Remote Teams: Weigh the Benefits Against the Risks

Companies often consider remote offshore, nearshore, or even onshore software product teams for their potential cost savings and access to talent. However, the anticipated benefits are challenging to realize and can introduce new costs and timing risks.

The Project Management Institute (PMI) publishes insights on the benefits and risks associated with geographically distributed teams, emphasizing a simple principle: as your team becomes more distributed, your project risk increases.

Businesses create value by fostering growth, reducing risk, and lowering costs. Below, I’ve outlined the tradeoffs commonly observed when working with remote teams versus co-located teams. We consider these tradeoffs when developing new software products for driving business growth.

Tradeoffs between Remote and Co-located Software Product Teams

Hiring Offshore or Nearshore for Cost Optimization

• Growth: There’s a higher potential for delayed or reduced growth due to poor quality and a longer project timeline.
• Risk: Increased risks include lower quality, poor collaboration, ineffective product results, projects taking longer, failing to finish, or needing restarts; intellectual property issues; navigating labor laws; and dispute resolution challenges.
• Cost: While direct costs are lower than the onshore option, there are indirect costs such as management overhead, opportunity costs, and legal fees increase, especially if risks materialize. Direct costs could ultimately be higher, too, if you need to start over or switch to a more competent team.

A common perceived benefit of hiring nearshore and offshore teams is the ability to work continuously across different time zones, potentially speeding up time to market. However, in early phases and innovative product work, this is rare. As the development team scales and operates around the clock, bottlenecks often shift to product team leaders tasked with reviewing deliverables. This leads to prolonged review and rework cycles. Thus, scaling an ineffective team tends to increase overhead and delay timelines further.

Hiring an Onshore, Remote Team for Talent Optimization

• Growth: Similar to offshore teams, there’s a higher potential for delayed or reduced growth stemming from increased communication and collaboration risks.
• Risk: Risks of poor collaboration can lead to less effective products and longer project timelines.
• Cost: Costs are market-standard for onshore talent but may increase compared to co-located teams due to extended project durations and additional management overhead. Costs may also rise with the hiring of contract-based, “mercenary” type workers demanding a price premium.

Hiring an Onshore, Co-located Team for Quality, Timeliness, and Risk Reduction

• Growth: Highest potential for delivering a high-quality, effective product quickly due to benefits including optimal communication and collaboration.
• Risk: This approach offers the lowest risk concerning quality, delivering on schedule, IP, and dispute resolution.
• Cost: Direct costs are market-standard, but are generally lower than those of an onshore remote team due to shorter project durations. Consulting firms may offer competitive blended rates due to the experience leverage model made possible with co-location. The autonomy and leverage provided by a co-located team can reduce indirect costs.

Two Guiding Principles for Investing in Custom Software

In evaluating the above options and tradeoffs, two guiding principles become clear:

1. Invest in alignment with your objectives.
2. Pursuing the illusion of cost optimization in the context of innovation can paradoxically lead to higher expenses.

For businesses aiming to achieve growth through innovation, investing in an onshore team that works closely together makes sense. This approach enhances your chances of delivering an exceptional product and business value more quickly and with lower risk. The investment in such talent is a strategic cost fostering long-term value creation and competitive differentiation. Managing the non-recurring engineering costs of strategic growth initiatives too tightly is not worth the associated risks.

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