Index of articles, November 08, 2002

Before You Conduct Offshore Outsourcing

By Imran Hameed

Companies in the U.S. generally decide to outsource offshore based on the visible cost advantages. The critical point often ignored is due diligence and commitment needed in managing the relationship inherent in offshore outsourcing. Following points should be considered by the outsourcing managers to effectively develop vendor relationship and ensure the bottom-line:

Why to Choose Offshore Development?

Labor accounts more than 75 percent of the cost of developing software in the U.S. where the market is already tight for high-skilled IT professionals, according to estimates. Gartner reports the average stay of a programmer in any one job is 11 months. The IT industry has a peculiar nature: reduced time-to-market; emerging technology needs; and the pressures of recruiting, hiring, retaining, and training skilled workforce. In order to get the development work done right at the right time, managers need to look offshore for partnerships bearing value, economies of scale, and most importantly, the long-term commitment. The most strategic advantage of going offshore is that the resultant cost-savings (with programming rates from 40 to 60 percent below those in the U.S.) free up client's capital for new projects and development efforts.

Choosing the Location

Numerous countries are candidates -- China, Ireland, India, Malaysia, Singapore -- for quality outsourcing. Most of them domestically have a critical mass of technical graduates to effectively handle high employee turnover rate faced by the global IT industry. U.S. managers can identify appropriate locations primarily based on the quality of work, then on cost and other factors such as strong IT infrastructures, multilingual workforce, regularatory environment, etc. Also, one needs to be careful about potential issues and problems emerging from differences in language, culture, politics, regulations and work practices that might hinder collaboration efforts.

What Type of Projects are Done Offshore?

Successful offshore providers in various parts of the world have developed excellent capabilities over the years and thus are in their best position to deliver high value-added, sophisticated software development services. As a result, the U.S. companies are outsourcing many of their internal IT services such as:

Experts believe that since significant amount of time and resources are needed to negotiate and oversee the outsourcing work -- contract writing, managing vendor relationships, etc. -- companies seeking offshore partners must have at least 50 in-house IT staffs devoted to software development and maintenance.

Do's in Offshore Outsourcing

1. Implementation-focused Projects

The middle or later phases in the process of software development such as the implementation and maintenance make better business and economic sense in outsourcing. The reason is such projects require limited interaction between the in-house IT department and the other business units or departments.

2. Thoroughly Evaluate Offshore Vendors

Potential candidates should be ranked based on the following:

3. Cover Essential Elements in the Service Level Agreement

Generally, an SLA should be based upon three areas such as quality of output (work), devotion of resources and performance incentives. The client should clearly describe and thereafter exercise its right to audit outsourcer's quality assurance systems and development processes. Also, it should develop a sound performance-based incentive structure adhering to the industry standards. Most importantly, it should define the success and failure of the project on both sides of the partnership to avoid conflict of interest and confrontations.

4. Outsource Less Critical Projects First

It is always advisable to devise a project schedule to move company's less-critical projects first to the outsourcer party. This lets a client company thoroughly study partner's performance, thus providing it with ample choice in picking up the right partner for other important projects in the later stages.

5. Appoint a Project Manger to Interface Outsourcer

Clients should adopt a decentralized approach by appointing a project manager to communicate client's business and technical needs with the outsourcer. Project managers generally provide technical oversight and troubleshooting to make sure about the progress. In many cases, U.S. companies may ask offshore vendors to install progress monitoring systems on 24/7 basis to let clients access project relevant files and the codes under development.

6. Sound in-house Technical Team

Client's in-house team should stay up the speed with offshore vendors to avoid becoming completely dependent on the vendor and to serve as a steady backup for local or advanced project development.

Dont's in Offshore Outsourcing

1. Bleeding-Edge Technologies

Management should preferably keep the newest technology projects in-house since they require a high-level of design-code test-redesign feedback loop.

2. Early Phases in Software Development

In should be noted that the early phases in software development (project initiation, analysis and logic design) should be better kept in-house since these activities require significant collaboration communication, involving more business logic than mere technology.

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