The successful transfer of knowledge to an offshore vendor - everything from programming expertise to what users expect from a system - can make or break a project. Here's what you need to know to do it right.

READER ROI

• Why knowledge transfer problems can hobble an offshore project
• What kind of work you can offshore and what you can't
• How to successfully transfer knowledge to overseas workers

When IT executives at Life Time Fitness, a fast-growing health and nutrition company, first considered sending systems development work offshore two years ago, they tried to do everything right. They started off with a small pilot and used an Indian vendor they had already been working with. But that offshore team had worked solely at Life Time's Minnesota headquarters - not at its own Indian location. Even so, Life Time's IT executives were happy with the team's work and felt they had a good handle on the cultural and communication issues that sometimes arose. So in mid-2002 CIO Brent Zempl decided to take the next step: to truly offshore a pilot project - a non-mission-critical application used to analyze data for construction site selection.

He signed a contract with the same vendor the company had been working with. Their pitch "was very convincing", recalls Wesley Bertch, Life Time's director of information systems. "They had all of these processes - Six Sigma, CMM Level 5 - and said they could collect requirements and deliver the system on time and budget at or better than the level we could. So we went ahead."

Problems cropped up immediately. The culprit was knowledge transfer. The offshore workers' lack of programming experience and knowledge about the project and its origins, together with their faulty understanding of Life Time's users' needs and misperceptions about what constituted a successful project, hindered the documentation of system requirements. Life Time Fitness went over budget to bring one of its own technical writers into the process and extend the documentation process from two weeks to a month. Finally, the offshore liaison hopped a plane back to India, documentation in hand.

A few months later, the offshore team produced a data model. It was a disaster. "It had so many problems, we couldn't even log all the defects in the week we had to do it," Bertch recalls. "And that was just the database. When we went through the QA testing, screens would go blank. Data was lost." The application wasn't just user-unfriendly, it was unreliable and, therefore, unusable. "It was a major embarrassment for both sides," Bertch recalls.

Ultimately, Zempl swallowed the financial loss and brought the system back in-house for his own programmers to rework. But not before learning a lifetime of lessons about offshore outsourcing, and the importance - and limitations - of the offshore knowledge transfer process. As Zempl discovered, the process of transferring knowledge from local client to offshore vendor - everything from hard skills like programming knowledge to more tacit knowledge such as an understanding of what the company and its users expect from a system - can make or break a project. CIOs hoping to transition work offshore must deal with cross-cultural misunderstandings, the fact that employees who hold most of the knowledge about a certain system may also be clutching pink slips, the unavoidable reality that offshore vendors lack company-specific understanding and the problem of high turnover among offshore IT professionals.

In certain cases, these obstacles will completely preclude a move to offshore outsourcing. In others, knowledge transfer can be done well enough to make the outsourcing work, but only if CIOs understand the full extent of the knowledge that must be transferred and spend the time and money necessary to get it from here to there. "Many people just think about transferring the technical knowledge," says Atul Vashistha, founder and CEO of offshore advisory firm neoIT. "They forget about all the other aspects - including change management, people retention and mentoring - that have to take place both here and offshore."