Path toward Disposable Outsourcing: S/W Development

There are many very important aspects of SDLC related to s/w development activities which should be implemented whether you outsource or not. Some of them are essential to DOM. Your intermediary whether internal or external must verify that these steps are taken and not just as a checkmark on a  SDLC compliance list, they have to be made consistently and to a degree that satisfies the intent.

The first is the code standards. Of course following language naming conventions goes without saying; there are a few more standards that have to be diligently followed:

  • All names are in English (classes, variables, methods, etc.) ALL
  • Sufficient level of comments, of course in proper grammatically correct English. Developers must understand that they are not required to write essays; they just have to get comments to unambiguous level.
  • Same applies to headers, check in notes, etc.

Next is the documentation. Creating the documentation that could be used to learn about the code and its intent, that doesn’t lose concurrency and go stale, and that doesn’t cost you an arm and a leg is not a trivial exercise. As a matter of fact a detailed design / technical design documentation is one of the most controversial topics in s/w development methodology. In a large degree the documentation’s level of detail depends on the SDLC model employed. In particular the level of documentation details digresses considerably with level of agility of the process. That is often exacerbated by a low level of maturity of organizations electing agile methodology. I do not want to get too deep into this topic at this point, just want to point out several mandatory elements:

  • High level functional and technical design documentation.
  • Functional and technical design documentation at detail level, specific artifacts depend on SDLC methodology, type of the project, rate of change and many other organization specifics.
  • Comments in the code written in a standard way that allow JavaDoc or similar tools to generate meaningful documentation is one of the most important steps. Same goes for DB schema.

A couple relevant notes here:

  • Waterfall style processes with their high degree of details in documentation, staged delivery and isolated hand-offs work naturally with DOM, in particular when the vendor offers a higher level of CMMI maturity.
  • Agile methodologies work exceptionally well DOM unless they are taken superficially. That becomes particular clear in attitude towards documentation. It’s amazing how many times I heard things like “we run agile development process, so we do not do the documentation”, never from anyone who understands agile though.
  • In order to define an appropriate level of documentation for your process you need continuously evaluate value of documentation for the process and for execution on DOM vs. the cost of producing and supporting it.

Next, in no particular order some of great development practices that have been proven to work under broad range of models from clean room waterfall to XP:

  • Unit Test written before the code, at best taken all the way to Test Driven Development. Take a look at www.testdriven.com a site with a lot of good references by Eric Vautier and David Vydra.
  • Continues Integration. There is a plenty of info on CI and supporting tools. In CI builds I strongly recommend include smoke tests, subset of unit test suite, and a number of management reports. CI scope is typically different for check-in runs and nightly builds.
  • Code Review. Somewhat controversial technique which might backfire if not performed properly; I would strongly recommend using tools to facilitate code reviews, in particular I suggest crucible.
  • Frequent progress reviews with live demos; I recommend at least bi-weekly.
  • Collective Code Ownership (CCO). There is however a plenty of controversy associated with this practice, in particular accountability. I see huge value in eliminating blind spots which CCO offers and recommend introducing “feature” or “area” lead. Under that model CCO still is taken to full extent when it comes to work unit allocation and yet there is a single point of contact for each “area”.

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.

Outsourcing L10N, G11N and i18n

Just read an interesting article somewhat related to offshore on China success stories; while widely promotional and hardly unbiased that site offers great insight which could prove invaluable to those planning to outsource to China. The article Mind The Gap – Localization in China is about localization (L10N using common development lingo) and in particular soft and political aspects of it. “Localization is the process of adapting software for a specific region or language by adding locate-specific components and translating text, and it is further revised and expressed as “A process of planning and implementing products and services so that they can be adapted to specific local languages and cultures”. Yes, L10N means both linguistic accuracy and cultural fitness, the latter is even more important.

I believe that localization, in particular in web world, is one of the areas which could be easily outsourced. It is also one of the rare areas in s/w development which is almost always better off to be outsourced. However, far not anyone who claims to have experience in localization makes a good partner. There are multiple aspects of localization which require skills, knowledge and expertise besides just knowing language and culture.

Some things are fairly obvious – your localization partner need to understand technology and its impact on multiple dimensions of localization. Some are less obvious, for example, consider simple fact – Russian words take approximately twice as much characters than English, that will have it’s impact on the size of the labels and inevitably on screen layout, which ripples into serious impact on usability.

If you are new to L10N, G11N and i18n or even if you dealt with it to some degree you may find the presentation put by good friend and long time colleague Doug Kunz quite interesting…

Outsourcing Trends for ‘09

As I mentioned earlier in ‘08 – the Year of Predictions it’s difficult to not to yield the temptation of making predictions. First, in the uncertainty of today’s economy almost every one is looking for those; second, all of us with strong opinions on the outsourcing have some predictions at least in our minds; and third, personally I am very curious whether I can get any close to what ’09 will eventually show…

Being new to the fortune telling market I have been considering cold reading techniques, the art of creative vagueness, and audacity of stating the obvious. Those all seem like winning strategies and after some considerations I decided to use them all and present my predictions in a form of Outsourcing Trends for ’09, so here we go:

1. India will remain the leading outsourcing destination. How about that? Well, let me add at least something meaningful to this “discovery”. When it comes to India I expect:

  • a notable decrease in the rate of growth, I’d say mid teens to low twenties;
  • minor decrease in a market share;
  • consolidation with many casualties in the low end of the market;
  • improvements in quality of resources and general metrics of the services such as turnover ratio for top providers;
  • we will see a few megadeals mostly from the top tier vendors.

2. China will continue to straggle to grow its IT outsourcing offering:

  • there won’t be substantial growth in IT outsourcing, the figures at best reaching high single digits;
  • there will be some reshuffle of the top tier with some of the current leaders substantially giving up their position; my bet on the biggest loser is Freeborders;
  • the outsourcing for Japan will grow stronger, US business will grow at a lower rate.

3. Russia, Ukraine and Byelorussia will continue loosing their edge:

  • there won’t be any considerable growth in IT outsourcing, the figures will be in low single digits;
  • there will be no reshuffle of the top / second tier; a few of the current leaders will be responsible for the most of the growth figures; companies below second tier won’t show growth and many cease to exist; the big guys will get bigger and stronger, my bets are on Luxoft and ePAM.
  • the outsourcing for Europe will be responsible for majority of the growth, US business will grow at a very low rate.

4. Brazil, Argentina, Mexico will show some positive signs:

  • the growth figures in IT outsourcing will be in a mid to high teens;
  • formation of tier one will create a few prominent names with some companies really pushing for leadership position, in Argentina my bets are on Globant;
  • emerging leaders in LA market will build ODC in smaller or less developed in terms of outsourcing countries;

5. Supply of IT resources will increase across the world:

  • there won’t be any considerable growth in IT outsourcing in gross volume sense, the figures will be in low to mid single digits;
  • the new outsourcing players such as Egypt, Morocco, Nigeria won’t make any ripples or bring anything substantial to the market just a few 100K of additional resources that will play in the low end of the market;
  • while overall number of IT resources will go up, the rate of growth will go down, with less interest in the IT arena across the world;

6. IT outsourcing volume from US, UK, Germany, Japan, and other large IT consumers will grow at very low pace:

  • there won’t be any considerable growth in IT outsourcing in gross volume sense, the figures will be in low to mid single digits;
  • there will be however increase in percentage of work outsourced across the industry;
  • geographical pie chart won’t change dramatically yet it will show more aggressive outsourcing to new destinations and nearshore.

7. ’09 will be a buyer’s market:

  • Closing new deals, renewing existing and retain current customers will become increasingly more challenging; companies that do not invest in “farmers” and solid account management will pay for that dearly.
  • The price wars and cost pressure will affect everyone; boutique shops with typical sales pitch “we do not compete on price” or “we are not the most inexpensive but we have excellent people” will need to adjust their message or get ready to face dwindling revenue stream.
  • Vendors catering to small companies need to be ready for a wild ride, especially in the first couple quarters of ’09 – many contracts will broken, payments delayed, AR will grow and cash flow degenerate; even “good clients” will develop hearing problems and it will take much longer for US mail to deliver checks.

8. Rates on average will fall slightly or stay the same:

  • the disparity in rates among offshore destinations will narrow: rates from Asia will grow while Latin America and Eastern Europe rates will fall;
  • the average ratio of US “full time” rate to Offshore rate will slide notably;
  • the gap between freelance rates across the world will continue to narrow.

9. One of the most interesting trends with some tangible events will come from top tier vendors going outside of their native land:

  • The trend will be led by Indian outsourcers building ODCs in Asia (other than India) and Latin America. I would expect top destinations being China, Philippines, Brazil, Chile, and Mexico in no particular order.
  • There will be some moves in opposite direction, e.g. China companies opening centers in India. The volume of those would be rather small.
  • We’ll see some promising cross country hiring, in particular in sales and executive roles; this activities are likely for many vendors even outside of top echelon.

10. Engagement structure, contracting approaches and model usage will generally remain the same with a few emerging trends:

  • We will see more large corporations with substantial offshore engagements buying those engagements from the vendors. Some companies will execute of their BOT strategy, some will approach vendors with “offers they can’t refuse”, some, especially smaller companies won’t be too generous and would cut the relationships without giving much warning.
  • The new contracts will become more complex and will aim for accounting for currency exchange volatility, political instability, changes in standards of living, etc.
  • We will see more usage of Disposable Outsourcing Model mainly driven by readers of this blog.

Well, that is a lot of trends, and some are neither sufficiently vague nor 100% obvious. We’ll see how well the world of outsourcing performs on a challenging task of meeting my expectations. The trick is of course will be in measuring the performance versus my objectives… Some of the stats should be available in late ’09 / early ’10, some would be very difficult to find, I guess I will run some polls or try other bullet proof methods of gathering BI…

’08 – the Year of Predictions

End of year is usually also the busiest time of the year… unless it’s 2008. Moving deals across the finish line, inking contracts, pushing code into production to meet contractual obligations and milestones, writing employee performance reviews … there are fewer of those this year. Well, many of us are still extremely busy, it’s what we are busy with is a bit different. Some update their resumes, some dive head first into networking, some pull out dusty crystal balls to become fortunetellers. I would say this year could be called the year of predictions, at least it feels like everyone either making those or looking for them, even though we all know the value of predictions we just can’t yield the temptation. And it’s no surprise that when I am looking in my immediate neighborhood in the blogosphere I see some great posts in one or another way linked to predictions:

Phil Fersht offers an interesting high level forecast of trends in his Horses outsourcing predictions for 2009 with some interesting thoughts with very clear messages – Survival of the fittest. Let’s not beat around the bush here… we’re in for a very tough economy, budgets are being cut across the board and companies won’t be increasing their spending on IT and business operations.

James Wheeler in his The Dao of Outsourcing tells about how Chinese software services revenue predictions fall short.  Here is just one of his observations – ‘02 Gartner prediction of the software services revenues for 2006 from China with 0.6 probability – $27.1 billion, reality – $12 billion…

Dean Stevens does something completely unusual – ranking his last year predictions. He got 46 out of 100 which he is not impressed with “Not so good, hunh? I both underestimated the severity of the global slowdown, and overestimated the progress that Chinese vendors would make this year. Sigh…” Well, as far as I am concerned that’s amazing considering the rollercoaster we’ve seen.

Jamie Liddell offers a great sentiment on value of predictions in his The Perils of PrognosticationWho could have foreseen only a year ago that by the turn of 2009 we would be living in a world where the US president-elect was an African-American with the middle name “Hussein”; where several western governments – including that bastion of economic liberalism, the United States – had effectively nationalised major financial institutions; where oil prices would stand at the end of the year at effectively one-third of what they were halfway through it; and where Oprah had finally turned her back on dieting for good?

Well, whether it’s a right thing to do or not I guess I will jump on the bandwagon of predictions and do my best as well, in a separate post though.   And I will be happy if I can get close to 50% by the end of ’09.

Steps towards Disposable Outsourcing

If you imagine a graph representing extended cost of outsourcing (cost that includes your out-of-pocket expenses and the internal cost associate with enabling outsourcing) over time you will see substantial spikes in the beginning and end of the relationship. Minimizing or eliminating these spikes is one of the goals of DOM, the first spike of course can not be avoided. The cost could be minimized or eliminated for the first spike on consequent engagements. There other benefits of the model related to quality of work, impact of staff turnover, and so on. DOM can be applied to many engagement models and by all means worth efforts you put in getting to it. Below are some of the best practices that help immensely in building outsourcing relationships in DOM manner.

General. These are some of the best practices which apply to outsourcing engagement independently of the content of the engagement, technology, and scope.

  • Multisourcing. The term is typically used when multiple vendors are used across engagements. The first, most important benefit of multisourcing comes from “the best tool for the job” model. A particular vendor can offer great services in .NET development while another company has expertise in localization, and another in security monitoring. In terms of DOM I recommend taking multisourcing to another level, specifically using multiple vendors for the same task, of course if the size of engagement allows. For example QA team of 20 people can be easily outsourced to two vendors.
  • Cross-sourcing. I have to admit – there is no such term and I can use some ideas on how to name the following best practice. The idea is to use different vendors on different stages of SDLC, for example development is done by one vendor and QA by another. The objectives here go beyond “the best tool for the job” model aiming for vendors keeping each other honest.
  • DOM Planning. You need to develop your plan for execution of DOM, in particular for engagement termination and switching vendors. Even very large initiatives and comprehensive long term engagements sometimes have to undergo drastic changes. The level of planning and complexity of organization that supports it depends on the size of the outsourcing initiative.
  • Testing. I mean testing the DOM itself, verifying whether your outsourcing partner is indeed disposable. It’s impossible to overestimate the importance of testing DOM. Compare it to a Disaster Recovery planning. You may have a great plan, offsite storage of backup tapes, backup generators, etc. and yet if you never tested the process when disaster strikes that will be a disaster. The generators won’t start, the backup tapes won’t restore, etc. An example of efficient testing could be using two teams on the same engagement (see multisourcing above) and switching the teams. And that can happen to anyone.  See Satyam banned from offshoring work with World Bank, and consider what World Bank had to go through.

There inherit inefficiency in each of these practices. This inefficiency is of the same nature as inefficiency of Disaster Recovery Planning. Why would someone invest in second data center, backups, etc.? Sorry for one of those “blindly dumb questions”. Just consider the expense and impact on the business a large outsourcing initiative gone sour could cause.

Methodology. There are many best practices that apply to the methodology and/or the process of product / service development which also contributes to building DOM. Using software development lifecycle (SDLC) as an example I would like to point out just a few:

  • Project Management Office and many PMBOK style project management techniques
  • Pragmatic approach to documentation – producing just enough of it
  • Templates and style guidelines across all development artifacts, e.g. naming conventions
  • Automated Build & Deploy, Continues Integration and QA Automation
  • Many techniques from agile methodologies such as Test Driven Development
  • Comprehensive for SDLC management such as requirements management tools
  • Wiki, MS Sharepoint, and other project collaboration and knowledge management tools

This list in a large degree falls out of the scope of this blog as it relates more to building solid sustainable software development process independently from outsourcing. I will cover some of the most important elements of it in a separate post(s).

Infrastructure. Similar to the methodology above there are many best practices that apply to creating efficient infrastructure for supporting outsourced activities that also cater well to DOM. And similar to the list above it in a large degree falls out of the scope of this blog. I will cover some of the most important elements of building outsourcing infrastructure in a separate post(s).

Disposable Outsourcing: Caveat Emptor

As any other outsourcing model Disposable Outsourcing has its pros and cons and there are a few caveats worth discussing. Probably the most important one is a role of intermediary.

First, intermediary is not mandatory it is one of the best practices. There are a few tangible benefits that middleman offers here, the most important being isolation: Establishing working relationship with each vendor is a unique process, take for example MSA, the likelihood is it will be dramatically different from one vendor to another, and even if you use your own template the chances are you would have to negotiate on different clauses. There are plenty of other activities such as setting up environment, associate interviewing / screening, security, etc. that would require a significant investment. Using intermediary shields you from many of those. Isn’t it very similar to using some of well-known design patterns (adapter, façade)?

Another important reason for having the intermediary is a conflict of interests: It is unreasonable to expect that a vendor would make itself dispensable, as a matter of fact most of outsourcing companies are known for being extremely skilled in making themselves indispensable. Intermediary specifically charged with a task of enabling DOM has a responsibility and vested interest in making it happened.

There are more reasons I’ll mention just one more– intermediary is critical in supporting you through the offshore enablement and transition. These activities even with help of the third party are very challenging. In many cases that support alone justifies using a third party.

Now back to the caveat: Finding a good intermediary is absolutely critical for making DOM work and it is not at all easy. There are a few big names in the industry which play this role, in particular IBM that offers resources from smaller companies all over the world via its outsourcing wing. In a large degree it appears to be the best possible combination, unfortunately it comes with IBM price tag, as well as with many liabilities of a large company. Finding a properly sized, reliable and competent intermediary is the most significant challenge of the model.

In case you can not find a good intermediary the best approach is to build the intermediary team in-house. That could be less expensive than using 3rd party. The main challenge would be finding people with appropriate skill set, experience and knowledge. Another challenge would be setting up the group in a way that it has the authority and flexibility to do the right thing.

Another caveat of the model is a very significant challenge of creating the processes and procedures that would enable DOM. That is especially serious challenge for small to mid-sized companies and companies with low maturity of the processes in CMMI or ISO sense. I will cover the main dimensions and steps of what it mean “get it right” in a separate post. To some degree the intermediary can be a great help in this process yet still the bulk of the load falls on the customer.

One more important caveat or should I say trap associated with DOM is complacency. As I mentioned running DOM creates positive energy, has many benefits, and gets vendor to perform better. So inevitably you see the vendor as a solid partner, not someone who ever needs to be replaced… and the model starts to deteriorate: cutting corners gets more aggressive, little issues accumulate (entropy always increases), and before you know you are tethered to the vendor and eventually at their mercy. The disposability is gone along with its benefits and the only thing you have left is a higher cost of the resources that you could have got in the first place. Again, to some degree the intermediary can be a great help in preventing this from happening yet still the bulk of the load falls on you.

oDesk: Freelancing Destinations

Very interesting statistics made available by oDesk, a freelancing marketplace that now tops 150,000 individuals worldwide in over 100 countries. Freelancing geography as seen from oDesk perspective appears quite different from what we see in trends on geography of regular IT outsourcing, for example US freelancers offer strong competition and reasonable costs. The list of top freelancer countries also includes Canada, Russia and Ukraine rather than China and Brazil.

CANADA
Total Number of Providers: 3,581
Average Hourly Rate Charge: $19.60
Average Feedback Score: 4.32 (out of 5.00)

INDIA
Total Number of Providers: 27,454
Average Hourly Rate Charge: $12.52
Average Feedback Score: 4.01 (out of 5.00)

PAKISTAN
Total Number of Providers: 5,960
Average Hourly Rate Charge: $11.13
Average Feedback Score: 4.36 (out of 5.00)

PHILIPPINES
Total Number of Providers: 17,213
Average Hourly Rate Charge: $6.33
Average Feedback Score: 4.30 (out of 5.00)

RUSSIA
Total Number of Providers: 2,721
Average Hourly Rate Charge: $16.86
Average Feedback Score: 4.31 (out of 5.00)

UKRAINE
Total Number of Providers: 2,929
Average Hourly Rate Charge: $15.96
Average Feedback Score: 4.36 (out of 5.00)

USA
Total Number of Providers: 52,637
Average Hourly Rate Charge: $18.32
Average Feedback Score: 4.40 (out of 5.00)

Still looking for ’09 Predictions?

Well, what could be a clearer confirmation of outsourcing trends than a mega deal signed just before the end of the year? Infosys just signed a multi-million dollar, five-year outsourcing deal with pharmaceutical giant AstraZeneca. A brief article in InformationAge says “The deal will be seen as both an endorsement of the Indian IT industry’s viability in a downturn and a confirmation of the UK IT sector’s worst fears. The deal forms part of an operational transformation initiative that will begin in the UK, and that will see the Indian IT outsourcer provide application management services for many of AstraZeneca’s key business departments.” Well said “UK IT sector’s worst fears”… Outsourcing is here to stay; it will continue increase its market share and compete with domestic IT providers exacerbating the problems brought in onto IT sector by the economic downturn.

Mumbai Sad Nomination

An interesting and very important aspect of selecting an outsourcing destination is the location safety.  And it is quite different from what it used to be just a few years ago.  The recent terror in Mumbai brought a lot of attention to the subject and put Mumbai in the top ten riskiest places.    Here is a how the list looks today:

The Most Dangerous Ten

1. Jerusalem (Israel)
2. Mumbai (India)
3. Rio de Janeiro/ Sao Paulo (Brazil)
4. Manila/Cebu/Makati (Philippines)
5. Delhi/ Noida/ Gurgaon (India)
6. Kingston (Jamaica)
7. Kuala Lumpur (Malaysia)
8. Johannesburg (South Africa)
9. Bangkok (Thailand)
10. Bogota (Colombia)

The Safest Ten

1. Singapore
2. Dublin (Ireland)
3. Santiago (Chile)
4. Krakow/Warsaw (Poland)
5. Toronto (Canada)
6. Prague/Brno (Czech Republic)
7. Budapest (Hungary)
8. Monterrey (Mexico)
9. Beijing (China)
10. Cairo (Egypt)

See more in Mumbai named second most dangerous outsourcing location by Matthew Scott

1 out 4 IT jobs moving offshore

Large companies are accelerating their use of offshore outsourcing, and as many as a quarter of IT jobs at Global 1,000 firms may be moved offshore by 2010, according to The Hackett Group, a Miami-based consulting firm whose clients include many multinational corporations.  See  Survey: One in four IT jobs moving offshore from www.computerworld.com And the chances are they are correct. Increase if offshoring combined with unemployment rate highest in 26 years paints a very scary picture. What does it mean for IT professional in this country? Does it really mean “R.I.P. Good Times”? Probably not, it just means that times have changed and it’s time to change. First and most important it to recognize that offshore outsourcing is here to stay, as long as there is substantial difference between compensation rates for IT skills around the world there will be compelling reasons to move the jobs top the regions with lower rates.

Of course with world getting flat one day that place could be closer to you home than you have thought… A good friend of mine just came back from her trip to Hong Kong / Beijing / Shanghai. While she was deeply impressed with all new constructions and Olympic architecture she was really astonished with price raise across the board. Cost of living in cities such as Moscow, Kiev or St. Petersburg is astounding. Real estate prices in Bangalore challenge many US cities. A few months ago while walking on Rambla in Barcelona I just had to take a picture of great deal on flip-flops – and that’s before the dollar surged against Euro (so the discounted price below is ~$270).

prices

Take another look at the price above and think about Spain which according to Gartenr is one of top 30 outsourcing destinations… The changes in prices are dramatic and they are just a reflection of changing standards of living, of changing and reshaping a distribution of wealth. Changes in cost of living inevitably find their way in offshore rates and eventually in IT execs minds.  And that means profound changes in the IT Outsourcing landscape.

Gartner’s Top 30

Selecting offshore destination just got easier – Gartner has its new list now. While I am often skeptical about info you can get from Gartner reports, in particular in its application to small to medium sized businesses, I believe in its value as long as it’s taken with a grain of salt. “Determining the country or countries that are best placed to host offshore IT operations is a daunting task for many organizations, according to Gartner, Inc. This year, Gartner has assessed the suitability of 72 countries as offshore locations, and has announced its ‘Top 30’*. The analysis showed that the dynamic nature of the market has seen a number of countries position themselves as credible alternatives to the BRIC countries (Brazil, Russia, India and China)…

In 2008, Gartner’s top 30 locations for offshore services, by region, were:

  • Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Panama
  • Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Thailand and Vietnam
  • Europe, the Middle East and Africa (EMEA): the Czech Republic, Egypt, Hungary, Ireland, Israel, Morocco, Poland, Romania, Russia, Slovakia, South Africa, Spain and Ukraine

Although only seven countries from the Americas appeared in the final list of 30, these countries are becoming an attractive proposition for the largest buying market for offshore services – the US.

See more on Gartner Identifies Top 30 Countries for Offshore Services in 2008.
Also see good insight in NetworkWorld reaction By John Ribeiro India’s competitors catching up as outsourcing hotspots.

Disposable Outsourcing

The objective of Disposable Outsourcing Model (DOM… and it has nothing to do with XML) is minimizing risks associated with outsourced elements of the engagement. The idea is quite simple: design the engagement model in a way that the offshore partner could be quickly replaced, say in a matter of weeks, without significant impact to the engagement. Plug and play so to say.

That is of course is easier said than done. However every step towards DOM is a step towards reducing risk. DOM positioning also promotes much smoother execution of the contract, cleaner transition between phases, uneventful termination, etc. In a large degree having a DOM mind set pushes you to do a lot of things right and that positively affects your projects far beyond outsourcing components. Since the initial introduction to the concept I have been perfecting my DOM approach and finding its multiple benefits along the way.

Anyway, let me start with an example of DOM implementation in my company: About two years ago I decided to build a small QA team on DOM basis. I started with defining the objective of the project and parameters of what DOM would mean. In a few words my position was following:

  • I am open to outsource ~10 FTE in QA field under Classic Augmentation model.
  • I do not care where the services are coming from. As a matter of fact I am not particular interested in specifics of the companies that would provide the services.
  • I do care about the quality of individual contributors and quality of service they provide.
  • In case I dislike someone I want him/her to be taken of the project immediately. In case offshore team fails to deliver the quality of service I want them to be replaced in a very short time.
  • I have clear understanding of rates that I am prepared to pay for these services; and I am not about to consider any early termination penalties / etc.

The list of my “wants” (just a bit longer than the list above) did not seem ridiculous – I was not planning on getting rid of anyone just because of mood swings. However, realistically speaking, there were not too many companies in the world that would accept it. So the approach was to use an intermediate party that would take the contract, would not be invested in specific resources and could shield me from all the issues I did not want to deal with. Finding such a partner turned out to be not a complex task. A few months later I negotiated and signed a contract with a company which would act as an intermediary between my team and offshore provider(s). My partner would take on the risks / liabilities of maintaining the relationship, dealing with sourcing and termination, etc.

A few weeks later I was interviewing teams in China, India, Vietnam, Uruguay, etc. A few weeks later I settled a team. And we moved on.

At this point the main challenge was building a process of making offshore team dispensable. Of course I was not planning to get rid of the team, I just had to be prepared to it and be able to execute it well. That turned out to be a fairly involved exercise as we had to make sure that everything we do with the team to get them enabled / ramped up on our product is documented. Of course we made producing the documentation an integral part of the process itself and tasked the offshore team with it. We did the same with developing test plans, all SOPs, etc. The mindset “what if this partner is no longer here tomorrow?” was pushing us to do things right. My partner’s oversight and governance was an additional enforcement mechanism – basically keeping my team and the offshore provider honest. My partner was deeply vested in getting it right as the cost of the transition would go straight out of their pocket.

Shortly after start of our initial QA DOM exercise we kicked off another team working on development project under Project-based Augmentation model.

We first realized the benefits of the approach when facing inevitable turnover and “hiring mistakes”. It was surprising how quickly we were able to add new members to the team to replace losses or poor performers.

Our biggest pay off came in when we had to replace one of the offshore teams, it was by all means a non-event. Well, far not everything went right, but comparing to my previous experiences, the difference was dramatic.

While two of our offshore teams were operating under DOM paradigm we had another two teams involved in multiple aspects of our SDLC working under similar augmentation models without DOM ingredient. That gave me some limited material for the comparison / analysis of the approach. Here are a few interesting observations characterizing our DOM experience:

  • Offshore vendor was constantly on their toes; that is of course a double-edge sword; our assessment that it was much more positive than negative.
  • The communications in general were better with the team working under DOM model. The number of project conflicts and issues to be resolved between onsite and offshore teams was substantially lower under DOM model.
  • DOM mindset turned out to be contagious in a good sense; attention to documenting the processes and appreciation of its value went up across the team including parts of the organization that had little to do with outsourcing.
  • DOM notably increased our overhead in the initial stage of the project (comparing to a regular outsourcing model); the overhead went substantially down after ~3 months. Comparing that to a regular project I would say that overhead was lower under DOM over long time.
  • Attitude toward our DOM team was substantially better than towards the team operating under regular Classic Augmentation. In particular there was substantially less apprehension towards offshore team members from the onsite employees, and I would say higher sense of security.
  • Interestingly enough we found that the offshore team overtime started seeing some benefits of the DOM and did not particular perceived it as making them disposable; to some degree it came down to doing things right.

There were a few things that fall in category of cons of the DOM. Here are the most significant:

  • Very significant increase of the overhead during initialization of the project.
  • Cost of the resources / rates are higher given other things being equal.
  • Working with / through intermediary could be a real pain in the neck.

I would say the success and value of benefits that could be realized from the DOM model depends in a very high degree on the intermediary. Finding a good company to play that role is not a trivial exercise. There are a few other challenges worth discussing on the DOM and that deserves a stand alone post…

Selecting Outsourcing Engagement Model

Model selection in terms of Outsourcing Engagement Models is not a trivial process and your choice depends on large number of factors such as nature of the outsourced activities, organizational maturity, budget, risk tolerance, and so on. Below are some simple guidelines that you may consider when making the selection. See also earlier post Offshore Model Selection: T&M vs. Fixed Bid for relevant info.

Resource Augmentation / Classic Augmentation / Extended Team.

  • One of the easiest ways to start with offshore outsourcing.
  • Scales well both up and down (adding or taking resources off the project).
  • Works well for poorly defined projects and activities.
  • Requires high management overhead.
  • Tends to be costly especially for not well defined activities.
  • Doesn’t leverage vendor’s processes / structure / quality.

Project-based Augmentation / Task-based Augmentation.

  • Good transitional model, in particular applies well for large number smaller projects.
  • Scales up and down reasonably well.
  • Offers good control of the scope and budget
  • Offers less control over the resource productivity.
  • Requires fairly high management overhead.
  • Requires high maturity of the vendor processes and structure.

Project Outsourcing / Full (Activity) Outsourcing.

  • Good model for well defined projects with clear scope and deliverables.
  • Requires minimum management overhead.
  • Well control budget (assuming well defined project and low scope creep).
  • Very dangerous model for large (scope / duration) projects.
  • Very high risk due to low control of productivity and performance of the resources.
  • Requires exceptional maturity of both customer and the vendor.

Offshore Development Center (ODC) / Captive ODC / Captive Teams.

  • Could very cost effective in terms of total cost of outsourcing.
  • Offers ultimate control of the resources.
  • Allows using cohesive processes across organization.
  • Very high management overhead.
  • Very high internal resource / cost impact.
  • Requires customer to perform many operations in offshore location.

Hybrid Model.

  • Inherits pluses and minuses of the underlying models.
  • Some minuses could be addressed by combining model.
  • The pluses of the underlying models become weaker.

Build – Operate – Transfer (BOT).

  • Inherits pluses and minuses of the underlying models.
  • Introduces wide spectrum of new challenges, as both vendor and the customer need to operate well in three distinct different phases with completely different models.
  • Requires exceptional maturity of both vendor and the customer.

Disposable Outsourcing.

  • As I mentioned in my earlier post the model falls out from the list above since it’s more like an overall approach toward outsourcing rather than just a way to structure the engagement.
  • The model could be applied on a top of different models.
  • Minimizes risk associated with outsourcing.
  • Is more expensive than underlying models.
  • Offers add-on value in many aspects of the project, e.g. reducing impact of turnover

Outsourcing Engagement Models

There are more various engagement models than it is worth listing here; some models are just naming differences invented for “market differentiation” or slight insignificant variations. In general modeling the engagement depends primarily on project delivery model, ownership of the resources, and services provided by the vendor organization on the top of the services provided by individual associates / individual contributors. This post covers the most common models using most common terminology:

Resource Augmentation / Classic Augmentation / Extended Team. Under this model the vendor supplies individual contributors who work as a part of the team on T&M basis. These resources can work onsite or offshore and typically have double reporting structure – they would report into customer organization as well into their own org structure. The vendor organization typically provides services that include HR, MIS and miscellaneous admin support. Resources maybe organized in structure groups / teams. At some point the scale of outsourcing demands more comprehensive resource management, in these cases the vendor provides project / program management and other work structure related services.

Project-based Augmentation / Task-based Augmentation. Under this model vendor supplies individual contributors who work a specific project or a task order. The work is still performed on T&M basis with addition of some elements of Fixed Bid model. In particular the vendor typically forms the team with a structure most appropriate for the project, provides program management and quality support, engages process improvement and other services that harness company resources outside of the immediate team. That additional support is typically “free” meaning that its cost is included in the team rate. The vendor is also produces upfront estimates of the work and adjusts the estimates through limited scope control process. Typically the actual cost of the project should fall in 20% range of the initial estimates with exception of the scope creep.

Project Outsourcing / Full (Activity) Outsourcing. Under this model vendor delivers a specific project or takes on a specific activity. For example it could be a turn-key delivery of the system, full scope of activities for technical support, etc. The project outsourcing typically is done on a Fixed Bid basis, activities outsourcing could be done on FB or T&M basis. Under that model the vendor takes on full responsibility for the delivery and correspondingly has the freedom to form and operate the team based on their own processes and approaches. This model can extend to full technology outsourcing and beyond.

Offshore Development Center (ODC) / Captive ODC / Captive Teams. There are multiple permutations of this model with main commonality being the ownership of the resources. In ultimate scenario the vendor provides very narrow HR, MIS and Admin services to support offshore team which for all intents and purposes works for the customer. In that case the vendor charges “management fee” based on the cost of the services, rent, utilities, etc. This model while possibly the least expensive one puts much higher burden of resource management and utilization on the customer.

Hybrid Model. As the name implies the hybrid model is a combination of models above. One of the most common implementations of the model is used for large scale initiative that start with research / analysis / estimating phase performed under one model and then continue in single or multiple streams of projects using potentially different model. For example a project can start with estimating engagement on T&B basis that produces an estimate and a project plan for the next phase which is delivered on Fixed Bid basis with scope creep handled on T&M basis.

Build – Operate – Transfer (BOT). BOT is a transitional model. It can start as any of the previous models and after a specific period of time the entire team and supporting assets are transferred to the customer. The transfer could be full scope transfer under which vendor ceases to play any role in the engagement or partial, for example transfer to Captive ODC model. The logic behind the BOT model is clear: the offshore partner can initiate operations and reach operating stability much faster than in case it is done by the customer.

Disposable Outsourcing. That is not a common term; as a matter of fact I might be the only one using it. And the model itself falls out from the list above since it’s more like an overall approach toward outsourcing rather than just a way to structure the engagement. It is however very relevant and important. The objective is clear and simple – I want to be able easily and quickly terminate a contract with my vendor and find another in case I am not happy with the vendor performance. Disposable Outsourcing is a way to structure the engagement that it could be possible, and of course it’s not at all as easy as changing cell phone carrier, there is a lot to be done to get there. I will put a separate post(s) on that topic.

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.