Outsourcing a Project Overseas
You decided to outsource your project, you sent out Requests for Proposal, you evaluated the proposals that you received, and you finally found out that the outsource service provider (OSP) whose proposal best fits your requirements is an overseas company… Is it a disappointment to you?
Will you be scared of unknown and decide in favor of a domestic company which is only second best? My opinion is that you shouldn’t get too comfortable with the idea that outsourcing overseas is nothing more than a foolish adventure. I can tell you a story about a really foolish adventure in the world of outsourcing. A friend of mine works for a big company whose premises are located across the bridge from a small town. He told me how a whole computer management division was fired after the company signed a contract with a small business in the town. Now, if something goes wrong with his computer, my friend has to wait for hours and sometimes for days until somebody comes and troubleshoots it. As you see, ill-advised outsourcing can lead to a disaster even when it’s done across the bridge, not overseas. So why not consider outsourcing your project to an overseas OSP?
The Reasons to Outsource a Project Overseas
A crucial determinant influencing the decision whether to outsource a project overseas is a high return on investment. Some companies claim that their offshore costs are 20% to 30% of what they used to spend when they outsourced their projects to domestic vendors. Even if you count not only person hours required to implement the project but also the deployment and in-house personnel training costs, I believe that you’ll be able to save about 50% of your expenses if you outsource your project overseas. The risk is comparatively high, too, but the return on investment that you can get justfies the risk.
|Even if you count not only person hours required to implement the project but also the deployment and in-house personnel training costs, you’ll be able to save about 50% of your expenses if you outsource your project overseas.|
Another important factor is what kind of project you are going to outsource. In theory, it’s possible to outsource any IT project, even database administration. In practice, businesses usually prefer to keep network and database administration in house and to outsource such projects that would allow them to concentrate on their core activities. This is true for outsourcing both to domestic and offshore OSPs. Ian Henderson, Head of Business Development at The Royal Bank of Scotland International, says, “Recently, we have seen clients opt for complete outsourcing solutions as they seek to focus on their core businesses. We have, for example, been asked to provide simple global custody services for one client, whilst for another private banking client we provide a full outsourced service generating, amongst other things, contract notes, income reporting, statements, valuations and performance reporting. We are also finding that some clients are choosing to transfer some services currently provided onshore to our offshore locations, as they feel they receive better service and feel more valued here than in the larger onshore markets.”
However, it would be wrong to think that you can outsource only non-core projects. I read that Caterpillar Financial Services Corp. had a Web-based financial system developed by an offshore OSP; moreover, while the project was being implemented, the company trained its in-house staff so that they could take on the maintain system once it was deployed.
The Right Overseas OSP
You should make sure the vendor whose proposal completely fits your requirements is the right OSP, the one that you’ve been looking for, the one that won’t let you down. I don’t know a universal technique that would allow you to divide sheep from goats, but there are some ways tested by time. Basically, the usual methods utilized when choosing a vendor will work fine, so I’d like to mention just a few specific ones:
The Factors that May Influence Your Decision
The crucial factors influencing the choice of the businesses that outsource their projects are most often as follows:
1. the reliability of the vendor;
2. the vendor’s rates; and
3. the term of implementation.
As the situation requires, these factors may trade places. There are also other things about the vendor that you might find important:
|The iterative approach typically has the form of a spiral and allows the project phases to overlap. You can divide a complex project into manageable components and achieve the expected results by working smart, not hard.|
Unlike the traditional highly structured waterfall approach with a fixed plan-do-test sequence of project phases, the iterative approach typically has the form of a spiral and allows the project phases to overlap. You can divide a complex project into manageable components and achieve the expected results by working smart, not hard. Requirements changes are easier to take into account and adjust, risks are usually acknowledged in an earlier phase and thus mitigated, system components can be reused, and integration is facilitated.
“We use iterative development in two-week intervals. While one iteration is underway, we start on the next one,” says Bob Hays, vice president and senior architect of ABN AMRO, a global bank with 110,000 employees in 60 countries. “If our offshore providers follow a waterfall approach, there is an impedance mismatch. Producing all that paperwork may be useful for creating a legally defensible audit trail, but it slows everything down.”
Whether you apply the waterfall or iterative approach, you can have a project delivered and paid for in parts, and this is one of the best ways to minimize the risk for you and your vendor.
In order not to get stuck in legal cobweb later on, have the contract prepared by a lawyer who has the proper experience. I can tell you just one thing: don’t agree to settle any controversy and disagreement in court of the vendor’s country. If the vendor and you don’t find a better solution, this wording may be a good compromise: “Any controversy of claim arising out of or relating to this agreement, or breach of this agreement, shall be settled by arbitration in accordance with the American Arbitration Association, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. There shall be three arbitrators, two to be chosen directly by each party at will, and the third arbitrator to be selected by the two arbitrators so chosen.”
Also, you might want to include in the contract a clause that provides for the project to be undertaken and paid for in parts.
The importance of the specification, project plan, and other documents for the success of the project can’t be overestimated. Even the way the documents are drawn up say a lot to any specialist because they’re a mirror of the vendor’s in-house process. The clarity and accuracy of style reflect the vendor’s culture and experience. The specification must be easy to understand, especially the description of the principle of
|The way the documents are drawn up say a lot to any specialist because they’re a mirror of the vendor’s in-house process. The clarity and accuracy of style reflect the vendor’s culture and experience.|
operation. You probably won’t believe it, but I knew an OSP that intentionally made the specification incomprehensible and obscure-they hoped it would result in more money and less control. As far as I know, this company is out of business now. Serves them right.
If a project is especially expensive and important, you might want to hire an expert to examine the specification developed by the vendor. This means additional expenses, but in this case they are acceptable.
The project plan has to be thoroughly thought over, and it should include a number of milestones and deadlines. If it’s software development that you’re outsourcing, your agreement with the vendor must
|Your agreement with the vendor must provide for the delivery of the code after each milestone is achieved. If your vendor doesn’t meet the next deadline, you can hand the project over to another OSP…|
provide for the delivery of the code after each milestone is achieved. This way you will additionally secure the project: if your vendor doesn’t meet the next deadline, you can hand the project over to another OSP.
Contacts and Communication
The opponents of outsourcing usually say that nothing can substitute face-to-face discussions, brainstorm meetings, focus groups, and other real world means of communication that are so efficient in solving most complicated problems. There’s no use denying it, but why don’t you delegate all this to your vendor? After all, you’re interested in the final result, so let your vendor achieve it any old way they want.
|You may talk the most general issues over with the top management of the OSP, while everything else has to be discussed with the key personnel such as managers and team leaders.|
Who should you contact while the project is being implemented? You may talk the most general issues over with the top management of the OSP, while everything else has to be discussed with the key personnel such as managers and team leaders. If you try to communicate with the rank and file, it can lead to commotion or even chaos.
Telephone conversations aren’t always useful because of the language and psychological barriers. You can waste a lot of time trying to understand each other. The best means of communication is e-mail and instant messaging.
Don’t try to control the everyday process that is going on overseas-you’ll only make the provider’s team nervous. Let the vendor’s key personnel manage the daily affairs of the team. The tools that are supposed to help you control the way the project is being undertaken are the specification, project plan, milestones, and deadlines.
Communicating with an offshore vendor, try to speak and write in a simple language. Erran Carmel, Associate Professor at the Kogod School of Business, American University, Washington D.C., says, “Become aware of idioms; don’t use slang or baseball metaphors. Spelling and grammar are not important.” Don’t pay too much attention to the other party’s minor mistakes, but make sure they understand you completely.
The Difference in Time Zones
The time zones problem arises when your developers are continents and time zones removed. The way around the problem is simple: agree with the vendor on a mutually acceptable time for online meetings and instant messaging discussions.
|Let the vendor’s key personnel manage the daily affairs of the team. The tools that are supposed to help you control the way the project is being undertaken are the specification, project plan, milestones, and deadlines.|
Time zone difference may be an advantage if you are interested in “round-the-clock” programming. This means working with the overseas team in shifts, so that programming goes on 24 hours a day. However, this procedure has to be faultlessly arranged and flawlessly performed, otherwise it will mean inefficient use of time. Your offshore vendor and you should have a common data repository and-what is even more important-the same standards, the same culture of work, let alone discipline.
If You Outsource Software Development
You may ask the OSP for code samples and have them reviewed by specialists. These samples can appear to be beautiful code, but what if they were created specifically for such cases? If I were you, I’d rather discuss coding standards with the vendor, determine the appropriate requirements, and include them in the text of the agreement.
Building mock-ups of the system and/or UI prototypes at the specification phase is one of the most important features of efficient software development. If the vendor is reluctant to do it, you may insist on including it in the plan or even think about looking for another vendor.
Find out if the OSP has a routine procedure of using a bug tracking system to manage bug reports. If they do, you should have access to the bug reports related to your project. If they don’t, you might consider creating your own one and providing the vendor with access to the appropriate bug reports.
If Something Goes Wrong
Something that most often goes wrong is the schedule. Linda Hayes, CEO of WorkSoft Inc., says, “Most schedules get off track early, but we fool ourselves into thinking that because it’s early we have time to make it up later. Don’t fall for this one! The odds are that it will get worse as time goes by, not better. And the later it gets, the harder it is to do anything about it, because dependent events start lining up.”
|A clear sign of trouble is a lack of communication. If the manager or team leader responsible for your project doesn’t contact you as regularly as they are supposed to, your instinct should tell you that there’s something shady about it.|
A clear sign of trouble is a lack of communication. If the manager or team leader responsible for your project doesn’t contact you as regularly as they are supposed to, your instinct should tell you that there’s something shady about it.
|If a milestone is delivered late, and if you’re not satisfied with the communication or the quality of work, you should take the specification and the code that was previously delivered to another vendor.|
Sometimes rescheduling may help, but you have to realize that the project is at risk anyway. If a milestone is delivered late, and if you’re not satisfied with the communication or the quality of work, I believe that you should take the specification and the code that was previously delivered to another vendor.
What if everything goes right, the project is delivered on time and on budget, the return on investment is higher than ever before, and you’re satisfied with thoroughness and competence of the offshore vendor? Try to build partnership relations with them, base these relations upon mutual commercial benefit, and you’ll see all your efforts rewarded.
Basil Tesler is an Editor-in-Chief for Web Space Station, an Illinois based software company. Web Space Station provides total IT solutions covering your most demanding technical needs. Our innovative approach works for you to increase productivity, improve customer service and reduce costs. And, we are dedicated to continually serving your needs through our outstanding and ongoing commitment to quality and support. See more information at http://www.WebSpaceStation.com.