The Myth of the Onsite Coordinator
One of the proven methods to improve quality of communications with the offshore team is to have a dedicated person to coordinate and oversee its activities from your site. This person should ensure the communication flow, act as liaison between the teams, and often interpret information from local to offshore language. Even if the both sides speak English fluently (e.g. outsourcing to India) there is lot of subtle differences in business lingo that need translation. More so the person could be charged with business analyst activities interpreting domain specifics to technical language of the development team. On my book offshore manager should have very solid PM/PMO skills, in-depth understanding of the processes such as SDLC, strong knowledge of the domain, and of course understanding of the offshore. The job description for the person quickly adds up to a very tall order. Add to it logistic challenges – this person typically ends up working long odd hours – and you realize that it’s not an easy task to find some who can do it.
Of course I am not the one who invented dedicated offshore managers, as a matter of fact even for a fairly small engagement your vendors would strongly recommend that you put a full time onsite coordinator on your team. The vendor is likely to have long list of Pros for adding the person to the team, not surprising it’s a very common add-on sold pretty much with every contract.
There are a few serious caveats here, if not to say traps. Something I have observed on multiple engagements:
- Onsite coordinator could be just a slightly disguised sales executive with primary objectives that have nothing to do with real objectives of offshore manager.
- Onsite coordinator could be grossly unqualified for the job but given it due to some internal reasons – for example as a holding position between assignments.
- Most often the onsite coordinator is just that – a mere coordinator – far less than you need for the position.
Each of the scenarios above is guaranteed not to deliver on the objectives of an offshore manager and to prevent engagement failure you’ll need to invest in the manager as well, in that case why do you need coordinator?
More so, one of the biggest issues with offshore onsite coordinator is the mind set, is s/he going to have your interests at heart or interests of the company which pays him salary? When inevitable problems come up on what side s/he will be? Let’s say that problems are severe and you have to take your vendor to court, can you really count on onsite coordinator to be unbiased?
I can not tell you how many times I had this discussion with offshore vendors who continue to push for the “best practice”. Well, if that’s so helpful for you to deliver on the engagement objectives why don’t you do it on your own expense? That question typically falls on deaf ears.
When you consider expense, typically either offshore rate + per diem / hotel / car / etc. or onsite rate of ~$80 an hour you realize that it’s might cost effective to find offshore manager locally. Good offshore managers are not easy to find and they are not cheap but believe me, they are worth every penny.
Outsourcing Myths: Turnover Ratio
The impact of turnover on the total cost of outsourcing is difficult to overstate. Of course you know that and put a turnover question as one of the most important ones in the beginning of your RFP. You look at the proposal that just came back from your vendor and see 18% as the response, “whew, I think we found our guys!”… Welcome to the murky world of turnover ratios. The sad part is that this answer may mean very little; being the most infamous curse of offshore engagements the turnover ratio comes with a few extra traps.
The most frequently overlooked issue strangely enough is the meaning of the “turnover ratio”. When your prospect vendor tells you that their turnover ratio is lower than the country’s average (high changes that’s exactly what you are going to hear) what does the vendor mean?
On one of my recent engagements with a reputable company in Noida, India the staff on the project changed at an amazing rate – while working with 10 member team for about 1 year we saw over 20 people, and only one person stayed on the project from the beginning to the end. No matter what formula I tried apply to that situation it did not seem to align with 18% stated in vendors proposal. And yet every account review my vendor pushed the idea that the turnover ratio was not out of bounds. Ah? ‘Well, Nick:
- We moved Rajiv and Venkat off the project because they were not performing job well enough;
- Ramki’s mother got sick and he had to quit to do the right thing;
- Shushma got married and moved to Hyderabad…
And so on and on and on…
As it turned out my valued partner had a completely different view of the turnover ratio. My guess is that they calculated the ratio based only on the number people who’d left the company for competitors.
Another trap worth mentioning is an internal transfers. What difference the company’s average turnover rate makes if your project turnover exceeds it by two or three times? I’ve seen that numerous times and in a large degree it’s unavoidable. The vendor will move people around to increase their utilization, to appease the loudest customer, and to keep employees motivated.
And one more trap to mention is key resource turnover. If your team has an average turnover of 20% (you lose and have to retrain 2 people a year on a 10 member team) it might not be so bad if these two are junior QA engineers. What if these two spots both belong to the tech lead on the project? You find a great TL, he comes to your site for knowledge transfer and after two months go back to India just to resign the next week, two months and countless meetings later another one comes to your office, goes through K-transfer and goes back, and then gets hit by a typhoid fever?
Recognizing that there is much more to turnover than just a percentage sign is a huge step forward. Dealing with turnover is a much more complex issue and a rather large topic, so I’ll cover it in the next post.
Outsourcing Myths: cost advantage
On a surface that seems obvious: even with dollar fall, rising cost of living in India, China and especially eastern Europe the hourly rates continue to be much lower than those you have to pay in the states. For example, a mid level java developer would roughly cost you:
SF Bay Area, full time $60/hr
SF Bay Area, contractor $80/hr
Bangalore, India $25/hr
St. Petersburg, Russia $30/hr
Shenzhen, China $20/hr
So for every contractor in your San Mateo office you can put 4 in Shenzhen or 2 in St. Petersburg. Or, looking from savings angle, instead of paying a team of 8 engineers roughly $80K a month you can pay less than $30K in China and get yourself a hefty raise.
However, let’s take a look at real cost of outsourcing. The first rate killer is productivity: in my experience on average productivity of resources in India would be 50% of what you would get with local mid level resources, for senior developers it would be at best 75%, and for juniors you could potentially see it as good as 80%. To achieve that level of productivity you would need to put above average efforts in shaping your team and have considerable amount of luck. Typically getting a good senior developer is only possible if s/he is managing is at least 20-25 resources. Also be prepared that understanding of seniority may greatly vary from what is considered a norm locally, and in that light delivering another productivity hit. Let’s imagine that you are planning to outsource a 5 member team that includes one tech lead, two mid-level java developer and relatively junior ones. Your cost for the team would be roughly:
| Role | Level | Experience | QTY | Salary | Aprox Rate | Monthly Cost |
| Tech Lead | Senior | 10+ | 1 | $140,000.00 | $ 82.60 | $ 14,537.60 |
| Developer | Mid | 7+ | 2 | $100,000.00 | $ 59.00 | $ 20,768.00 |
| Developer | Junior | 3+ | 2 | $ 75,000.00 | $ 44.25 | $ 15,576.00 |
|
Total: |
$ 50,881.60 | |||||
What would it cost you in Noida? Let’s assume that you got lucky in finding a tech lead for the team and the rest of the members were typical developers you could find out there.
| Role | Level | Experience | QTY | Salary | Aprox Rate | Monthly Cost |
| Tech Lead | Senior | 10+ | 1 | N/A | $ 32.00 | $ 5,632.00 |
| Developer | Mid | 7+ | 2 | N/A | $ 28.00 | $ 19,712.00 |
| Developer | Junior | 3+ | 2 | N/A | $ 25.00 | $ 17,600.00 |
| PM | Mid | 5+ | 1 | N/A | $ 30.00 | $ 5,280.00 |
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Total: |
$ 48,224.00 | |||||
Note that team in India also includes full time PM which is not surprising for a team of 9. The result is a staggering 5% of cost savings. Your actual numbers could be different based on your negotiating skills, but the dynamics won’t change.
I am sure that many outsourcing companies would dispute my assessment of productivity. Well, let me give you a couple examples:
- We stopped a development project (CICS adapter) being developed by team of five “very senior engineers” from Mastech after ~3 months due to unacceptable quality of deliverables. 2 months later the adapter was developed by a single developer we had on staff.
- We had to stop and take in-house a handheld development project (.NET) being delivered by a senior developer and several mid-level ones from MindTree due to low quality of code and extremely low productivity. This project was later delivered by a single mid-level developer with oversight from a senior developer in time shorter than it had taken us to ramp up the team in Bangalore.
The list of examples can go on and on, they are just examples, however, considering that I could not offer any examples of an opposite nature, there is possibly a trend here. The question is why offshore developer’s productivity is so low? I’ll put my thoughts on in a separate post.
About
The price one pays for pursuing any profession or calling is an intimate knowledge of its ugly side. [James Baldwin]
In IT outsourcing one does not need to go too far to get ultimately familiar with its ugly side. However, despite all disappointments and failures I honestly believe in offshore capacity and its positive impact on the industry. I’ve seen enough success stories to continue using offshore resources myself and recommend it to others. Offshore outsourcing is one of most powerful weapons in technical leaders arsenal. And like any other powerful weapon it requires careful handling and great deal of knowledge in its use and application. Ugly enough even slight mistakes in its utilization could cost companies enormous pain and expense and technical leaders their reputation and career.
The goal of this blog is to bring to everyone involved in offshore outsourcing my 5 T’s – Thoughts, Tools, Tips, Tricks, and Traps of outsourcing. I hope you find it helpful.
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