In a sample conversation between the CFO and CIO of a leading tech firm, the discussion centered around balancing cost and quality through a hybrid approach to software development.

In a sample conversation between the CFO and CIO of a leading tech firm, the discussion centered around balancing cost and quality through a hybrid approach to software development. The CFO emphasized the importance of leveraging offshore and nearshore resources to achieve cost efficiency, highlighting the substantial savings in labor costs. Meanwhile, the CIO acknowledged these financial benefits but stressed the need to maintain high quality and operational control. They agreed on a hybrid model, combining onshore teams for critical and complex tasks with offshore teams for routine development work. This approach aims to optimize cost savings while ensuring that the software meets the company’s stringent quality standards.

A meeting room at a mid-sized tech company

Participants:

Sam (CFO): “Alex, I’ve been looking at our software development expenses. The rates for onshore developers range from $180 to $200 per hour. Meanwhile, offshore developers, especially in places like India or Eastern Europe, charge between $45 and $70 per hour. Why aren’t we moving more of our development offshore to cut costs?”

Alex (CIO): “I understand the appeal, Sam. Those numbers are compelling at first glance. However, there are several factors beyond the hourly rate that we need to consider. Offshore development can lead to communication delays, quality issues, and high turnover, which often result in additional costs and extended timelines.”

Sam (CFO): “But isn’t that something we can manage? If the cost savings are significant, surely we can implement processes to mitigate those issues.”

Alex (CIO): “We can try, but it’s not always straightforward. For instance, the time zone difference of offshore means that questions might take a full day to get answered. This slows down progress. Moreover, offshore developers that are not kept busy move to other projects, forcing the teams to adjust daily or weekly, loosing our knowledge base and ending up with varying styles of code. In addition n, offshore developers in many of these countries do not fully understand our project nuances due to cultural and contextual differences. And finally, from past experienced, often the code they produce, due to a combination of all of these things I’ve mentioned, needs rework by our onshore team, erasing any initial cost benefits.

Sam (CFO): “Those are fair points. But what about nearshore options? South America, for example, offers a closer time zone alignment. They’re a bit more expensive than offshore, but still much cheaper than onshore.”

Alex (CIO): “Nearshore is a viable option to some extent, but it has its own set of challenges. The talent pool is smaller, so senior developers might be stretched thin, handling multiple projects and delegating to less experienced team members without our knowledge. I understand it works for some companies but many of them control the work force by opening locations in these countries. And even then the success rates have not been stellar from what I have heard. Plus, there are risks related to data security that we have to address, for the sake of the company.”

Sam (CFO): “Alright, so you’re saying that offshore and nearshore options have their downsides. But surely, we can’t ignore the cost savings completely. What if we find a middle ground?”

Alex (CIO): “Absolutely. What if we use a hybrid model? If we can address the security issues, we could engage two senior onshore developers who can lead and oversee the project. They would handle the more complex tasks and ensure the quality of work. Then, we supplement the team with four offshore or nearshore developers who can take on the routine and less critical tasks. This would leave our FTE team to maintain systems. “

Sam (CFO): “That sounds interesting. How would it work in practice?”

Alex (CIO): “The onshore developers would serve as the main points of contact and quality assurance. They’d be responsible for the architecture, key decisions, and integration. The offshore developers would handle coding tasks under the guidance of the onshore leads. This way, we leverage the cost benefits of offshore resources while maintaining high standards and minimizing the risk of miscommunication and rework. If we went offshore instead of nearshore we would have to hire delivery manager that is willing to cover a wider time period and be able to maker decisions for the stakeholders, but it is possible.”

Sam (CFO): “And you believe this approach will actually save us money in the long run?”

Alex (CIO): “Possibly, if the offshore or nearshore resources do as they profess. By combining the strengths of both onshore and offshore teams, we should be able to achieve project success and cut costs. The onshore developers will help mitigate the common pitfalls of fully offshore teams, like quality issues and delayed timelines, but again we should really calculate the costs again and ensure that even if something goes off the rails on the other side of the world, we are still saving money.”

Sam (CFO): “What about the risk of turnover among offshore developers? Won’t that still be a problem?”

Alex (CIO): “To some extent, yes. Turnover is an inherent risk with offshore teams. However, with strong onshore leadership and clear processes in place, we can minimize disruptions. Additionally, by working with a reputable consulting firm for our onshore resources, we have access to a network of experienced developers who can step in if needed, unlike standalone contract staff. It will also be important for your team to monitor invoices and ensure that the same developers are being billed monthly rather than a plethora of people each month.”

Sam (CFO): “You make a compelling case, Alex. Let’s proceed with the hybrid model. We’ll crunch the numbers again once you get onshore estimates for the lead consultants, but it seems like a balanced approach that aligns with both our financial goals and project success criteria, and a good place to start. We’ll help monitor the situation closely and make adjustments as needed.”

Alex (CIO): “Sounds like it is worth a try. I’ll start outlining the plan, collect estimates, and if the numbers look promising, initiate the transition gradually to ensure smooth integration.”

Sam (CFO): “Sounds like a plan. Thanks for working through this with me, Alex. I appreciate your insights.”

Alex (CIO): “Anytime, Sam.”

Sam and Alex concluded their discussion by solidifying their commitment to a hybrid model as a potential way to balance cost savings with project success. This strategic approach leverages the strengths of onshore senior consultants for leadership and quality assurance, while utilizing offshore developers for cost-effective coding support. By combining these elements, they consider a well-rounded, efficient team capable of delivering quality software solutions that considers a new way to budget. However, the most important aspect of this conversation is that the two departments worked together with open dialogue, ensuring both are on the same page and in agreement.