Managing offshore outsourcing

Last month, staffers at the IT department in New York of Guardian Life Insurance Company held a celebration to mark Diwali, the Hindu festival of lights. It was an opportunity for staffers to learn more about the culture of their colleagues working at Guardian's offshore outsourcing suppliers in India.

"Since 2001, Guardian has outsourced some of its application development and maintenance work to three Indian offshore suppliers, Covansys, Patni and NIIT. A total of 200 external software engineers, spread across Guardian's U.S. offices and at their respective employers' offshore facilities, work exclusively on various Guardian software projects. They supplement Guardian's 270-strong in-house software professionals.

The insurance company has shaved $12.5 million per year in labor costs since taking the work offshore. Although no internal IT staffers were cut in the move, Guardian no longer contracts with the 237 external software consultants in the U.S. it previously retained.

"Offshore outsourcing has helped us be more rigorous about documenting everything," says Shelly McIntyre, second vice president of business-technology services at Guardian. She adds that Covansys "has brought rigor and process to the table."

Covansys boasts a Level 5 rating of Carnegie-Mellon Software Engineering Institute's Capability Maturing Model (CMM) standard for software processes. The top-rated Level 5 shows that developers strive for continuous process improvement by quantitative feedback and from innovation.

Likewise, Burlington Northern Santa Fe Railway sliced between 12% and 15% from its total applications development costs by outsourcing some of the work to Infosys in India. Jeff Campbell, Burlington's CIO and vice president of technical services in Fort Worth, Texas, says productivity has increased because development work is being done 24-7 by 150 Infosys and 450 in-house engineers. Burlington also benefits from Infosys' Level 5 CMM rating. "Most U.S. companies are Level 2 or 3," Campbell says.

According to neoIT, a San Ramon, Calif., provider of offshore outsourcing advisory and management, organizations should spend between 4% and 8% annually of the value of the total deal on managing offshore programs. High on the management agenda is the cross-culture aspect. Effective management isn't only U.S. customers being willing to get in for 6 a.m. conference calls, but also understanding cultural differences to avoid misunderstandings.

Atul Vashistha, CEO at neoIT, recalls how one outsourcing customer told its service supplier in India that it wanted a change to the platform that was being developed. The supplier said yes, but nothing happened. What the supplier meant was "Yes, I hear you," not, "Yes, I will make the changes." The supplier did not agree with the changes but said yes because India's cultural heritage carries a reluctance to challenge authority figures. "We advise clients to ask their supplier to repeat their understanding [of the client's request] and for the supplier to put on paper what they are going to do," Vashistha says.