• United States

Managing offshore outsourcing

News Analysis
Dec 08, 20036 mins
Data Center

How customers plug the culture gaps that are exposed in sending IT work overseas.

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.

Guardian’s managers who work closely with the offshore outsourcers meet every week to share lessons learned, such as the need to set proper expectations. Senior managers from Guardian and the outsourcers meet monthly to discuss future applications and how the outsourcers fare in metrics such as productivity, contractor staff retention, meeting deadlines and first time right.

Cultural and business workshops also help strengthen bonds. U.S. Infosys representatives regularly visit Burlington Northern employees to talk about Indian food, sports and geography, while Infosys engineers in India received training about the railway industry from a company in that country. Project team members from both companies also swapped photos of each other to display on their office walls.

Guardian and Burlington play host to representatives from their suppliers who work as on-site relationship managers for a fixed period of time. Relationship managers provide feedback to both sides and ensure that any problems regarding the outsourcing projects are resolved. Burlington’s Campbell also plans to visit Infosys in India next year.

Knowledge transfer is another important aspect of offshore project management, particularly if documentation is lacking. Covansys sent a small team of engineers to Guardian who spent three to six months getting up to speed with the insurance company’s applications while creating documentation to supplement Guardian’s own.

Companies also must decide how to spread the workload between in-house and offshore developers. It might be easy to shift the more mundane tasks, such as maintenance, to the third-party, but some in-house engineers might prefer that sort of work. At Guardian, its offshore suppliers spend about 65% of their time on new applications development work and 35% on the maintenance tasks. The workload was spread according to the interests and skills of Guardian’s in-house and external engineers.

Campbell says another business cultural difference is that some service providers like to regularly rotate their workforce, assigning individuals to different accounts to keep their interest levels up and to gain new skills. He adds that Infosys manages this well by having the transitioning and new staff members work side-by-side for six weeks. NeoIT says customers should add in their contract that between 30% and 40% of the supplier’s team that works for the client should never be reassigned elsewhere.

McIntyre and Campbell are very happy with their offshore outsourcing strategies, saying that working with suppliers in India has helped to instill a culture within their own development environments that is high-quality and process-driven.

Offshore oversightAccording to neoIT, a provider of offshore outsourcing advisory and management, you need to examine several areas during the ongoing management of offshore outsourcing deals.
Performance management
DoDevelop a robust workflow and process for both organizations.
 Assign a dedicated program manager on-site and offshore who represents the customer.
Don’tNeglect the transition phase — transfer of knowledge, process and expect-ations is critical to offshore success.
Financial management
DoExpect the offshore engagement to expand into other areas of the business as customers recognize the benefits of offshore outsourcing.
 Plan for unexpected expenses that may crop up during the engagement, such as coverage for cultural holidays or staff reassignment.
Don’tExpect supplier-refund programs to auto-matically be applied. Monitor your bills.
Contract management
DoSet up regular compliance meetings as checkpoints for deliverables, unresolved issues and service-level monitoring.
Don’tAssume the contract terms will be adhered to without careful monitoring.
 Forget that quality depends more on process and governance than tools and technology.
Relationship management
DoBe patient; building trust, relationships and effective partnerships takes time.
 Secure a nd check executive sponsorship throughout the engagement.
Don’tNeglect the importance of regular communication, especially during times of transition.
Resource management
DoSpecify that between 30% and 40% of the supplier’s team assigned to your project cannot be reassigned without your prior approval.
 Allow two to three weeks overlap for handover to transitioning resources.
Don’tTry to micro-manage resources.