No Clear Solution
There is no clear-cut solution for this problem. I think that this problem can be jointly addressed by industries and government by spending money on educating people and attracting them to IT industry. I agree with Alan Greenspan as he has mentioned in his book, that once we have enough home grown educated professionals and immigrant IT personnel, the salary level will come down or at least it will stop increasing year after year the way it has grown over last 10-12 years.
Organizations can train their own personnel on newer technologies to address the issue of higher cost of people experienced with newer technologies. Experienced people learn by association new technologies quickly. For example, if someone is experienced with one database say IDMS then it is easy to learn another database say DB2 and same applies to programming language (People experienced with one language says Visual Basic or C can learn Java quickly since many concepts of programming remains same across the language). This would also enhance morale of the in-house employees.
To summarize, an IT organization planning to outsource application development and enhancement work to IT vendor should consider following 10 steps:
a) Define processes and systems to measure own productivity and vendor's productivity and quality.
b) Establish center of excellence within organization on various technologies and train employees on various technologies.
c) Train people on estimation to perform estimation for outsourced project work.
d) Define SLA around productivity and quality and associated penalties and manage vendors by SLA.
e) Perform work in fixed price engagement where ever this can be achieved and should compare the cost per hour that it comes if it would have performed the work by internal employees be performing estimates by IT organization's personnel.
f) Always invite the competing vendors for RFP. Float all fixed price projects thru RFP to get the best value for the money
g) Maintain Subject matter experts (SME) knowledge within the organization and assign SME and people from center of excellence to provide oversight in the project.
h) Engage another vendor or own employees to perform design quality, code quality, and performance check.
i) Continuously measure productivity of internal employees and that of vendors and improve the one lacking behind.
j) Continuously reduce and /or eliminate support cost to self fund this activity and create additional capacity within IT organization.
k) Finally spend some money for team building for employees and vendors to keep them engaged and in effect help the organization reduce/manage attrition better. After all happy employees deliver more in knowledge industry.
This story, "IT Outsourcing Challenges and Solutions" was originally published by CIO.