Executive Summary

Diversity of skills, needs, and delivery frameworks in Application Development and Maintenance (ADM) lead to a large variety of resource sourcing options (e.g., internal employees, offshore resources, contractors, and consultants).  The result of this variety is a unique resource mix in every large ADM organization, i.e., its own skill equilibrium. This equilibrium is often a primary determinant of the cost in the ADM organization. Upsetting the ADM skill equilibrium leads to an increase in the overall ADM spend along with loss of effectiveness.

The general trend in the ADM resource mix in today’s enterprise is to gradually shift the resource mix toward less expensive resources and minimize the use of “rented” contractors and consultants. These less expensive resources can be “owned” (e.g., internal employees) or “rented” (e.g., offshore outsourced resources). However, this strategy proves to be hard to execute.

One of the dangers of this strategy is upsetting the skill equilibrium that is usually a result of a long-term evolution of the enterprise ADM team. A typical result of upsetting the ADM skill equilibrium is an increase in the overall ADM spend along with loss of responsiveness of the ADM team. The following two issues drive the increase in ADM spend:

1. “Contractor creep,” which happens when companies re-hire terminated employees as contractors who act as full-time employees at much higher hourly rates
2. Diminishing offshore ratio, which happens when an outsourcing partner realizes the skill challenge and attempts to compensate by adding resources to the onshore component of the team

Scope

This white paper discusses:

• Skill equilibrium in the ADM resource mix and its effect on the ADM expenditure
• Contractor creep and diminishing offshore ratio as undesired but frequent effects of the resource mix rationalization efforts (e.g., offshoring)
• Ways to avoid contractor creep and diminishing offshore ratio and retain domain expertise necessary to ensure successful application development and maintenance