Getting it right: offshoring cases

Came across couple of recent articles on offshore successes.

The first a product engineering outsourcing case by Jeff Angus describes how eProject, a Seattle based SaaS provider of project management systems has had unabashed success partnering with an outsourcing firm located in the Ukraine and in Redmond, Wash.

"We went out and got references for offshoring partners. The qualifications we were looking for were unusual," says Chris Lynch, eProject's vice president of engineering. "We were looking for quality of work rather than lower costs ... I was hiring locally, so costs were budgeted," he says.

"Quality was always the biggest need. Our specs called for a partner that as technically competent and independent, [who] would tell us what they thought we were doing right or wrong, and who would function as an extended part of our team. We
wanted a peer who had enough expertise of their own to recommend content and coding techniques as well," Lynch explains.

Interestingly the article cites a recent Deloitte Consulting report on outsourcing that about 66 percent of projects fail to achieve most or even any of the benefits the client was aiming for, while 78 percent of buyers end up cutting the engagement short. Report also states that 70% surveyed stated cost savings as primary reason for outsourcing.

The article describes the key aspects of this case that made it a success. One of the primary that the right reason for outsourcing is not cost. It is amazing to see how many decisions to choose a vendor is primarily based on the pricing in today's outsourcing marketplace. Outsourcers are finding it difficult to differentiate between outsourcees and even though many are trying to focus on specific technologies or vertical industries.

The second case by Leonard Lobel describes best practices for ensuring a productive outsourcing experience. He gives tips on effective communication with an offshore team from personal experience.

Even though outsourcing has matured over the years, there is still a need for outsourcing companies to educate and guide their customers in the mode of engagement. The onus is on the outsourcing firms to learn from mistakes and help engagements succeed especially when it comes to outsourcers who are new to the model. At the same time, project managers in who outsource should also understand the quirks of offshore outsourcing and be prepared to manage the project in a manner geared for success.

It will be beneficial to see more workshops and training specific to offshore outsourcing engagements to help make them a success. I have not come across many that gives practical guidance to offshore outsourcing. This is an opportunity for consultants to offer such services.

10 tips on dealing with offshore developers

As a manager at an offshore services provider, one of the key aspects of my job is managing expectations of clients. Especially those who are new to offshore outsourcing.

Here is a post from Yakov Fain listing ten practical tips for the rookie manager. He has some more interesting posts at this site.
Link >>

Hybrid model for outsourcing

Recent article, Alternative offshore model emerging in India, by John Ribeoro at IDG News Service, cites a new market research by Forrester Research concluding that companies are moving towards a hybrid model of offshoring versus deciding in favor of either captive or partner model.

Forrester Research Inc. found that hidden costs raise the baseline expense per person per month at a subsidiary to $4,944, compared to the baseline cost of $4,231 per person per month to hire an outsourcer. A number of companies are shutting down their captive centers and turning to outsourcers, said Sudin Apte, senior analyst and country head for India for Forrester.

"Captives centers run as cost-centers and cannot be as competitive as a vendor offering services," Apte said. The size of the captive center also matters. "My experience suggests that generally the minimum economic size for a captive operation is about 1,000 staff," said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International in Houston. A smaller staff means the expenses of real estate, infrastructure, and other overhead keep the cost per person at levels too high to appeal to the parent company, he added.

A number of firms inlcuding startups have opted for a captive center in last few years and are struggling to gain full potential out of their captive centers. Attrition and overheads are cited as key reasons however, when you look at a captive vs outsourced option, one of the key factors that really makes the difference is whether you have a person who can take ownership and drive your captive center or not unless you are a Cisco, Microsoft or Google. When you outsource, the vendor is hungry to make it happen; is your point man in India hungry and experienced enough to make it happen for you?

"Typically, clients tend to want to build their own operation rather than outsource when the process they are considering taking offshore is closer to their own revenue generation, such as product design, Pai said.

As a result, some foreign companies are likely to have Indian subsidiaries and also use outsourcers in the country, Pai said. Forrester expects 20 percent of captive centers to take this "hybrid" approach. Large companies, such as Microsoft and Cisco, are already using this offshore strategy in India to cut costs and to avoid hiring and managing more staff directly.

As a technology firm if the piece of product development you wish to do offshore is not too close to a technology IP then it might very well be better to opt to outsource than build a captive center. If your product is a business app that doesnt have any propritary technologies associated with it, then the argument towards a captive center might be less convincing.

I must add though that for a number of companies small and large, offshore outsourcing via partners is what makes bringing an innovative new product or technology implementation to market feasible. This I say from personal experience providing outsourced product development and prototyping to several companies.

Edit: Here is the direct link to the Exec Summary of the Forrester Report: Shattering The Offshore Captive Center Myth