is to add more senior individuals to the team; a solution that yields in a rapid increase in quality, to the customer’s satisfaction.

And a few months later, … ditto: senior members are replaced by less senior ones, etc.

While blended rates make sense for larger teams, they do not apply to smaller teams. If you are a small to mid-size business, stay away from them. Make sure instead that you are provided with means to know every team member, their qualifications, and their true participation to the development effort. If you do not feel up to the task, go for fixed price agreements; they are a much better way to pay the fair price while reducing the overall risks attached to IT outsourcing.

Remi
www.vsisoft.com

Business | 2 Comments »

Bringing jobs back home is a hot topic nowadays. While offshore is here to stay, no matter what, it certainly does not mean we should support any type and form of offshoring.

Going offshore to circumvent shortage of local talents, insufficient infrastructure, or to accompany International expansion is certainly very valid. It becomes highly debatable though when going offshore is only dictated by the search of maximizing corporate profit.

I recently read this (not so) funny post in the Chicago Tribune.

The article talks about an experiment by Jack-in-the-Box, the fast food chain, to offshore their drive thru order taking, likely to India, although the company’s spokeswoman declined to confirm the location.

Centralizing this process might make sense, but why offshore it?

These jobs do not require any advanced qualification and the positions could easily be filled in the USA. Locating the centralized team in a tier-2 or tier-3 US city would provide solid savings, and possibly enhance customer experience; taking the extra step and shipping everything to India looks like corporate greed.

I like free market, and fully agree that corporations should take all necessary (while prudent) steps to remain sound and profitable. However, being obsessed by short-term profit always lead to failure.

Just look at the current state of our economy in the USA. It says it all.

Remi
www.vsisoft.com

Business | 3 Comments »