August 10, 2003

Going Offshore Without Going Off the Deep End

It seems like everyone's doing offshore, but not everyone is doing it right

by Rajan Chandras

Using offshore resources for enterprise IT requirements has always been considered a high risk/reward game, but now, if you come to the table early, the outcome is much less of a gamble. Years of experience sending work offshore — particularly for software development projects — has helped U.S. corporations reduce risks inherent to the endeavor and better integrate offshore capabilities into the global enterprise. Simultaneously, efforts at continuous service improvement by offshore service providers, accompanied by demonstrable and repeated success in their ability to deliver, have infused in their clients an unprecedented level of confidence in the offshore model.

Compelling as it seems, the offshore delivery model isn't without its share of challenges, both strategic and operational. A strategic offshore initiative will need to balance, for example, the benefits of offshore against the concerns of employees who suddenly find their jobs at risk. Even beyond these considerations, integrating offshore services into a global IT policy is a journey, not a destination. As with any long journey, good planning and good company make the trip much better.

Finding the Right Partner

Historically, the greatest mileage gained in offshore IT outsourcing has been in software development. Offshore vendors come in many different flavors. Selecting the right vendor can be a challenge in itself. Here are some factors that may help in your selection:

Size wise. A common fallacy leads to assessing the size (and, thus, capability) of the offshore vendor in terms of dollar metrics, such as annual sales or dollar contracts in hand. The better metric is number of employees and person-years size of contracts, since human resources best predicate successful delivery, particularly for large projects. Low revenues may simply reflect a core value proposition of the offshore vendor: providing services at a lower cost. This approach will enable you to look beyond the top tier offshore vendors, and reach out to other vendors that may be smaller but have the capability to match your requirements — and in fact may prove to be a better fit.

Talking your lingo. Is it important to you that the vendor understand your business? You can go with the bigger or established vendors that have significant expertise across industry verticals, achieved either through building up industry practices and then acquiring offshore capabilities (such as Accenture and BearingPoint Inc.), or by having gathered extensive offshore experience over the years and then converting the experience into industry verticals (think Wipro Technologies and Infosys Technologies Ltd.).

Or you can reach out to niche players and comparatively smaller offshore vendors that have an industry focus. I-flex Solutions and Nucleus Software Exports Ltd., for example, have their own successful banking and financial products through which they have built up related domain expertise — which then lets them hit the ground running on client engagements in the banking industry. Additionally, offshore vendors now offer client-exclusive offshore units that are, in effect, an extension of the client organization.

Shore ... anywhere you want. In response to client concerns over the feasibility and security of offshore outsourcing, several vendors have now set up shop in the United States or in "near-shore" countries such as Canada or Mexico. For example, BonaSource Inc., a small IT consulting firm, has a front office in Toronto with offshore facilities in Russia. Tata Consultancy Services, a world leader in offshore software development, has nearly 50 offices across North America coupled with extensive offshore facilities. This distributed capability will enable you to slice and dice your development projects in a manner that addresses your concerns, yet provides you the benefits of going offshore.

Quantifying quality. Software quality assurance (SQA) provides standardization, measurability, and repeatability in software development processes, and many offshore vendors now have ISO-9000 or SEI-CMM certified SQA. But before you insist on such certification of your vendor, ask yourself the following: How would vendor certification translate into benefits for you? And, are you as demanding of your other (non-IT) vendors in their quality certification? A recent report from the Gartner Group raises interesting questions about limitations your software projects may face in achieving the level of reliability and consistency implicit in your vendor's CMM certification if your own SQA processes aren't sufficiently mature. Point: Are you ready for your vendor's certification?

Think totality. In offshore projects, the degree of savings is another fallacy — it's often less than initially estimated. A one-point agenda of cost savings is often shortsighted, and loses perception of other benefits of offshore. Consider this: In a recent Forrester Research survey of IT vice presidents and directors, 65 percent of firms using offshore services felt they achieved cost savings — while 71 percent of firms felt that offshore providers delivered a "somewhat better or much better" quality of work. Additionally, your offshore relationship potentially can help reduce time-to-market for your IT or business deliverables as well as yield strategic access to domain knowledge and technical expertise that can benefit your organization. A "global village" vision requires that you view your offshore partnership from a holistic perspective.

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