Bringing the jobs home
A software CEO says 'backshoring' makes economic sense.
(FORTUNE Magazine) - What does Michael Fields know that other software CEOs haven't figured out?
The number of jobs offshored from the U.S. to India and elsewhere has tripled since 2003, to a projected total of one million in 2006, with roughly a quarter of them in high tech. Yet Fields, a former president of Oracle USA who now runs $60-million-a-year software maker KANA, is bringing his company's programming jobs home to Menlo Park, Calif. He calls it "backshoring" and predicts that once they start doing the math, other software makers will follow suit.
"For companies our size, sending jobs to India just doesn't make economic sense," says Fields. Since KANA and its confreres aren't big enough to open their own overseas facilities (like Oracle (Research) and Microsoft (Research)), they end up entrusting the work to outside contractors. That means KANA's intellectual property is in the hands of nonemployees over whom it has little control--especially scary now that, as even far bigger companies are finding, turnover among engineers in India is rapid, loyalty is nil, and poaching and piracy are rampant.
And that's not all. Fields notes that software development is a collaborative process that works best when everybody involved--designers, programmers, project managers--is together under one roof. "If your team isn't closely bonded, you'll see more rewrites, more performance issues, and more delays," he says. "For us, having the designers and architects in California and the programmers in India has actually meant longer delivery times and higher costs."
Fields expects that having everyone side by side will raise productivity to the point where KANA can deliver a better product with about a fourth as many engineers. "Our industry went through a period when money was free," Fields says. "Now that it isn't, software companies have to run like real businesses, so we'll see more of them taking a close look at their end-to-end costs." If he's right, backshoring could become the next Silicon Valley buzzword.