Piyush Gupta used to say he'd never send an it project out of house again, never mind to a different company on a different continent. A veteran IBM Corp. project manager, Gupta first struggled with distributed projects back in the late 1980s, when working on that company's ill-fated OfficeVision development, which was spread across two continents. Later at Informix in Menlo Park, Calif., where he was a vice president of engineering, Gupta wrestled with projects so widely dispersed that they were difficult to reassemble, to say nothing of the challenges posed by substandard programming practices and revolving-door engineers demoralised by boring work in remote locations far from the corporate power center.
"I'd done a lot of [distributed] projects in my life, and none were very successful," Gupta says. "I swore I would never give anything out again.... They'd have to be my guys working on my projects."
Then last year Gupta and his brother set out to form LiquidPrice.com, a Cupertino, Calif., business-to-consumer reverse-auction website for which Gupta serves as president and CEO. They ran smack into the realities of the millennium marketplace. LiquidPrice needed to develop a completely new type of website on Internet time in Silicon Valley, ground zero for the domestic IT labour shortage. Faced with such severe time and staffing pressures, LiquidPrice wound up sending its Web development offshore to an Internet development center in Hyderabad, India, run by SeraNova, a subsidiary of Intelligroup.
What changed Gupta's mind? A like-minded, culturally compatible partner that he thoroughly investigated and wound up truly trusting; turnaround times he simply couldn't match at home in a business environment where time to market can make or break a new venture; and cost savings of 25 percent at bare minimum, even with unanticipated costs factored in. Oh, and after partnering, LiquidPrice, with the assistance of SeraNova, managed to develop and launch the site in an eye-popping 11 weeks. The exchange-site software engine developed in India is so successful, so malleable, that other B2C and B2B exchange providers have asked LiquidPrice to give them access to it through licensed software or as an application service-provider basis. Not bad for a company that had no intention of outsourcing offshore.
All over the country--all over the globe, rather--offshore partnerships are on the rise, spurred by the chokingly tight IT labour market in the United States, the zero-time-to-market demands of the Internet economy, the promise of cost differentials that can go as high as 60 percent and, lastly, a sizeable aggregate of high-level, midcareer IT executives with significant offshore experience under their belts.
The quality of overseas labour is up at the same time the level of projects being moved offshore is becoming more sophisticated, says Chris Engle, director and practice leader of outsourcing strategies at Meta Group in Stamford, Conn. "We're seeing a more educated society in offshore application development and a shift from maintenance of systems to the actual development," Engle says.
India remains the premier country of development, with five development centres certified by the Software Engineering Institute, including Hyderabad and Bangalore. But Pakistan, Northern Ireland, Israel and Middle Eastern countries are all up-and-coming destinations of choice, in addition to Mexico, the Philippines and so-called near-shore facilities in the maritime provinces of Canada.
Companies interested in investigating offshore opportunities must be able to tackle challenges in three areas: cultural, geographical and political. The very places where foreign development is hottest are also at times home to earthquakes, typhoons, floods and shaky infrastructures that can knock out communications and political instability. Companies working offshore must be willing to invest time and money in building processes to ensure proper project management, effectively evaluating and training personnel, and establishing meaningful metrics to make sure projects stay on track.
Farley Blackman, CEO of StrategIM, a Burlington, Vt., consultancy specialising in offshore development, used to be director of offshore development at General Electric, a pioneer in offshore outsourcing. By 1998, the last full year he ran offshore operations for GE, Blackman managed 3,500 foreign workers, saved GE US$125 million annually and accounted for 7.6 percent of India's total software exports. Blackman knew that GE by no means had the largest domestic software budget, so why weren't other companies investing in offshore to the same degree? "People don't understand how to work overseas, and the assumed loss of control scares some companies away from offshore development," he says.
Infrastructure issues certainly can cause difficulties. One company experienced network brownouts that left U.S. executives unable to contact their offshore partner or fulfill their customer-service demands until the contractor upgraded its overseas network connections. Another chose its offshore partner partly because the vendor had broadband feeding into its T1 network--in other words, an up-to-date network infrastructure that resembled standard business setups in the United States.
But when offshore projects go astray, frequently the reasons are poor communication or cultural miscues. One U.S. company had a 20 percent risk factor built into its milestone estimations only to find its offshore outsourcer had built in an 80 percent risk for the same set of deliverables, making the project run seriously off course. Another was told by its offshore contractor that a deadline would be difficult, not realising that difficult was a culturally polite way of saying impossible.
To prevent your offshore projects from bobbing aimlessly on the high seas, or sinking in stormy weather, follow the golden rule of any outsourcing project: Don't assume anything, ever. Specifically, companies must pick their projects with care; spend an equal amount of consideration choosing the right offshore company with which to partner; commit to communicating early and often with their foreign counterparts; and come ready to invest in the relationship, both strategically and financially.
There is no longer any single type of project that companies deem more acceptable for travel offshore than high-level applications such as website design, and product-line enhancements now make the trip alongside the legacy-system maintenance and customer-service contracts that were initial candidates for outsourcing. But there are general characteristics that make a project more likely to succeed away from home.
Clarity and containability are the two watchwords of choice. Consider projects that can be sharply defined and specified, and those that can easily be snapped out and back into the larger application--a particular concern because integration points are often a source of trouble and confusion.
"You need a clear-cut and well-defined state of objectives that any future communication can be mapped against," says Ross Belson, president and COO of General DataComm Industries (GDC) in Middlebury, Conn. Belson's company signed on last summer with Chicago-based Kanbay, which maintains a development center in Pune, India, among other offshore locations, to maintain and upgrade some of GDC's product lines, thereby freeing up internal engineers in the United States to focus on new products. "If you're still in the 'R' part of R&D, where you're exploring platforms or debating costs, and you've got a partner overseas trying to keep pace with those changes, it's not going to work," Belson says.
Project timetables are also a consideration, according to Bruce J. Goodman, senior vice president and CIO at Humana in Louisville, Ky. Humana has contracted with Syntel of Troy, Mich., which maintains centres in Europe, India and Singapore to perform legacy-systems maintenance offshore, in part because those tasks have a specific build-and-release cycle that doesn't require daily interaction between developers and Humana's own IS staff. "We can give somebody a job where they don't need to be in touch every day," explains Goodman. "Then, during testing, we can turn around and use the time zone difference to our advantage to get multiple turnaround cycles in the same day."
Those requirements are among the reasons why Bank of America Commercial Finance (BACF) in Wilton, Conn., chose not to send a project offshore, though Allan Hackney, senior vice president of information technology, would have preferred otherwise. BACF is using an onshore workforce from India, provided through Wipro Corp., a global outsourcer with offices in Santa Clara, Calif., and 10 other U.S. cities and overseas operations in Europe, Japan and India. Wipro workers maintain the bank's legacy loan-accounting system while staffers concentrate on bringing a new system online. "Offshore projects work when requirements are well-known and success is easily defined and understood," says Hackney, who has extensive experience with offshore projects at other corporations but hasn't yet sent anything overseas in his current position. "Onshore works better where the opposite is true: if you have an iterative development cycle or when the end point is a moving target." Onshore is also more expensive when it involves importing offshore talent, observes Hackney. "You're paying to bring folks over here, for their [H1-B work] visa, their housing and board, and you pay a premium to entice the people to come here in the first place."
Liquidprice's Gupta, who was persuaded to give offshore outsourcing one last try after meeting with and being impressed by officials from SeraNova, is among many executives who emphasise that the relationship between a domestic corporation and its offshore partner can mean the critical difference between a project's success and failure.
Any successful offshore relationship must begin at home--in the corporation's home office. "If it won't work onsite, it won't work offsite," said Gupta, who first had the SeraNova project manager and engineers working onsite in his office for a four-month trial period to ensure that work styles, goals and corporate culture were aligned. On the flip side, some managers at other companies go onsite to evaluate working conditions and the strengths of the outsourcer's remote management team, which plays a critical role in keeping communications open and milestones met.
With offshore companies in particular, workforce issues can be sensitive and politically charged because of local labour or cultural situations. In other words, nobody wants to end up like Kathie Lee Gifford, embarrassed by the public disclosure that her line of clothes was assembled in Third-World sweatshops. When RealNetworks was looking for assistance with its e-mail technical support, the company made a point of checking out the conditions, both physical and emotional, at potential partners that maintained a foreign workforce. "We wanted to make sure that anybody we partnered with was treating their employees fairly and in an equitable fashion," says David Hardwick, director of customer relations at RealNetworks in Seattle, which eventually gave its business to Talisma Corp., a Seattle outsourcer with offices in Florence, London and Bangalore. There are business as well as social reasons for such an inspection, he says. "We wanted to know that people weren't unduly stressed. If you are working under very poor conditions, you'll be giving out poor advice," Hardwick observes.
Beyond basic social responsibilities lies a much more subtle but crucial element: corporate culture compatibility. In offshore partnerships, companies can be almost hyper- aware of ethnic cultural differences such as language barriers and differing work hours but can miss red flags that might point to significant problems later on. "It can be pretty hard to pay attention to [corporate culture] at the outset," says Hardwick, "and most PR companies don't want you to see the whole picture."
One good litmus test is to determine how bad news is communicated or how problems are discussed. "What do they call bugs?" Hardwick asks theoretically. Companies that use euphemisms or tiptoe around the issue of bugs or glitches won't be a good fit with plain-speaking, full-bore-ahead clients. RealNetworks particularly likes that Talisma lets executives know when there's been a customer-relations problem that the outsourcer was unable to resolve satisfactorily, Hardwick says. "When there are escalations, they bring them up. Otherwise, we'd find out by having some irate call go through our front desk, and that's not good from a time or customer point of view."
Corporate culture is the biggest challenge, more so than regional culture or language, says Valrie Dyhouse, product development program manager at Tektronix in Beaverton, Ore. "Simply being removed can exacerbate any differences in corporate culture," says Dyhouse, who functions as the point person between her organisation and Rohde & Schwarz, a German manufacturer of test and measurement equipment with which Tektronix has an ongoing joint development and marketing agreement. "You have to be careful not to assume anything even when you think there shouldn't be a problem."
Offshore veterans recommend that companies use every technological tool at their disposal to keep the lines of communication as open as possible, including e-mail, fax, voice mail, teleconferencing, videoconferencing and even face-to-face meetings both at home and in the offshore location.
"Different people communicate in different ways," Dyhouse points out. "Some engineers are uncomfortable with videoconferencing, others like to see the other person's face." LiquidPrice.com's developers often resort to the relatively low-tech option of the fax machine, says Gupta, because it's an easy way to share marked-up documents.
The goal in offering an array of communication options is to mimic the kind of bumped-into-you-in-the-hallway discussions that aren't possible when half the team is in India and the other half is in Chicago. Not only do frequent e-mails and videoconferences help build the team cohesion that practitioners like Dyhouse say is crucial to offshore success, they're an important way to pick up casual progress indicators that often don't come out in a formal meeting yet may be crucial to a project downstream.
That said, formal meetings can't and shouldn't be ignored. In addition to capturing those water-cooler moments, managers say, it's important to set a schedule of regular meetings between onshore and offshore workers, with the interval determined by the nature of the project and the employees' level of responsibility--engineers may need to conference call weekly, with marketing experts getting together once or twice a year for a longer, more in-depth planning session, as is the case at Tektronix.
General DataComm engineers and managers occasionally travel to Kanbay's brand- new, state-of-the-art scientific lab in India so that they can replicate work done by their domestic counterparts in Connecticut. "People talk to an engineering manager from an emerging country and they come up with a preconceived notion of what it's like over there," says Belson. "Then they go over and see a sparkling new facility, and their attitude changes."
With communication so crucial to the success of an offshore partnership, it's essential that organisations appoint a single person to act as a go-between, a manager who has a strong command of both the project at hand and the bigger goals of both companies. "You need to have a project manager who can operate effectively in both worlds and it's important that person have authority and responsibility for the project in both places," says BACF's Hackney. "I'm not talking about a liaison. It has to be a decision maker who can act as a cultural translator to ensure that there are common expectations and accomplishments."
Language differences would seem to be a natural first concern when sending work overseas, but in fact misunderstood work habits most frequently derail offshore arrangements. Even in countries that have what Americans consider to be a strong work ethic, hours are generally shorter and vacations longer and more frequent, and coworkers are more reluctant to receive calls afterhours or during the weekends. And while most international business travellers are already aware that handshaking, table manners and other staples of standard business interaction can unwittingly offend people of another culture, managers need to pay special heed to miscues that can have a direct impact on an overseas project.
RealNetwork's Hardwick tells a story of one programmer from India who was working in the United States for several weeks and left for two hours at lunchtime. His domestic colleagues were mystified until someone pointed out that the main meal of the day in India is eaten at midday, and a two-hour break is the norm. Other managers recount instances when team members were reluctant to share bad news or say they were in over their heads--all out of what Americans would classify as exaggerated deference to management. Another warns colleagues to pay special attention to terminology when setting up milestones and other project-measurement structures: A deliverable in one business's book may mean a finished product, while to someone else it means that a spec is ready for the vice president's perusal.
Still, companies often find a silver lining in cultural differences. For example, Hardwick says the King's English, written by Talisma's Indian crew answering RealNetwork's customer-support e-mail, is far superior to the language skills he sees in U.S.-educated job candidates. Dyhouse says a language barrier can help maintain rigour in the relationship. "Having a language difference and knowing it helps remove the assumption that you know what other people are speaking about," she points out. "When offshore partners speak English as a first language, it's sometimes more dangerous." Companies will generally take care to translate "global parameter" correctly for their foreign-speaking partners but may assume their English-speaking colleagues know what they're talking about, Dyhouse says, not realising that "global parameter" can apply to the entire code, a measurement group or a single measurement. "You can think you're speaking the same language, but you really aren't."
What has your experience been with offshore outsourcing? Share your thoughts with Senior Editor Tom Field at firstname.lastname@example.org. Freelance writer Tracy Mayor can be reached at email@example.com.
General Electric does it, but would rather not discuss it on the record. Target Stores does it, but it passes up the opportunity to talk about it. American Express does it, but it's unavailable for comment.
Are we talking software piracy? Cooking the books? Peddling trade secrets on the black market? Try offshore outsourcing. More and more companies are doing it, but not everyone will admit it. Even in the midst of a well-publicized IT employee shortage and the lowest unemployment numbers in 30-something years, some companies still prefer to play coy about their foreign partnerships.
For some companies, relations with labour unions are a good motivator for keeping quiet. For others, it's simply a matter of trying to keep beneath the radar of public opinion--after all, nobody wants to be the next Nike (which has been slammed by groups protesting conditions in its offshore factories) or Kathie Lee Gifford, who after almost two years is still answering questions about her clothing line's use of forced labour. National, state and local politicians, eager to take credit for making their region the next technology hotbed, occasionally inveigh in public against sending work overseas.
And sometimes there's plain old cultural bias at work. Companies fear that customers will look askance at work done or products produced anywhere other than in the good ol' U.S. of A. "There can be a bit of an Ugly American aspect to some of this," says Farley Blackman, CEO of StrategIM, a Burlington, Vt., offshore consultancy. "There are some Americans who still have the attitude of 'We're No. 1, and our workers are better than others,' and companies don't want to have to fight that bias in public."
That kind of caution can seem silly to younger dotcom companies that were founded with a global perspective in mind and have no problems fully disclosing their offshore relationships. "Most software companies are using outsourcing in various ways," says David Hardwick, director of customer relations at RealNetworks in Seattle, which outsources its e-mail customer service requirements to India through Talisma Corp. "If they're doing it and they don't want their customers to know, that shows an incredible amount of bias."
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