Pragmatic Outsourcing

Tips, tricks and traps of IT offshore outsourcing

Outsourcing and Email Etiquette

Nothing made a more profound impact on business communications than email, and nothing probably ever will; well, unless telepathy is adopted by the corporate world, and that is probably not going to happen during my time. So it’s not surprise that there are 100s of books and web sources covering email etiquette, rules, techniques, tips, tricks and traps. Yet, I see again and again the lack of attention to email rules and etiquette ruins business relationships, creates communication problems, and dramatically affects project communications.

Email rules and etiquette is a general issue. I see it as a local challenge and go through communication training with my in-house teams (even though it seems kind of weird coming from someone for whom English is a second language and still work in progress). The importance of email is 10 times higher when it comes to outsourcing. It is impossible to overstate its significance, especially for vendors / providers. Given that a good portion of my audience is outsourcing providers this topic is worth investing into.

Let’s start with classic DOs of professional email, or The Keepers:

  • Keep it Short. I suggest keeping in mind a 10 seconds principal – write your email with expectation that the reader should spend not more than 10 seconds to read it. If you need to communicate considerable volume of information email might not be the vehicle to use. If that’s your target audience preference or some other reasons make it so put a 10 second summary upfront.
  • Keep it Simple. Write to express not to impress. That is particular important when it comes to outsourcing, you Harvard vocabulary won’t help much to ESL members on the thread. Here is one of my favorite examples which takes a few seconds to comprehend even if English is the only language you speak – “Unremitting fealty to his métier sans interludes of hedonistic deflection renders Jack a hebetudinous hobbledehoy.” Just in case see “translation” in the bottom of the post.
  • Keep it Personal. You should always mention recipient by name, use proper salutation and be polite.
  • Keep it Formal. No matter how close you are with the recipient if you are writing a professional email you are engaged in conversation between two professionals. See a few tips on professional email etiquette below.
  • Keep it Legal. Always be aware that you are talking on company behalf. In particular remember that there no such thing as email Security or Privacy. Business email sent to/from a company server belongs to the company and might be read by someone other than your intended recipient So, never put anything in email that you will not say in public

The next rule is the Brevity Principle, or the simple basic, and yet most frequently broken rule: Business email should be limited to a single topic. Sending email covering a variety of topics almost guarantees that some of those would be missed, lost or misinterpreted.

Very important rule is to stay away from clichés and limit your use of idiomatic expressions. Once in awhile you come across people who are just can not say things in a plain manner and the content of the message gets lost in a stream of expressions. “Let’s run it up the flag pole to see if it passes the acid test, or we’ll be back to square one. That ought to give us a ballpark figure beyond a shadow of a doubt what our bottom line will be. If we can’t hit the nail on the head we might have to bury the hatchet and get back to our original bread-and-butter issues.” I am still trying to figure out what this one meant.

There is more to it. Idiomatic expressions are dangerous traps in cross cultural conversations. Just a few weeks ago I was talking with a brilliant techlead of my team in Latin America. When closing the discussion I asked – “Javier, do you think we are on the same page now?”. “I am not sure Nick” – he replied – “what is the number of the page you are on?”

And now a few email etiquette rules / tips on keeping email professional:

  • Reply in timely manner. I recommend using 24 (business) hour turnaround time. In case you need more time to address the issue / etc. send a brief status email.
  • Answer all questions, and pre-empt further questions.
  • Use the fields correctly
    • From (make sure that your email client is setup properly)
    • Subject (40 char summary of the email body)
    • TO (intended receipt of the email)
    • CC (keep the number very small – do not spam people just for FYI reason)
    • BCC (avoid using it altogether)
  • Do not shout, in particular:
    • Do not USE ALL CAPS
    • Do not use excessive punctuation – Why???????
    • Do not use “teen talk”, IM lingo and other casual language – WTF!?
  • Do not get “personal”, especially “in public”, never:
    • Reprimand someone in email
    • Make someone look stupid
    • Question one’s credibility
  • Watch your attachments
    • Do not forget them (you may want to consider Outlook plug-in that does the attachment check)
    • Do not send files that are large (over 1 MB) or likely to conflict with email rules (e.g. *.exe files)
    • Do not use vCards and certification pics (they make every email appear to have an attachment)
  • Be extremely careful with
    • Humor (potentially huge communication trap in cross-cultural setting)
    • Reply All
    • Adding recipients to email thread
    • Message threads
    • Forwarding

I guess that covers high points. To see more on the topic just google “email etiquette”.

“Unremitting fealty to his métier sans interludes of hedonistic deflection renders Jack a hebetudinous hobbledehoy.” is just a fancy way of saying “All work and no play makes Jack a dull boy”

January 5, 2009 Posted by Nick Krym | Managing Offshore Engagements | , | No Comments

Outsourcing in the Light of Bribe Payers Index

Have someone offered you some funny smelling incentive package to close an offshoring deal? You may not be alone…  I just run across an interesting article, not specific to offshore outsourcing but very relevant though. Bribe Paying Export Countries by Daniel Workman talks about some unusual stats - “The 2008 Bribe Payers Index ranks the likelihood of importers receiving illegal monetary incentives from leading export countries.“  Here are the highlights

Countries Most Likely To Offer Payola

Final results from the 2008 Transparency International survey rank export companies from Russia, China, Mexico and India as most likely to bribe.

1. Russia … 5.9 (33% more likely to bribe than Canada or Belgium)
2. China …6.5 (26.1% more likely)
3. Mexico … 6.6 (25% more likely)
4. India … 6.8 (22.5% more likely)
5. Brazil … 7.4 (15.9% more likely)

Countries Least Likely To Grant Illegal Incentives

The BPI survey ranked Canada and Belgium as home to exporting firms perceived as more ethical and therefore apt to avoid illegal payoffs.

1. Canada … 8.8
2. Belgium … 8.8
3. Switzerland … 8.7 (1.1% more likely to bribe than Canada or Belgium)
4. Netherlands … 8.7 (1.1% more likely)
5. United Kingdom … 8.6 (2.3% more likely)

See more figures and supporting material in the original article TI Report: Emerging economic giants show high levels of corporate bribery overseas.

December 19, 2008 Posted by Nick Krym | News, Articles, Thoughts and Comments | | 2 Comments

Offshore & Sexual Harassment

What a strange topic, it feels quite weird even to bring it up. After mandatory training, posted policies, and tons of wasted energy you’d say that is a dead horse. Alas, offshore-related sexual harassment could quickly grow into a real problem if not dealt with promptly. The trap is actually right one the surface: the standards of office behavior vary greatly across the world, with US culture being one of the most restrictive. Another aspect is a different social position of women in other countries, with US being one of the most advanced.

I am not about to get into insinuations about what’s right or wrong, my only objective is to highlight a potential trap. Many outsourcing companies, even large ones, with advance cultural training and extensive experience working with US companies do not get remotely close to what’s needed to prevent actions of their associates that could be considered sexual harassment by US standards.

Not so long ago I had a large group of offshore resources working onsite as an integral part of my team. In period less than a year we had three complains related to sexual harassment that required management involvement. One was a case of “unwelcome sexual advances”, another two related to emails with vulgar jokes and graphics. One of the cases resulted in associate being fired, all three demanded great deal of effort for resolution and dealing with unhappy employees from the core team… The most surprising thing about these cases was complete ignorance of senior members of the offshore team who were supposed to deal with the incidents on the topic; that was in particular alarming that the vendor was a top tier Indian outsourcing firm.

The right and easiest approach of dealing with this trap is tackle potential issues that may arise from vendor’s ignorance in standards of business conduct far before you face an incident. While that appears to be “vendors problem” my strong recommendation is to deal with it yourself, at least control / verify how vendor deals with this issue.

If you have a group of offshore resources working onsite the easiest thing to do is to put them through corporate s/h training. If you do not have one in place you should hire professionals or run one yourself. There are plenty of materials you can find on the topic; including below is a slide deck I use for training.

Another important activity you may want to consider is educating your employees about cultural differences and standards of office conduct they may encounter with. That’s especially important if you consider sending your employees to work as a part of offshore team.

December 3, 2008 Posted by Nick Krym | Managing Offshore Engagements | , | 2 Comments

Non-hire Trap

One of the first steps in most of offshore engagements, often even before you decide on the vendor is signing non-disclosure and non-solicitation agreements. NDAs and NSAs have become so common that often they are signed without understanding a potential penalties they may lead to. Below are a few fairly common tricky situations related to non-hire clause:

  • I had several situations when a developer brought to me by my offshore vendor for an on-site assignment approached me for a full time position. In every case that was a highly respected developer with in-depth knowledge of our products, etc. close to the end of their on-site assignment. In every case the developer had alternative offers and was not planning on going back to his original employer.
  • I’ve seen some tricky situations when top-notch employees of companies who did not make through selection project came to us looking for full time employment when the deal did not happen.
  • A few times I had to deal with the situation when a new vendor brings me resumes of the employees from the vendor that has been replaced.

There are many other scenarios with the common issue – you are interested in hiring an employee but can not do it without breaking NSA.

In many cases the non-hire situation can be addressed to both parties contentment. The typical approach I would suggest is considering hiring employee as if you were working with a recruiter. 15-30% of employee annual salary could be amount which would keep the vendor happy under certain circumstances. That has to be handled with great caution and respect to the vendor. Some companies put substantial investment in the resources on all fronts – from acquisition to training and benefits, for them 30% may not represent a sufficient amount. I find the wording non-hire clause as a great indicator. Here is for example an extract from NSA with one of very employee-focused organization:

During the term of this Agreement and for a period of two (2) years after the later of the date of this Agreement or the completion of any SOW under this Agreement, each party agrees not to, directly or indirectly, initiate employment discussions with, hire or use in any way the services of an employee or contractor of the other Party. The parties specifically agree that a material, uncured breach of this provision will entitle the non-breaching Party to agreed upon liquidated damages in the amount of two hundred thousand dollars $200,000 per occurrence with a maximum aggregate limitation of $3,000,000. Subject to the time limitation set forth in the first sentence of this paragraph 11, this provision applies to employees and contractors who are no longer employed by the Vendor or by the Client but were so employed at any time during the term of this Agreement.

You may consider he figures to be over the top, I did. However, the truth of the matter is that this particular company wants to do whatever it takes to prevent brain drain whether it’s instigated by the company or by the employee. And that’s deserves some respect and twice as much serious attention.

However, most of the time you do not find the NSA / NS clause worded with such might. Vendors understand well that in many cases they can’t do much about losing a particular employee, and losing him/her to a customer may play in very positive manner towards improving customer satisfaction / retaining the customer, etc.

Here are just a few obvious tips on dealing with non-hire trap:

  • Deal with NSA with consideration that you might be facing it’s bitter end.
  • Stay legal – do not solicit vendor’s employees, even they seem a prefect match, do not even give any clues or signs. If the associate comes to you that will put you in the best negotiation position with the vendor and with associate.
  • When facing the “situation” stay legal in all aspects and consider the hierarchy of importance: yourself, the vendor, the associate.
  • There is almost always a way to negotiate the situation with your vendor in a win-win manner. Consider “win-win or no deal” approach.
  • You may not always get what you want, in particular there will be situations that you just won’t be able to get a particular employee. Let it be.

November 28, 2008 Posted by Nick Krym | Managing Offshore Engagements | , | No Comments

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.

November 20, 2008 Posted by Nick Krym | Managing Offshore Engagements | , , | 2 Comments

Offshore Model Selection: T&M vs. Fixed Bid

It’s quite amusing to see many offshore vendors to use LinkedIn Answers for self-promotion but instead of leads generating volumes of offshore-bashing. However amid of self-advertising and political positions you can find browsing this section helpful in many aspects, no cloud without a silver lining I guess… This time LinkedIn Answers offered an interesting discussion topic with a help from Irina Semenova: When outsourcing projects offshore which model is preferable – Time and Materials or Fixed Bid? And my answer is… “It depends.”

What model is going to work for your specific engagement depends on the project goals & objectives, both parties’ org structure and experience, SDLC maturity and style, etc. The selection should be made by careful analysis of all ingredients and with consideration of classic engagement objectives: scope, time, budget, and quality. Below are some tips that you may want consider when making the decision.

If the scope of the engagement is extremely well defined and firmly set Fixed Bid model is very natural way to go. Some of my friends from Agile Camp would probably say that the scope being “extremely well defined and firmly set” is an oxymoron – requirements always change, etc. Well, I do not want to start a philosophical discussion; instead, I’d rather mention a few items that often overlooked in scoping exercises:

  • Non-functional Requirements. This is not a very good term but widely used for some reason. By non-functional requirements I mean horizontal requirements that apply to the product not to its functionality. These requirements typically include dimensions such as performance, scalability, maintainability, interoperability, etc. They are extremely important for any project but often overlooked and dealt with in catch up mode exploding the cost of the engagement. For FB projects you not only must specify upfront the requirements but also defined how the compliance would be verified.
  • Delivery Requirements. Sometimes considered a subset of non-functional requirements the specifics of engagement delivery affect the cost dramatically. The vendor typically has its own benchmarks in that respect which could be drastically different from your expectations. Do you expect to have 80% unit test code coverage? Do you expect well-document DB design delivered in Erwin format? All these requirements must be spelled out before FB contract is put in place.
  • Communications. The volume of communication is a notable aspect in vendor’s overhead and thus affect the cost of the project. You might be expecting daily project updates and rigorous reporting at multiple levels while the vendor thinks just milestone updates and PMO quarterly meetings. It’s much better to bridge the gap up front.
  • Quality. It is extremely important to specify Acceptance Criteria in all aspects of Quality of the product as well as process of Acceptance. Metrics and methodology definition should be one of the inputs to the vendor for defining FB price tag.
  • Change Management. Any vendor that has meaningful experience in delivering FB engagements has Change Management well under control. What vendor could be not familiar with is your specific change rate and budget change tolerance. It takes tremendous expertise on both side of the relationship to manage Change Management and avoid scope creep wars.

If addressing items above in addition to developing meticulous definition of product requirements falls outside of your capabilities you can hire your vendor to do it for you on a Time and Material basis. That appears like a nice T&M segue into a FB model. There are a few traps associated with that model though. The main being a potential conflict of interest: Will the vendor has your best interest in heart and won’t use this exercise to dramatically increase the scope of the project? That’s not unheard of. You can mitigate that risk by hiring different vendors for FB and T&M portions of your engagement; that approach of course has its own drawbacks.

With all these complexities of FB model why even consider it? Why don’t just go with T&M for all types of engagement? Well, some projects land themselves extremely well in T&M space, for example a classic team augmentation – situations when you just need a team of QA engineers added to your organization during major release, or you need a graphical artist to assist with development website, etc. There are as well a plenty of other situations that make a short or long term T&M arrangement the most meaningful. You should not rule out a FB model for engagements of recurring nature and augmentation tasks though. For example an ongoing legacy s/w maintenance and support task appears as a great candidate for T&M, but it could be extremely well handled as FB SLA arrangement.

A popular concept states that vendors prefer T&M model because it allows them to achieve maximum utilization of resources while being shielded from customer failures to deliver on their obligations. That is a major misconception. Under true T&M model the vendor gets paid only for work being done and is not for waiting for customer to make up their mind. In majority of the situations that would mean that developers would be sitting on their hands for major portion of the project. So typically T&M engagements are sold as “minimum utilization” models, in those the customer pays the maximum of minimum agreed upon amount and T&M amount. That model shields the vendor quite well.

In that light T&M model doesn’t only shield the provider it also reduces dramatically inevitable scope creep wars on fixed bid projects. In many aspects it is good for both sides. The main challenges it presents for the buyer are somewhat hidden and thus create serious traps. Here are just a few to consider:

  • Carefully constructed T&M project opens a huge opportunity for add-on sales and could generate enormous amount of unnecessary work. As proverbial car salesmen IT consultants are exceptionally skilled in upselling the customer, keeping themselves occupied, and discovering new opportunities. On the other hand buyers become their own worst enemies as T&M promotes sloppiness in handling scope. As a result T&M projects, unless handled properly, have a high probability of costing more, often much more than expected. The example which comes to mind is ERP implementation which I observed at a large automotive manufacturer; being budgeted initially at $30MM it ended up costing in excess of $300MM.
  • T&M projects require meticulous time tracking which could become a considerable overhead. I remember myself spending easily 1 hour a day on keeping track of my time in three systems, of course that hour was billed to the customer as well. For developers that are not used to consulting lifestyle timetracking is true bane of existence, often resulting in malicious compliance producing little to no meaningful results.
  • T&M projects are more difficult to budget for and are real pain in GL allocation when services cover multiple cost centers / etc. Appropriate allocation in particular requires detailed time tracking with its respective impact and reliability issues.

November 3, 2008 Posted by Nick Krym | Contract Negotiations, Managing Offshore Engagements | , , | 2 Comments

Outsourcing Impact on Technology Choice

I find LinkedIn to be a good idea generator for blog topics, for example a question from Vinay Joshi “.Net OR Java what technology projects you outsource — Does technology matter for making decision to whether outsource or not? …” deserves substantial discussion, beyond my brief answer on the site; especially considering that the rest of answers are more about religious war of .Net vs. Java rather than about the question itself.

Of course the answer depends on the context, if you are a technology company that already has the technology selected or a vendor that has a large team with specific expertise in place the discussion has little relevance. For those about to outsource it could be quite important decision though.

If you are planning on outsourcing but have not selected the technology yet, here are a few tips to consider:

  • Flexibility offered by technology is not your friend. The more discipline the technology offers / requires the easier it is to control it, the less are the chances on-shore and off-shore teams drift apart. In particular using Java vs. .NET discussion – Java offers great flexibility and far less commonalities in solving even basic development task. There is always 10,000 ways to achieve the same objectives. It offers multiple schools of thought and competing technologies. .NET offers more disciplined approach, while it offers some flexibility it’s far less the focus or the modus operandi, typically in .NET there is “the right” way of dealing with majority of tasks.
  • Emerging technologies are not made for outsourcing. That seems like a no-brainer, yet I’ve seen many companies moving projects using cutting edge technologies offshore, typically with painful consequences. So just in case, there are many reasons not to do so: lack of experienced resources, blind spots in understanding the technology on the both sides of the ocean, insufficient supporting community and documentation, undeveloped best practices, etc. Each of these issues by itself can destroy the engagement, when the issues combined the failure is guaranteed. Both Java and .NET by themselves are established technologies, however there is always something new being pitched by the respective camp.
  • Close doors to Open Source. Well, that might be too strong of a statement. As a matter of fact I did quite well outsourcing development using Open Source technologies and products and so many people I know. Caveat emptor! If you go for Open Source make sure that you do not stray off the beaten track and stick to very stable and mature products with strong development community. Too frequent release cycle, fluctuating quality of products, unstable supporting community can add insult to injury when combined with inevitable issues of outsourcing.
  • Don’t let the tail wag the dog. Some advanced technologies come with very costly or complex development tools. Some technologies require you to invest heavily in workstations or development environment. Some technologies require extremely high investment in training. And so on. Unless you have extremely compelling reason to do so, do not consider such technologies. Investing into a partner or their environment is not what you want to do especially in the early stages of the partnership. What if the partner already has it all in place? Well, do you want to be locked into using a specific partner? I don’t think so…
  • You can only find free cheese in a mouse trap. In development today there are a plenty of “very simple” technologies. Those technologies could be quickly learned, and superficial or even spurious expertise sold to a naïve buyer. That usually attracts gazillions of providers and inevitably drives the price down. Have you heard about PHP freelancers for $4 an hour? Just go to elance.com or guru.com – you will find a plenty. The chances are you will get what you paid for. The main point here is while the technology at question could be extremely solid it doesn’t mean that any code monkey can operate it. Finding good providers in such technologies could be a challenging task due to the high pollution of the field. Unfortunately PHP today falls into that category, and I am certain tomorrow that will be the case with RoR.

October 22, 2008 Posted by Nick Krym | Making Offshore Decision | , , | 1 Comment

Don’t Fall Asleep Behind the Wheel

This post is a rude reminder to all of us involved in outsourcing. Just a few weeks ago I talked about fundamental laws of outsourcing (FLO). And yet I just escaped from being hit hard by one of them, the ominous Second FLO, by the skin of my teeth.  Quick note - the second FLO as the same as the second law of thermodynamic – entropy always increases. In offshore outsourcing the second FLO exhibits itself as consistent degradation of quality of services in absence of non-stop energy applied from the on-shore.

In this particular case it was about sourcing. I have an agreement with my current provider that I can interview any resources prior to them being assigned to the project and I can stop that assignment from happening solely on the results of the interview. I have to say that is a somewhat unusual agreement – most of the vendors would fight tooth and nail against it; that did not stop me on many of my contracts though.

Anyway, my vendor has been good in many respects, with quality of the resources being one of the top. So when I did not see any red flags on the resumes of a couple developers about to be assigned to the project I was ready to give the green light. I am not sure what stopped me and why I decided to interview them. But as soon as I asked for the interview all kinds of red flags stared coming up: scheduling delays, preparation phrases, language and cultural difference discussions… Making the long story short interviews were a complete disaster: the guys were not only exceptionally green, they did not have the foundations I was looking for, no grip on technology, no relevant background… they were good guys ready to learn. Sorry, but I do not pay for on-the job training…

So what happen? Why my trusted partner was about to put these spring chickens on my project? Well, just because. The second fundamental law of outsourcing is as strong as the gravity laws. You know, you can fight the laws of gravity as long as you want and yet you will end up with you face in the dirt… Uninspected deteriorates. [Dwight David Eisenhower]

Here is a metaphor for your consideration. A long time ago I was in the far north of Siberia, in Eskimo country. I saw an amazing event there – sleds led by sixpacks of reindeer were competing in a traditional race. That was indeed a fun race and a very vigorous exercise for the jockeys – they had to use a very long stick to control the deer, and make them run. Interesting thing about those deer – they do not run if you do not hit them, and, unlike horses, they would stop the second you stop hitting them. So the only way for the jockey to win the race is hit them non stop all the way to the finish line. Little did I know that many years later I would have to use the same technique on all my offshore engagements.

October 17, 2008 Posted by Nick Krym | Lighter Side of Outsourcing, Managing Offshore Engagements | , , | No Comments

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.

October 8, 2008 Posted by Nick Krym | Making Offshore Decision, Offshore Vendor Selection | , , | 1 Comment

Fundamental Laws of Outsourcing

A while ago when answering a question on LinkedIn I suggested applying three well-known principals to managing offshore engagements. I call them Fundamental Laws of Outsourcing a.k.a. FLAWs of Outsourcing (FLOs for short). These laws in my view are as strong as the law of gravity, and as you know if you attempt to ignore it you will at best end up with your face in the dirt…

  • The first FLO is The First Murphy ’s Law: “Nothing is as easy as it looks.”
  • The second FLO is The Second Law of Thermodynamics (Entropy Always Increases)
  • And the Third FLO is the First Law of Military Communications: “If an order could be misinterpreted, it will be”.

That really sounds encouraging you may say. How can you ever consider working with offshore under these laws? Well, back to gravity – it doesn’t seem to prevent us from being ultimately successful in our lives and have fun in the process. So here are just a few basic tips…

1) To deal with FLO # 1consider a few things –

a. Starting with a stellar contract (MSA) which addresses typical offshore traps (quality benchmarks, attrition remediation, knowledge transfer / retention guarantee, etc.).

b. Setting expectations right (your management, your team, and your own). “Right” in this context means as low as possible. For example: there will be no cost savings, the work load will increase, everything that could go wrong will go wrong, things that just can’t go wrong still will, and no matter how low your set the expectations your vendor will surprise you.

c. Setting an “exit water mark”. No matter how long you march down a wrong road you will need stop and go back. In case you made a wrong decision there is a point where you are better off by cutting your losses short.

2) The second law of thermodynamics applies to any organization or project. You might remember these quotes:

The uninspected deteriorates.
- Dwight David Eisenhower

The only things that evolve by themselves in an organization are disorder, friction, and malperformance.
- Peter F. Drucker

In offshore outsourcing the second law of thermodynamic exhibits itself as consistent degradation of quality of services in absence of non-stop energy applied from the on-shore. Consider uninterrupted control from a dedicated resource on your side (make sure it’s someone you trust and who has your company – not the vendor’s – interests in heart). Everything from timesheets to hard core deliverables to be scrutinized and verified. The only way to stay ahead / prevent quality decay is to apply pressure on the vendor even when things are still going (seemingly) well.

3) The FLO # 3 applies to all aspects of communications and in particular to the project/product requirements. Any ambiguity in your documentations, specifications, processes, procedures, and especially verbal instructions will be (innocently) exploited to create maximum damage and cost increase. Consider crystal clear communications and small scope of controlled deliverables. For example, very short project phases, interim builds, etc. Work as many control / feedback points in your process (SDLC) as you can possibly afford.

October 4, 2008 Posted by Nick Krym | Managing Offshore Engagements, Offshore Vendor Selection | , , | No Comments

Negotiating a Fair Rate

Let’s assume that you have selected a few companies for your shortlist and are getting close to the final stage of negotiations. At that point you already have the “asking” rate, which should be within reasons. Negotiating space in offshore deals is rarely above 30% and if asking rate is 100% above your expectation the vendor should not probably be on your list.

Now, how to make sure that you get the best rate and at the same time not push your vendor beyond the line where your negotiating “success” will backfire? The key is to drive for “win-win” arrangement with every prospect vendor and pick the best one. Here are a few tips on doing that:

  • First, most important, you need to set the focus of your negotiations. Your goal is not to minimize the rate but minimize the Total Cost of Outsourcing (TOC) over the terms of the engagement. TCO is an abstract concept unless looked at in retrospect, yet it could be reasonably assessed with some basic assumptions. After the assumptions are locked you can easily negotiate towards minimizing TOC.
  • Next step is arranging your arsenal of negotiation options. You do not want it “all come down to rate”, that’s just one aspect of TOC plus it’s likely to stall the negotiations. List all aspects of the contract you could to negotiate and form your position on each of them. Offshore contracts typically offer large number of areas to negotiate, e.g. financial and payment terms, work hours, overtime rates, length of engagement, access to resources, multiple operation benchmarks and guarantees, etc. Each of these items could have a massive impact on the TCO.
  • Research what is reasonable in terms of rates for your vendors. There are plenty of tools to do that. For example follow up with references the vendor should have given you (it’s amazing how much info you get if you just ask), check regional job boards to determine salary ranges, etc. Take you research data with grain of salt though, e.g. be aware of the timing of your data. For example I was involved in contract negotiation with the same vendor in 99, ’02 and just recently; the terms of the contract were somewhat similar, the rates for mid level java developer were respectfully $42, $21 and $27 an hour.
  • Negotiation is a complex skill if not art. If negotiations are not particular your cup of tea you may consider involving professionals, in particular those who have experience negotiating offshore contracts. At least go through some serious reading on the topic prior to diving into the deal making. Here are a few great books to consider: Secrets of Power Negotiating by Roger Dawson, You Can Negotiate Anything by Herb Cohen, and Getting Past No by William Ury.
  • One aspect of the rate is often gets overlooked – the rate changes overtime. The easiest approach here could be locking rate for the term of the engagement, yet it might be not feasible due to many reasons. You want to make sure that you do not get hit with huge changes and at the same time you do not want to find your vendor loosing money on your project due to for example natural changes in the cost of living. Linking rate changes to some objective index might be a path to consider, see an example below.

X.  Cost of Living Adjustment. With respect to the rates stated in each Work Order with a term longer than one year, commencing on the first anniversary of the effective date and on each anniversary thereafter during the term of each such Work Order (each, an “Anniversary”), if the Employment Cost Index, Total Compensation, Not Seasonally Adjusted, Private Industry for Professional Specialty and Technical Occupations published by the Bureau of Labor Statistics of the United States Department of Labor (the “ECI”), as published on the most recent date the ECI was published prior to the Anniversary of the current year (the “Current ECI”). is higher than the ECI published on the most recent date the ECI was published prior to (i) the effective date of the Task Order with respect to the first Anniversary; or (ii) the Anniversary of the previous year with respect to all subsequent Anniversaries (the “Prior ECI”), then, effective as of such Anniversary, the then-current rates for such charges shall be increased by an amount calculated by multiplying then-current rates by a fraction, the numerator of which is the Current ECI and the denominator of which is the Prior ECI, minus 1. For example, on the first Anniversary of a Task Order, if the Current ECI is higher than the Prior ECI, the increase to the then-current rates under this Section 5 would be calculated as follows:

Increase to then-current rates = the then-current rate on the first Anniversary X ((Current ECI / Prior ECI) – 1).

If the ECI ceases to be published, then Consultant and Client will agree on and substitute another comparable measure published by the same or another reputable source.

September 29, 2008 Posted by Nick Krym | Contract Negotiations, Offshore Vendor Selection | , , | No Comments

It’s Not Over, Till It’s Over

I was fairly certain that an offshore development company with majority of their staff in St. Petersburg, Russia was the best choice for a large scale initiative for my company. The decision came after complex vendor selection process which included on-site visits, marathon interviews, long and pricy MSA negotiations, etc.

I hang up the phone after final discussion with the CEO and smiled. I liked the team in Russia, some of the guys I met there were at par with my best developers in-house, I was happy with the location as it was offering a cure for my nostalgia, and I was proud to be able to deal with the biggest obstacle I faced on the day one of the negotiations – substantially higher rates of developers in Russia comparing to those in India.

“Why work with India if you can find more expensive developers somewhere else?” is not exactly the question you want to be discussing with BoD or your executives. My convoluted negotiation scheme has paid off. I was quite happy with what I was able to squeeze out of the vendor. There were only a few formalities to take care off and I would move forward with the project.

I have t ell you - having had set my eyes on the Russian vendor I had to stick my neck out a great deal. There were plenty of concerns with outsourcing in my organization to begin with, moving it to Russia was a challenge of a much high caliber. “If the creator had a purpose in equipping us with a neck, he surely meant us to stick it out.” [Arthur Koestler] Those are the words to live by. I was selling idea of using the Russian team as there was no tomorrow. My efforts were paying off on that side as well – I had full support of my executive team and was ready to move forward with the contract and a very hefty budget.

Next day I was on my way to LA, long weekend offered a perfect break from the grueling selection process and contract negotiations. I was in a wonderful mood and almost all the way through the 10 hour trip when I got a call from my vendor’s CEO. For some reason he decided to speak in English: “Nick, my board of directors has reviewed all the details of the contract and after much discussions had made the decision to withdraw our proposal and exit the negotiations.” I said something borderline polite, hang up the phone, and issued a very loud, long and very politically incorrect tirade…

Funny enough things worked out to the best, the vendor that was awarded the contract instead of the Russian team in many respects offered a better match, stronger skills and less time difference… Plus, I added a few more notes to my bag of tricks, tips and traps:

  • Never come to the finish line of selection process with a single vendor in mind. Make sure that your short list has at least two, better three capable companies.
  • Do not rely on your intuition (bias, preferences, etc.) when selecting the vendor; let the facts, spreadsheets and team consensus drive the decision.
  • Do not oversell your team, company, and execs on the benefits of outsourcing and especially on any specific vendor. Remember no matter how low you set the expectations your offshore vendor will easily fail them.
  • Do not get lost in complex gambits and convoluted negotiation schemas.
  • And the most important, do not try to pay the vendor less than they can generally get in the open market.

The last bullet deserves special attention as a fair rate is a moving target and depends on many aspects and circumstances. I guess that will be my next post.

September 25, 2008 Posted by Nick Krym | Contract Negotiations, Offshore Vendor Selection | , , , , | 1 Comment

ODC Hidden Fees

The conference call I had with my ex-partner in Noida, India was quite unusual and it’s worth mentioning. Two PMs, AM and I were going in circles for 30 mins in attempt to solve a $10,000 conundrum. About a year ago we purchased 3 servers for our team in India, at roughly $3K a piece. The relationship came to an abrupt end due to major reshuffle of the road map on our side a few months ago.  Naturally we wanted to get our servers back in a form of iron or cash.  That turned out to be unreasonably costly.

As it turned the servers were in some special industrial zone and to get them out of the zone we would have to pay a de-bonding fee to India customs.  The fee at this point would be about 75% of the price of the new server, supposedly if I would wait for about 5-6 years the fee would be reduced to almost zero.   But today to get the servers to San Francisco between shipping and customs I would have to pay the price of new server for one year old box I already “own”.  I could not even donate the boxes to any of my friends in Noida – they would have to pay de-bonding fee to take the servers off the vendor’s premises.  Talk about hidden fees and small print!

That would be my latest lesson learned on ODC hidden fees.  There are a plenty of others you need to be on look out for when negotiating a contract with an offshore vendor.   Here are just a few I came across over the years:

  • Telecommunication, a variety of expenses associated with connectivity and other telecom needs
  • Setup costs, including workstations and other expenses
  • Administration fees, a bizarre combination of fees including janitorial, rent, etc.
  • Recruiting fees in a wide variety of contracting clauses
  • SW Licenses, sometimes for just “non-standard” components often for all
  • Termination fees, a variety of clauses preventing from or penalizing you for canceling agreement
  • Variety of financial fees, such as late payment fees with percentage higher that you would see from credit card vendors

What is important here is of course not the fairness of the fees.   You need to inspect every inch of the contract, every caveat and clause to avoid surprises and control your total cost of outsourcing.  Hopefully that will save you from serious blunders and oversights like mine.

And just FYI, thanks to Chris Balmain, here is a link for de-bonding procedures http://india.ewasteguide.info/files/Debonding_Summary-Report_2007.pdf

September 24, 2008 Posted by Nick Krym | Contract Negotiations, Offshore Vendor Selection | , , | No Comments

Offshore Risks: Team and Personal Impacts

Transferring even a small portion of your development offshore has inevitable impacts on your team and yourself. The impact could be dramatic to a degree that it defeats the purpose of outsourcing. Each of the dimensions of the impact should be considered a risk that needs mitigation plan and is dealt with efficiently through out the lifecycle of outsourcing. I’ll touch upon most significant areas:

  • Loss of team support / respect / relationships with the team. Even the most open minded employees on your team will be concerned with offshore introduction. And they should, the practice of outsourcers replacing the sheer fabric of the company, it’s all too familiar. As an instigator of the process you are likely to become a target of negativity. It comes in all shapes and forms with essence being “you are a traitor of ”. I remember well one of my key architects giving me an ultimatum “it’s me or them”. I do not know of any bullet proof shield here, the chances are some percentage of loss will happen no matter what you do. For me the best risk mitigation strategy in this case has always been transparency and honesty – when you can afford it. I do my best to personally deliver the message to every member of the team or alternatively setup a process which ensures consistent and accurate delivery of the message.
  • Loss of team spirit / internal unease. Mutual trust even in small teams has some level below 100%. Even a perfectly delivered message will be taken with a grain of salt and generate negativity. So only medicine here is reinforcement of the message – positive reassurance is like food – you can not get enough for life time in one seating.
  • Decrease in team’s productivity / commitment. Loss of key personnel / technology and business knowledge loss. Loss of team spirit / internal unease even if managed well is likely to result in tangible losses. You need to plan for them in advance of introducing the idea into your organization. Do you have sufficient redundancy in your organization to deal with inevitable loss of key personnel? Are your schedules have sufficient padding to cover for loss of productivity? Are your knowledge transfer / retention devices in place? If answer to any of these and similar questions is ‘No” you need to deal with closing the gap first and searching for vendor after that.

On a personal front the risks are substantial as well. What would championing an offshore initiative would do to your career? What’s your organization’s risk tolerance? What is its failure tolerance? How would the failures of the vendor affect your position in the organization? And so on – there are countless questions to ask here.

But even more important set of questions is around lifestyle impact. Are you prepared to shift work hours? Are you ready to deal with the never ending stress? What is your own failure tolerance?

I remember welcoming Paul Lake (an outstanding account manager for a prominent IT outsourcing company)  to a role of AM on an offshore engagement.  While no stranger to IT outsourcing he had never dealt with offshore side of the house.  “That’s the end of the life as you know it…” - I told Paul – “You will now need to learn how to start every call with “I am sorry, I have to apologize…” I wish I was at least somewhat wrong…

September 23, 2008 Posted by Nick Krym | Making Offshore Decision, Offshore Vendor Selection | , , | 1 Comment

Idiot Savant

It’s been almost two years since the story below shook up my organization yet it’s still quite fresh in my memory. This story stands out as rude reminder of how complex IP protection is and how many traps you need to consider. Even though the story is a bit old I still changed the names of the participants to protect the innocent…

Ravindra Gupta a senior java architect from a well respected local high-end consulting firm ThinkBig impressed us the first time we met him. He seemed to be exactly the person we’d been looking for a long time. With little hesitation we assigned him a challenging task in a user management and administration (UMA) space. He flew in our SF location and spent a couple weeks going through the analysis of the issue, discussions with our staff and me.

I consider UMA tasks some of the most challenging and was happy to have a very impressive guy deal with them. We spent days educating Ravi on functional aspects of the UMA, its issues, technical challenges, and numerous tricks and traps. I was very impressed with Ravi grasp and progress with it. After a few weeks in the office Ravi took off to work from home at the East Cost.

The year end frenzy took my mind of UMA and Ravi’s work. Ravi’s brief status reports and scant communications did not bother me much especially considering that he was apparently making good progress and we were expecting detailed technical review session right after the holidays. Unfortunately though the meeting never not took place, instead one of the first emails of ’07 was one from Ravi:

From: Ravindra S. Gupta [mailto:rgupta@thinkbigconsulting.com]
Sent: Saturday, January 06, 2007 1:33 PM
To: Nick Krym
Subject: U.M. Design Copyright

Hello Nick,

In the chaos of the holidays, I was fortunate to find some time to myself. This yielded an insight: I have to stop selling my copyright for the price of a copy. “R.S.G. Consulting” was therefore founded (finally) on 1/1/2007.

Consequently, the existing contract (made with ThinkBig) is no longer acceptable, and I want to proceed forward under the following general agreement:

I own the copyright to all parts and whole of the generic Access Control System (RACS) that I am creating. Medem does not pay for the development of RACS, but may buy a very favorably priced license. However, it is under no obligation to do so.

To demonstrate suitability-of-use, I will configure the RACS to support up to five (5) use-cases chosen by Medem, at no cost to Medem.

Should Medem then buy a license (still no obligation), it may buy my professional services to fully or partially configure the RACS for use with the new Medem system. All work done towards this task will belong to Medem (i.e. will bear Medem’s copyright), with exception of any modifications made to the RACS (which will bear my copyright). However, Medem may instead choose to have its own developers or other consultants configure the RACS.

The attached document describes the Pricing model, Availability, etc.

The design that’s taking shape is beautiful in its simplicity and power of expression. It will more than accommodate Medem’s needs for years to come.

Please feel free to contact me at any time.

Sincerely,

Ravi
R.S.G. Consulting

I red the email and picked up phone calling Mike, CEO of ThinkBig.

A month later, after the dust settled, legal bills were paid and separation agreement signed Mike and I were seeping coffee at our favorite spot at Montgomery and Bush. Mike was going in rounds about the fact that someone he’d been working for over ten years would do anything like that. In my mind there was just one answer, an expression that I had recently learned: “Idiot Savant”

September 8, 2008 Posted by Nick Krym | Making Offshore Decision | | No Comments

Cost-reduction expectations

Establishing high cost-reduction expectations is one of the most serious traps a technology leader can get him/herself into. If the only reason you are going offshore is cost savings – my best advice would be – stop right there! If you are very good at utilizing offshore you may realize 30% savings on somewhat sizable initiatives, and you still will need a lot of luck. That’s aside even if you do understand the paradigm of cost savings you still have to establish appropriate expectations with your execs / peers / team. Failure to establish correct expectations results in insufficient budgets, often in a collapse of the entire outsourcing initiative with a serious ripple effect.

I receive emails from one of Beyondsoft (China) sales execs on a pretty much monthly basis. While his tenacity is commendable his message is totally ludicrous, here is one of his emails:

Dear Nick,

I know your schedule is very tight, but I really hope we have an opportunity to share our ideas on how to help you decrease cost by 300% in next 12 months.

I thought that’s a good opportunity coz you are in Beijing now, and our meeting would make you more impressive.

Looking forward to your early reply.

Best regards,

George Tong

300% wow! where do I sign!? Think about your execs who are continuously spammed with such messages. Direct mail, articles, whitepapers, case studies and so on conveniently delivered to your boss’s ear scream about potential saving from offshore. Setting appropriate expectation on your part will be a balancing act of delivering a bad news without sounding like a sandbagger. Here is a presentation approach I found somewhat successful in setting my audience’s expectations at a reasonable level.

Start with debunking the Myth of Cost Savings

  • What vendors are telling us
  • Couple genuine offshore horror stories
  • Rates vs. True Cost of Outsourcing

Change audience focus to specific challenges / reasons for outsourcing, e.g.

  • Time to market
  • Access to specific resource type
  • Refocusing internal resources

Setup SMART (specific measurable actionable result-oriented and time-bound) goals for outsourcing, e.g.

  • Move 100% maintenance of product X to Worksoft team by 5/15/210
  • Deliver 50 functional points by ZenSar’s team by 9/20/2009

Another pointer – my recommendation is to setup an expectation that there are NO cost savings and work in terms of alternative delivery benefits rather than cost. For example:

  • The project Odessa requires 5 FTE for 10 months.
  • While we do have a budget for it we do not have the resources.
  • Finding skilled developers and QA engineers is likely to take us over 3 months and we will need to train them for about 2 months.
  • To save the ramp up time we are going to us MindTree team.
  • The budget allows us enough resources to deliver the project under 12 months.

There is another trap here – what if the team you recommended can not deliver on time? Well, that’s not at all inconceivable, yet easier to control and deal with.

August 28, 2008 Posted by Nick Krym | Making Offshore Decision | , , | 1 Comment