SIDEBAR: And You Think You Have a Turnover Problem?

Offshore vendors are having an increasingly hard time retaining the people working on your projects. Here's how to protect your company and your knowledge

A major frustration for CIOs who take the time to do knowledge transfer right is the risk that the people they've trained offshore may leave the vendor, taking all that knowledge with them. It's a legitimate concern given the high turnover in popular offshore cities, where annual attrition can top 30 percent. One way to protect against that, says neoIT founder and CEO Atul Vashistha, is to identify 30 percent of the vendor's employees as core resources and contractually require that they stay on your offshore team. CIOs may have to pay more for such a provision, but given the cost of retraining, it's worth it.

Other CIOs have opted for another solution - creating their own offshore development centres. "We had worked with offshore vendors, and we weren't getting the kind of response we wanted. We had no guarantee if people would stay around," says Emmanuel Saint-Loubert, CIO of e-mail security at antispam software maker Tumbleweed Communications, which now owns the offshore locations it uses in Bulgaria and India. "The response from our own employees offshore is a lot higher than if we were dealing with an external company."

Cendura CEO Pavan Nigam, who oversaw the launch of "captive" offshore centres at his software company, agrees. "We wanted to have control over all of our resources in terms of how we motivate employees and retain them. It gives us more flexibility and speed," says Nigam, adding that all offshore employees have equity in Cendura. "It's like the difference between owning and renting. We never considered working with a vendor because this way we can motivate [employees], bring them over when we want."

Most CIOs, however, lack the resources to begin with a captive offshore company from the get-go. But for those considering it as an eventual option for maintaining in-house knowledge, it's important at the start of any offshore contract with a third party to create an exit plan for how to transfer those offshore workers to your company. That's the plan at Lehman Brothers. "There's certain work we don't feel comfortable giving to third parties because of the intellectual property aspect," says Lehman Brothers CIO Jonathan Beyman. "We believe our employees will do a better job. So the concept of opening up our own offshore site is something we're evolving to."

SIDEBAR: 10 Tips

Doing Knowledge Transfer Right

• Start with a pilot - preferably a small, non-critical project.

• Include a provision in the contract that the offshore company keep a certain percentage of critical employees on your projects to protect against turnover and loss of knowledge.

• Create a knowledge transfer road map, including identifying in-house experts and the processes or systems they support, the knowledge recipients, a schedule for knowledge transfer and a transition readiness test.

• During the transition, require offshore workers to shadow local workers, and vice versa.

• Map out offshore responsibility to the individual (not the team) so that you can identify possible gaps in knowledge transfer and training.

• Train offshore workers in necessary local and company processes and domain knowledge (for example, Sarbanes-Oxley training, corporate training provided to new employees, medical procedures and medical terminology for a hospital system project).

• Conduct classes for local and offshore workers on cultural and language differences.

• Keep at least 20 percent of the offshore staff onsite to do work and act as liaisons.

• Send a local manager permanently to the offshore location or visit often (no less than once a quarter) to monitor performance and deal with knowledge-transfer gaps.

• Rotate staff both onshore and offshore.