Guardian mitigated some of the risk of committing to a vendor by beginning with a pilot project - developing a new variable annuity product - and scaling up from there. The company also decided it was best to split up the work among several large outsourcers and vendors. Again, Guardian diverged from UTC's tactics (an automated analysis and bidding process) and took a more personal approach. Callahan joined the US-India Business Council, asked peers for advice and went on fact-finding missions. Then, supported by Guardian's IT vendor management office, he and his team narrowed a field of 23 providers down to two, initially selecting Covansys, a company specialising in Indian outsourcing, and Patni. Later the insurer added New Delhi-based NIIT, which has multiple locations outside of India, to give itself more global options when tensions flared in Kashmir.

Guardian selected its vendors based on company size, price, Capability Maturity Model level, quality of metrics, complementary business model and collaborative approach. Guardian was looking for companies with experience in the insurance industry and with the enterprise systems it uses. Also key to Callahan was a strong US presence. "I want some of those offshore people working on-site to already be based in the US and not to have to travel back and forth to India," says Callahan. "I like the notion of strong local management that I can look in the eye.

Since the relationship began, Callahan has been able to make a lot of eye contact at the monthly IT steering committee meeting, where offshore project status and metrics are reviewed with managers from each vendor. Among the metrics tracked are customer satisfaction (the vendor provides results of quarterly surveys of Guardian employees who rate each vendor consultant), offshore leverage, quality metrics, knowledge retention (how many workers have moved off the account, for example) and productivity.

Starting out at a 50-50 offshore-to-onshore employee ratio, Guardian has since been able to move to a more cost-conscious 70-30 ratio, with its offshore partners handling 40 per cent of all of Guardian's development and maintenance.

Experts say 80-20 is the optimal mix for development, and that's what the company is shooting for.

Unlike United Technologies, Guardian hasn't been as interested in bringing the Indian companies' processes in-house. "We've taken some of their best processes and integrated them with ours, but we all operate under the standards and processes put forth by the Guardian project management office," Callahan says.

"It was very important to us that we did not have to create some separate apparatus for managing offshore work."

One thing both of these companies agree on, however, is the importance of the first months of the relationship. "You can never take your eyes off it. The first three months and your pilot project are critical," says Guardian's Shelley McIntyre, second vice president of IT in charge of offshore management. One of the biggest mistakes she says she made during that time was failing to set expectations properly in-house. "There's the whole expectation of productivity. But if you hire a new employee, you don't expect him to be 100 per cent productive on his first day," McIntyre explains. "I could have done a better job of educating all of IT that it's no different than that for offshore workers."

So far, Guardian seems pleased with the progress. Within the first year, the company recouped its initial costs, from initial vetting of vendors to transitioning people and systems, and now saves about $US12.5 million a year.

Guardian has expanded its partnership with Patni, signing a $US35 million, seven-year contract in March (a big deal by Indian standards). And it is already piloting a business process engineering project - dental claims entry - with Secunderabad-based Satyam Computer Systems.