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.

Mumbai terrorist attacks

Never during my visits to Mumbai I had a chance to stay in Taj Mahal; it was always booked solid. I am sure I won’t be staying in that symbol of luxury any time soon. As a matter of fact, I am not sure it will be as high in demand as it was for some time now. Terror atrocities are not new to India, as but till now they were mainly off the radar for many of US execs. Last couple days will change the landscape for a long time. As a matter of fact for many IT execs of my generation the word “Kashmir” has stronger association with Led Zeppelin than with ongoing unrest and terror. Of course there will be changes in hotel security and city security altogether, there will be strong government actions, and so on. Of course people will eventually forget victims and the horror inflicted on the city by well organized militias, yet traveling to Mumbai won’t be the same for a long time. The difference with emotional impact of slams and extreme destitution you see on the way from airport to a beautiful downtown and physical clear and present danger is huge. Today National Outsourcing Association (NoA) tells us not to travel to India unless we have to or at least think twice even though Nasscom said the country’s software and services companies remain fully operational. Tomorrow safety of your resources stationed in India or your business travel might become an ongoing concern. I have seen companies bow out of outsourcing engagements on less violent news.

IT Outsourcing ’09 Predictions

Hip hip hooray, the crystal ball is unveiled, and early predictions for offhshoring are out – IT Offshore Outsourcing: Early Predictions for 2009. Looks like there will be more business coming to the offshore vendors despite all the economic turmoil. I bet the jury is still out, as a matter of fact, the survey of 230 CIOs must have taken some time to process and summarize. The figures we are seeing today (DOW at 7500) are based on the data which probably goes back at least a few months (when DOW was let’s say at 12000).

My predictions are on a negative side, nowadays more than before, I expect notable deflation of offshoring business that will hit hard small suppliers in particular. I am sure we’ll see a wave of unpaid invoices, team buy-backs, and price wars.

Finding local employees may become easier as well, and that’s has been one of strong offshore drivers. Especially considering that things are getting quite gloom  and doom even in the IT employment heaven: California’s unemployment rate jumped to 8.2 percent in October, the highest rate in 14 years, just as a state fund that pays unemployment benefits was about to run out of money…

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.

Offshore Interviews: Personality Aspect

There are several common misconceptions about interviewing for “personality” with the offshore resources:

  • It’s irrelevant. These are not employees I am hiring, why would I care about their personality?
  • It’s the same as with local resources: what’s good for the home team is good for the offshore.
  • I let my gut decide or I am good at reading people and I do not need any help here.

Let me start with debunking those myths:

The first one is the easiest. Of course it’s relevant; just think about how much damage a QA engineer without attention to details can do, or how much “value” a Project Manager with no appreciation for authority and processes would bring to a project.

Why isn’t it the same in that case? In some aspects it is, for example for your staff QA engineer you would be interested in someone who has great attention to details, eye for imperfections, appreciates structure and processes, doesn’t mind repetitive work, etc. All these personality traits would be great assets for your offshore QA engineer as well. The difference comes with dynamics of the employment arrangement.

Generally you can not count on keeping offshore resources on your project over two years, after that they are likely to move on; as a matter of fact for the purposes of personality casting you would be looking for just one year in offshore case; hopefully you have a better longevity with local resources, let’s say 3 years. Over that period of time some personality traits will play a role that are not as important when it comes to one year. For example you are looking at résumé of someone who changed his job once a year; that might be a showstopper for staff position but could OK for offshore resources. What about their ambitions, desire to learn new technologies, track record of continuing education, etc. Many aspects of personality become irrelevant when you are looking for offshore resources or turn to opposite.

Another important aspect of personality interviews is the team diversity. I am not talking about race, religion, etc. instead it’s a diversity of the team. I believe in diversity of personality and when building local teams I prefer to have a well balanced but diverse team. For example you need people with “big picture” view as well as “detail” view; you need process fanatics and “break all the rules” mentality. When properly cast and well balanced diverse teams perform much better than homogeneous organizations. Of course casting is a key here, e.g. you do not need a social butterfly to work nightshift processing firewall logs. When it comes to offshore team diversity could mean unnecessary complexity and unpredictability.

One more important consideration in that regard is the fact that careers of offshore resources are not in your hands. In that light again many aspects of personality become irrelevant when you are looking for offshore resources or turn to opposite.

Now, on “I let my gut decide” topic. That’s a common approach to personality interviewing not only in offshore but for staff position all across the industry. I know that some managers are just darn good at reading people and even they make mistakes. I consider myself above average in that skill, mainly because I invested great deal of effort and education in it, and yet I make mistakes, sometimes serious ones. If your gut (intuition) can pinpoint attention to details, ability to strive under pressure, appreciation for processes, impeccable integrity… or an another side dishonesty, habitual irresponsibility, lack of work ethics… well, you probably are working as FBI profiler or psychic reader :) Intuition is important and you should listen to it, no doubts about it. You just should not rely on it or just only on it when selecting members of the team, especially when working remotely, over a phone, and across the cultural differences.

Now, a really hard question: how to define personality match while interviewing offshore developers? Personality interviews are tough to begin with, offshore exacerbate the complexity of the task. The approach I typically use includes several steps:

  • Simplify an ideal personality profile. For example for Black Box Tester I’d be looking only for several personality traits absence of which would be a show stopper: attention to detail, ability to handle stress, and respect for the structure / process.
  • Communicate the desired profile to my vendor with a hope that the screening catches at least obvious mismatch cases.
  • Prepare a few open-ended questions that cater to discovery of those specific traits. For example, “Based on your prior experience please describe a situation when you ability to handle stress helped deliver on engagement objectives”.
  • Take the answers for the face value. If the candidate can fake the answer hopefully they can fake the personality trait till the time the move on to a different project.
  • I usually have a few questions ready but do not necessary ask them all. Sometimes the candidate would fail a few ones just because those are unusual questions, not something they have been condition to hear. But if they can’t learn the drill after I’ve asked them a few questions, it’s not the person I’m interest in hiring anyway.

Interviewing Offshore Resources

The first set of interviews is typically performed during vendor selection stage. The goal of this interview process is not to pick members for the team; instead it is to form your opinion of the vendor capability to build a team. I typically use a speed-dating style interviewing with individual interviews limited to 20 minutes covering ~20 people a day. It is important to have at least two people involved in the interview process working together, one of the main reason for that is a continues feedback and support they can provide to each other to stay on the top of the process and increase quality of discovery.

During this speed-interviewing marathon I am not particular interested in individual performance of the team members. I do make a note of people I really like, in case if the vendor is selected these people would make good prospects for the team.

In order to prepare for the interview and perform it with decent productivity you need to go through the following steps:

  • Define make up of the group you’d like to interview and communicate it to the vendor. For example:

5 Project Managers
5 Tech Leads
5 Business Analysts
10 Java Developers
5 QA Leads
5 QA Black Box Testers
5 QA Automation Engineers

For each of the position you would need to outline rough requirement s, for example Tech Lead may mean 7+ years in SW Development, 5+ years in Java, 5+ years in managing a team for 5+, etc. That list should keep you busy for a couple of days.

  • Communicate to the vendor interview process, goals and objectives
  • Create list of questions for each position. There are a plenty of websites offering tech interview questions and answers. I recommend creating cheat sheets with Q & A and printing them for the interview sessions.
  • Keep track of interview progress with a simple spreadsheet. Below is an example of table. I use 1 – 10 rating.
  • Name / Skill Role Exp, Yrs PM Lead QA BB QA A SQL Oracle MS SQL Java Hbrn Spring J2EE
    Ravi Krishnamurthy TL 8/6 6 7 8 6 8 9 5 0 6
    Srini Randhawa JD 8/6 6 3 5 5 0 0 3
    Lala Caitul QAL 5 8 8 10 6
    Rajiv Shah QA 3 6 4
  • Sharing the results with me vendor is a good idea, especially if the vendor is one of the winners of the race. Chances are that would be a humbling experience for the vendor.

When it comes to interviewing people for specific roles on the team during team ramp up or when replacing the team members speed-dating style is not going to produce the results you are looking for. You will need more close and personal interviewing style with substantially higher investment on both sides.
For each of the positions you will need a position description, very similar to the one you would use for captive resources, consider the following sections for the document:

  • Position challenges & rewards
  • Typical Duties and Responsibilities
  • Required Skills, Experience and Background
  • Desired Skills, Experience and Background
  • Desired Personal Qualities

The document should cater to several audiences: internal, vendor and potentially the candidate. The better is the document the higher the chances of finding the right match; share as much of the details with the vendor as you can possibly gather at the point of recruitment.

Next step involves securing and organizing Interview Squad – the team that will be involved in the process of resource selection. Make sure to clearly define roles and responsibilities of the team members, communicate job requirements, outline the process, and agree on techniques.

Prepare interview questions and tests. Your materials will save you from waste of time so often common for ad hoc interviewing and will keep your team focused and productive. The questions / tests should cover the following objectives:

  • Validate Skills
  • Discover Talents
  • Validate Experience
  • Asses Personality
  • Asses Abilities

During interview you will need to accomplish three basic tasks: gather information, provide information and radiate good will. It’s a common misconception that last two items apply only to full time / captive resources. In reality they are possibly even more important in offshore scenario as resources come from the same pool. If you fall short on radiating good will it is likely to backfire in later stage of the project, a mistake I made a few times and paid for dearly.

In every interview I typically highlight three components whether these are internal or external / offshore interviews:

  • Set the Stage

o Courtesy questions / break the ice
o Introduce the process / agenda
o Establish expectations
o Sale on the company
o Sale on the position

  • Perform

o Questions & Answers
o Tests
o Discussions

  • Clean Up / Closure

o Discussion / Q & A
o Sale reinforcement
o Next steps / expectations

Questions, test and interviewing techniques are similar to those you’d use in a regular interviewing process; I won’t go in details on those here. There are a few factors that you need to keep in mind while performing the interview / evaluating results related to the offshore nature of the resources:

  • Your candidates have two masters to please. That affects everything in the way they present themselves from speech patterns to content of the answers.
  • Time differences / lack of clarity / procedural hurdles will work against the candidate as well.
  • Remote nature of the interview work against both parties.

So the likelihood is the candidate won’t do their best and you need to account for it when evaluating results. You also should consider mitigating risk of incorrect assessment by some simple steps:

  • Go there and interview your candidates face to face; if that’s cost prohibitive consider solid conferencing tools, at least webcam on both sides.
  • Invest diligently in the interviewing process and ensure that your vendor buys into it.
  • Make sure that the vendor does good job in sourcing the candidates and communicating the job requirements as well as promoting the good will.
  • Make sure that vendor representatives are involved in the interview process and not only at administrative level. As you select team members get them involved in following interviewing activities.
  • After each interview run a quick retrospective concentrating on process and candidate quality improvement.

Of course this is just a superficial overview of the subject. Interviewing in general is a very complex task, requires lifetime learning, and is one of the most important factors in managing successful offshore engagements. The good part about it is we get a plenty of chances to learn it.

IT outsourcing is exaggerated

Just red IT offshoring is exaggerated and the IT labor shortage is real by Jason Hiner, a very interesting perspective that should both appease local IT professionals and offshore providers: “…new evidence shows that the IT offshoring trend is greatly exaggerated. The Society of Information Management’s 2008 IT Trends Survey shows that IT leaders are planning to increase offshore outsourcing in 2009, after two straight years of declines. Nevertheless, even with the increase, offshore outsourcing only represents five percent of projected 2009 budgets, and CIOs say they are still having trouble finding enough domestic IT workers with the right mix of skills to fill the open positions that they are keeping at home.” The article of course spawned a bunch of negative comments as any realistic, positive or pragmatic view on offshore would. I find it very insightful and very much in line with my observations of the market.

This discussion is bound to continue for a while, here is another interesting article / reaction to Hiner’s article: Offshore Threat to IT Jobs: Overblown or on the Money?

Offshore Interviews: Basics

There are plenty of books, articles and various materials on the Net pertaining to technical interviewing. There are several substantial differences that need to be accounted for when dealing with offshore resources. The first one is a mindset.

Many people who outsource large scope IT initiatives outsource interviewing as well. They see sourcing (finding, interviewing, negotiating, etc.) activities as responsibility of vendor. In addition many vendors not only prefer but insist on keeping that activity internal to the vendor.

Depending on the scope of outsourcing initiative and your own bandwidth you my elect outsource the sourcing completely or to some degree. In my opinion that is the area where you need to stay involved. Quality of the resources is one of the highest risks for offshore outsourcing, and one of the factors that affects total cost of outsourcing at a very high degree. You should only outsource it if you believe that the vendor can do a very good job in sourcing, and how can you get there? – only by interviewing their resources. So interviewing is unavoidable, at least during the vendor selection process.

More so when you move into the first stage of engagement and your vendor puts together a team, how can you control the process and ensure that the team has quality resources? Amid of engagement when inevitable turnover kicks in how can you control that the quality of the resources is not going down? The uninspected deteriorates. [Dwight David Eisenhower] Only by getting involved in the interviewing.

I believe in the following interviewing schema:

  • Vendor selection stage. Interview a fair sampling of resources that are “softly” committed to the engagement. The size of the sampling depends on the size of the engagement and your bandwidth. The goal of this interview process is not to pick members for the team, it is to form your opinion of the vendor capability to build a team.
  • Kick off / Team Building stage. Interview all/subset of the team for the engagement. The scope of the interview depends on the size of the team and your bandwidth. For small teams, say under 20 people, “all” is the goal. For mid sized and large teams the leaders of the team and other key members must be interviewed. A fair sampling of the rest of the team must be interviewed as well.
  • On-going engagement. Interview replacements for all key team members. Do a spot-check interview for new members.

And for now just a few tips on interviewing process:

  • During Vendor Selection stage I typically use speed-dating style interviewing with individual interviews limited to 30 minutes covering ~20 people a day. It is important to have at least two people involved in the interview process working together, one of the main reason for that is a continues feedback and support they can provide to each other to stay on the top of the process and increase quality of discovery.
  • Interviews during the Kick off / Team Building stage and ongoing engagement should be substantially more involved, especially for the key members. That typically means multiple people involved in the interview on your side, several dimension of interviewing, e.g. technical, personality fit, etc. The investment in the interview process has a very high return, however it still need to be weighed against the contract terms and the scope of engagement.
  • The investment in interviewing process should be proportional to the expected value of the resources, e.g. technical lead for the project vs. black box tester. The process of selecting key members of the team deserves as much vigor and attention as if you are selecting full time employees. On a typical s/w development engagement the key members of the team include project manager, tech lead, QA lead, business analysts, and some senior engineering contributors.

The process of a full scale interview is similar to one for fulltime employees. It is easier to some degree as many non-technical issues, e.g. salary, do not need to be covered. It has its own challenges though, for example obvious issues of remote interviewing. I will cover interviewing in a separate post.

CIO.com Perspective on Offshore Risk Management

A very good article on CIO.com – Offshore Outsourcing: A Risk Management Perspective. It offers a high level perspective on risks of offshore outsourcing with specific look into several dimensions –

  • Geopolitical
  • Cultural
  • Contractual
  • Operations
  • Compliance
  • Business Continuity

The article also gives some high level approach to risk mitigation. These risks as well as methods of dealing with those are most relevant to large outsourcing contracts and companies but should be considered even by small companies which in some cases could slide in between the items of that caliber.

Perpetual Search vs. Status Quo

Any even a semi-decent offshore provider will tell you that they are in it for a long run. That they are not interested in “drive by” project and want to build lasting mutually beneficial relationship. That they know that you have options in the market place and they will do the best never to give you a reason to look for these options… but is it ever a “happy ever after”?

Mr. Buyer, should you ever look back and consider other options in the market place after you found a provider, went through the ordeal of ramping up the engagement and finally started getting the value from the vendor? Chances are you should.

Ms. Provider, be aware – no matter how good your services are there are stronger / better / cheaper vendors out there and their sales force is talking with your customers. Better is the enemy of good. Voltaire. There are plenty of examples when large outsourcing contracts migrate from one provider to another. That’s true for every industry, not only outsourcing.

From the buyer’s perspective there are several main reasons to search for outsourcing options outside of the current provider:

  • If the provider is failing in some major way – one does not need any other reasons. As a matter of fact there are practically no reasons to stay with that provider.
  • If the provider is doing well in all aspects of the engagement and there is absolutely nothing wrong with them… Brush up on Murphy’s laws: the chances are you are missing something. I am being serious, in my 15+ years of experience in offshore I have never seen a situation where there were “absolutely” no problems with my suppliers. And if you know a vendor that can do it please send them my way!
  • If the provider is doing generally well in most aspects of the engagement and just causing you a few minor pains – you still should. However, before I cover some of the reasons I have to mention a few very important caveats:
  • Nobody is perfect. Switching vendors may resolve the issues you are having with your current provider, it will open a whole set of new ones.
  • Search for the suppliers is a cost of its own.
  • Thee cost associated with switching providers is potentially fairly high. It must be considered in what if analysis for the switch.

Now just a few reasons for considering options even though your current situation is almost perfect:

  • Keeping the vendor on their toes. Not just for the shier pleasure of it. It’s all about raising the bar and driving towards higher productivity, stronger value add, better customer service, etc.
  • Planning for the worst case scenario or just being ready for typical issues such as key employee loss.
  • Being aware of market value of the services and thus keeping the price you pay for the service in line with the market.

There is also more to be said about multisourcing (using multiple suppliers), applying “the best tools for the job” model and cross validation techniques, as well as many other related techniques that could help buyers to dramatically increase value they receive from outsourcing partner.

Pros & Cons of Outsourcing to Latin America

Latin America offers one of the best options for nearshore outsourcing for the USA and Canada. It also offers great resources for Spanish localization projects getting increasing important in the states. Latin America offers a large spectrum of options roughly corresponding to the countries in the region covering almost entire alphabet from Argentina to Venezuela. Each country has its own specifics and its own set of Pros and Cons; the differences between countries could be dramatic, compare for example political climate in Mexico and Venezuela. There are still enough commonalities to considering covering of Pros and Cons for the entire region.

Infrastructure. The quality of infrastructure varies greatly from country to country but it’s quickly catching up to the required standards across the region. In countries leading of LA outsourcing – Argentina, Brazil and Mexico the infrastructure is likely to meet or even exceed your expectations, but even in countries far behind the quality is still acceptable. I was surprised how solid the infrastructure was in Chile or some cities in Bolivia. One thing is extremely important – the high quality infrastructure could be found mainly and sometime only in industrial areas of these countries. It is not at all as pervasive as it is in the USA. You must validate infrastructure sufficiency before moving forward with the vendor. The simplest way to do it at superficial level is to request a video interview over Skype.

Operating Environment. Flying to Sao Pao and getting to your vendors’ HQ is Campinas takes a while but small time difference makes it much easier to deal with than while travel to China or India. Working in many of the LA countries would not be extremely complex, challenging or dangerous. You have to know where to go and where not to but chances are you will be safe and can get your job done. Chances are your vendor operates from some of the country’s most industrially advanced area with decent standards of living and acceptable infrastructure. Of course language and cultural differences can create some challenges typically easily dealt with considering general hospitality of the region and with a little help from the vendor. All that ease falls of the cliff as you step out beyond the borders of the industrial areas. Destitution of the rural areas for most of LA countries is truly disturbing; my honest advice – leave these areas to National Geographic and Peace Core…

Skills Availability. Skill availability for high tech occupations depends on specific country / city. In general it could be characterized as medium to low. Generally you can build a small team of Java or .NET developers in somewhat reasonable timeframe, but size of the talent pool is microscopic when compared with India and China. The quality of the pool helps to some degree make up for its size, but only to some degree. In my experience putting together an 8 member team of high quality Java developers / QA engineers took over 4 months. I have to say that my quality requirements were very high and I was looking for somewhat unusual set of specifics. When you are after more run of the mill skill set you probably would have easier time. Legacy technology skills and enterprise applications skills are even less common.

English Skills. Not as good as you’d expect… and why would you even expect? I worked with many countries in the region and in each of them I met engineers who spoke English better than I, but in general you have to be prepared for language barriers or for substantially impaired hiring if you make fluent language skills a mandatory requirement. Written communications appear to be in better shape across the board; however, they still cause a drop in productivity for many of the team members.

Cultural Compatibility. I find cultural differences with LA workforce some of the easiest to bridge. That could be me personally as there are a plenty of differences to be notes. A few most important areas that I have observed while working on technology projects:

  • Developers on LA teams took very long time before they could to offer their opinion or disagree with USA team members.
  • Facts and technical quality of solutions carried less weight with LA team when it came to conflict with personnel influence. For example a less efficient solution was accepted just because it had a lot of hours invested by the team members. To appease someone / protect their feelings was enough of a motivation in making core technical decisions.
  • A very high emphasis on theory and academic values versus pragmatic business decisions.

Take a look at Cross-Cultural Communication Between Latin American and U.S. Managers for a good list of the most significant differences.

Rates. LA offers great variety of rates that depends on the country from relatively high in Argentina and Brazil to moderate in Chile, Bolivia, and Uruguay. While the rates by themselves tend to be on a high side they are fairly attractive when taken into consideration with “the entire package” that includes short / no time difference.

Resource Turnover. LA countries offer better turnover rates than many of other regions. At the same time turnover on some of my / my friends’ projects outsourced to LA showed fairly high ratio. That seemed to be related more to a specific company rather than the region.

Resource Quality / Technical Capability. Quality of resources varies greatly from a country to country, from a city to city, and specifically from a provider to provider. However, in general technical capabilities of the resources are quite impressive / above average. I was able to find people with in-depth understanding of cutting edge technologies and with proven experience of working with fairly recent methodologies in many countries across the region. There is also no shortage of resources when it comes to mainstream skills such as Java / .NET / C/C++. Legacy technology skills and enterprise applications skills are less common though.

Of course one of the most significant Pros of the region it’s nearshore advantage, mostly linked to little / no time difference. The impact of it is difficult to overestimate – small time difference, similar holiday structure and bridgeable language differences makes working with teams in LA a great experience.

IT Budgets Will Go Up Or Stay Flat For ’09

An interesting article in InformationWeek. The title is pretty bold and encouraging: IT Budgets Will Go Up Or Stay Flat For Most Companies In 2009. Looking outside from my window following the market indices I find it difficult to believe, but I certainly hope so.  It would be nice to put the gloom and doom behind.

An interesting question here; will that translates to the same in budgets for offshore outsourcing?  Most likely yes.  The outsourcing market is fairly established and correlate well with spending in IT arena.   The supply / demand balance of IT talent has not changed drastically and solid IT resources will remain one of the scarcest commodities.

On the other hand at the same time we hear that Wipro delays plan to open software center in Atlanta what is attributed to economic downturn.

So I guess we are still left to wonder what role will the recession play in offshore outsourcing? By the way, a great article on CIO.com Offshore Outsourcing: What Role Will the Recession Play?

Offshore Payment Models

Needless to say that payments and payment models are some of the most important aspects of an outsourcing contract. While these items typically well understood and relate well to similar terms in any other consulting contracts they still require extreme attention and caution especially considering caveats off the offshore outsourcing.

The payment models in offshore contracts derived from the underlying contact execution models with most popular being Time & Material and Fixed Bid, see Offshore Model Selection: T&M vs. Fixed Bid.

Time & Material model typically translates to a payment per hour model. The rates / payment approach could be defined at a coarser granularity (e.g. week or month) but the nature of the payment methodology remains the same. If the hourly rate is used the vendor submits invoices with agreed upon frequency (most typical is monthly, small vendors often ask for bi-weekly or even weekly payment schedule). The invoice or its supporting material include hours of allocation for each resource for the corresponding period, rate and totals.

There are a few elements related to that pricing model, most important being a concept of minimum allocation. Minimum allocation defines the minimum number of hours in a month that a resource supposed to be engaged independently of buyer’s induced failures in work allocation.
You need to be careful in analysis of the associated contract language as a minimum allocation could become extremely costly.

Another set of contract elements highly relevant to hourly payment schedules is similar to minimum allocation and is related to work allocation / assignments. If a developer is waiting for business requirements clarifications from the buyer and is not engaged in any meaningful activities, who is paying for his/her time? The fair approach is for the buyer to pay for this time and for the vendor to make reasonable business efforts to keep developer productively engaged on project related activities. Make sure to have corresponding language in your contract.

One of the most popular forms of coarse granularity time based models is one often referred as an FTE model; here FTE stands for a “full time equivalent”. Under that model the rate is most typically negotiated on a per month basis. There are a few issues associated with that model that basically bringing it back to the hourly model. The first question is the workload allocation for the month with most typical number being 168 hours. The next set of issues comes from dealing with overtime, handling time off, vacations, holiday, etc. All these elements need to be understood and agreed upon by both parties.

My approach to negotiating FTE contracts is typically based around following mind set – “It is my responsibility to provide you with workload of 168 hours a month, if the employee can not be allocated for that number of hours the rate must be proportionally reduced. I also expect you to do your best to keep the employee meaningfully engaged in case I hit any obstacle or experience delays.”

Fixed Bid engagement models require a different approach for invoicing / payments. For FB engagement of a project nature the most common methodology is Milestone Payments. The idea is fairly simple – the cost of the project is divided in portions that to some degree correspond to the effort for delivery of a specific milestone. If the milestones are separated by substantial time some additional, often artificial, milestone are inserted in the project schedule to accommodate for smoother cash flow. The most important item to consider when following Milestone model is the process of had-over and acceptance of the milestones. The most frequent payment issues associated failures on FB projects related to small problems that pass through accumulate and accumulate towards the final milestone.

There are multiple variations in payment models that based on one or a combination of the models above. A few are worth mentioning:

  • “Prepayment” a form of milestone payment associated with initiation of project. It is most frequently used by small vendors who can not afford the risk and expense of ramping the project up. I personally prefer to avoid prepayments. It doesn’t mean that you should exclude vendors asking for prepayment, it only means the some additional work in contract negotiation is required, for example if the resource / environment ramp up is the reason for prepayment, it could be shape as a milestone. In other cases an escrow could be considered to avoid some of the obvious risks of prepayment.
  • Time-based (e.g. monthly) installments on FB contracts. I strongly recommend against that approach. In my view it really increases inherit risks of FB model. There are some meaningful situations where monthly payment associated with FB contract; that in particular common for non-project FB engagement, e.g. provision of services under SLA.
  • “Bonuses and Penalties.” This is an interesting concept which could be productively applied in FB contracts for example for delivering before / after specific deadline. The concept must be dealt with a great caution though, it could become a wrong motivator and promote bad practices. Thus one of the mandatory conditions is for the vendor to receive a bonus all aspects of the delivery must be considered / met. Another important aspect to consider is the size of the bonus (as a percentage of the overall payment amount). If the size of the bonus is too small it stops making any difference if it’s too big it could ruin the project – just consider the situation when the vendor realizes in mid of the project that there is no way the deadline could be met and a huge penalty is inevitable.

Generating a List of Prospect Vendors

Fining an offshore provider is much more difficult than it should be considering the supply abundance. Yet the complexity starts right with the first step – generating a “long” list of prospect vendors.

The easiest and probably the least meaningful way to find providers is just publicly announce you needs, for example post a question on LinkedIn. The problem with this approach is that if you are CIO or VPE chances are you are already getting plenty of annoying cold calls from offshore suppliers. Public indication that you are searching for an offshore provider is only going to increase the spam and cold call inflow. Of course you can elect respond to the unsolicited emails and cold calls, in the end of the day most of them are produced by real companies, and quickly build a very long list of the prospect vendors. The problem with this list is that all prospects are unqualified and you have to go through very laborious process of separating good leads from gazillion of bad ones.

The next set of options comes from using public sources. Public sources in this space are far from perfect and won’t necessary fit your needs they are however worse considering:

  • Directories from outsourcing associations are not bad. They typically offer basic information on about companies in a specific geography. For example if you are looking for offshore companies with ODCs in Russia go to Russoft.com. The directory it offers is fairly up to date. The main problem with it as with other directories is that the key information relevant to vendor selection is missing or difficult to find.
  • To 100 lists such as The 2008 Global Outsourcing 100 and other similar sources are only good for finding companies such as Tata, Satyam, Accenture, etc. I personally also do not have much trust to those lists having been exposed to what it takes to become one of the companies mentioned there. However if you motto is “you can not be fired for hiring IBM” those could be the best source of prospect vendors.
  • There are a large number of companies that offer anonymous access to vendors, for example http://www.elance.com, http://www.guru.com, http://www.odesk.com. These companies typically position themselves as a middle man between supplier and provider. That might be fine for small projects but not for any sizable offshore initiative. There are a few more serious problems with these companies, one of the most serious issues being that the sites are full of low quality freelancers and fly-by-night firms digging through which is a painful experience. The vendor rating that the sites offer helps in the selection process only to some degree.

Another set of options comes from using outsourcing consultants of all types and calibers, this approach have plenty of challenges as well:

  • Gartner and other similar sources are expensive and slanted towards the needs of large / multinational corporations. They offer a great a great “corporate” insight into outsourcing world. These sources are probably most meaningful for large companies and significant scope engagements.
  • Mid-level / low level consulting firms offer fairly good advice at a decent price. However that approach’s first challenge is right on the surface – finding decent consultant organization to begin with.
  • Low-level small consulting firms or individual consultants specializing in offshore selection offer even better price performance which is more than offset with narrow view, legitimacy of sampling, and scope of penetration in the offshore market. Also with both mid-level and particular low-level consultants what is your assurance that they are not tethered / attached to a few offshore vendors that they represent on an “unbiased” basis?

An option which by my limited scope survey is used the most is professional networking. Reaching out to your professional network via email or other means is likely to generate enough prospects and offer some pre-qualification of the leads. You need to be careful not to blast your network and just reach out to colleagues with knowledge of the subject and somewhat similar interests in terms of engagement.

And the final option is working with me… A big caveat here – for me offshore consulting is more of a hobby rather than a business, so I do not do it often. I did started working on developing an offshore vendor directory which would help people with this and other vendor selection tasks, but, again, that is a project financed out of my pocket that doesn’t get much attention. I still hope to get the initial directory out by the end of the year though.

Pros & Cons of Outsourcing to Canada

Once again an interesting question asked on LinkedIn IT, this time by Vladimir Kondratenko – Pros and Cons of Outsourcing to Canada.  My recent experience with that region is rather limited so I decided to make a few calls / send a few emails and connect with my colleagues who have first hand experience in doing that.  It was a bit of challenge but I managed to find a senior technology exec who outsourced a small portion of his portfolio to an outsourcing company based in Ottawa, the information he shared with me very much confirmed my somewhat knowledge and expectations. Outsourcing to Canada is an interesting phenomena indeed and it offers its own Pros and Cons, very few Cons I have to say:

  • Political atmosphere and legal system makes working with Canada outsourcing extremely easy and far less risky than probably any other country in the world. Recently with Canadian dollar shooting 25% above average made it the least likely place for outsourcing as well. Now when the exchange rate is back inline with what it used to be Canada can offer great options to some offshore buyers in IT space.
  • Language, cultural closeness and no time zone difference with the USA are huge pros of Canada making it a superb location for outsourcing. Generally as long as you are fine with telecommuting you can’t tell the difference between working with developers in Detroit or Toronto. There are of course some cultural differences steamed mainly from significantly different social support structure. Also appreciation of life values versus business success appears stronger in Canada than in the USA. I would say that these differences are not likely to affect outsourcing engagement a great deal.
  • Taxes and other elements that constitute government support for outsourcing are mediocre at best, on the other hand employee lifestyle issues are well taken care of; think free education / healthcare / etc.
  • Education system in IT space is decent with very few top-notch schools but no match to the USA or India. Also many It professionals receive a great deal of professional education from the same sources than people in the USA.
  • IT and telecom infrastructure across the country is excellent, with prices close to those in the states.
  • Data and IP security is non issue. Well, as non issue as it is in the USA. A few Data Centers that I saw in Canada were in shipshape, SAS70 compliant, etc. Power and other infrastructure dimensions related to climate, etc. are more reliable than in many places in the USA.
  • Personnel turnover is medium to low, and if you exclude a couple cities like Toronto is actually very low. Key personnel turnover is very low.
  • Labor pool / access to engineering talent is decent, but no match to China or India by any stretch of imagination. Interesting dynamic worth mentioning for this case. General size of the pool is somewhat small however it’s much less polluted and quality / quantity balance makes it possible to staff projects in relatively short time frame.
  • Quality of the talent pool is well above average; as I mentioned above the talent pool is less polluted, more so, advanced educations system and easy access to multiple means of professional education caters to generally higher quality.
  • Of course there is price to be paid for all those great things and that is a high rate. It’s still much lower than the rate you’d pay for local resources in San Francisco or Manhattan, but is very close to what you can find some rural areas of this country. The cost are so high that exchange rate can practically kill any cost advantage and with overhead of offshore engagement make the total cost of outsourcing above cost of sourcing it locally.

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.