Start-up Outsources to China ‘For the Best Brains’ to Implement ITO 2.0 | Article

unityHarnessing the collective intelligence of people has the potential to change everything. Today, teams numbering in the thousands are creating encyclopedias, jetliners, operating systems, mutual funds, and many other items. Perhaps the best example is the rise of Wikipedia, which harnessed the collective intelligence of people around the world to produce a reference that rivals the Encyclopedia Britannica.

What if companies applied the same principles to the world of work? What if every business could leverage the collective intelligence of its employees, partners, suppliers, and customers to build better products and deliver better service? It’s exactly this vision that motivated Michael Rocha and Timothy Chou to found Openwater Networks.

Openwater has built a social network for work, something it calls a service network, to connect the islands of experts and expertise. Openwater Networks partnered with Augmentum because it shared the same vision of using a service network to change the way they work together, which Frank Yu, president and COO of Augmentum, and Timothy call “IT Outsourcing 2.0.” The result: “Together we were able to build innovative software that would have cost us 10 times more money and 10 times more time if we had done it under ITO 1.0,” says Chou.

From 1.0 to 2.0

All thee men had a lot of experience with the first generation of outsourcing. In fact, Rocha started Oracle’s India operations. (Oracle was one of the first major software companies to locate operations in India.) Chou says ITO 1.0 “was largely a move to low-cost labor countries. Cheap labor was the central tenet.”

But ITO 2.0 is not about sending work to the cheapest guy, in Chou’s view. Instead, “it’s about moving the work to where the best brains are.”

As any good software company does, Openwater used its service network to build the service network software. That network today consists of developers in London, Romania, Olathe (Kansas), San Francisco, and Shanghai.

How ITO 2.0 works

Chou explains why ITO 2.0 fit Openwater’s needs best. “If you outsource to someone who is cheaper but not as smart as you, you have to spend a great deal of time managing them. You look over everything down to the tiniest detail.” He maintains companies opting for the ITO 1.0 method “lose their economic advantage” because it requires so much management time.

That’s not true if you hire someone smarter than you. “You let them flourish on their own,” he says.

He uses the analogy of hiring an executive chef. Instead of having to tell him how to cook, you just have to tell him “you want a chicken dish that’s sweet and spicy. Then let him work.”

Chou says this method accomplishes three things: partners can show their expertise, there is no duplication of work, and innovation can flourish where “in the past it was our way or no way.” He doesn’t consider these new methods revolutionary. “It’s just that we’ve never done it to this degree before,” he says.

Rather than spending months writing a long requirements document, the partners sat down with everybody in one room and explained the fundamental design of the system. Then “we turned them loose and allowed them to work within this high-level design. Hiring a master chef changed the dynamics,” says Chou.

Why Openwater selected Augmentum

Openwater saw only one choice: Augmentum, a company started in 2003 by Dr. Leonard Liu, a venerated person in the software development world who was responsible for the creation and implementation of SQL while at IBM. “We knew Leonard by reputation. We knew he would hire smart guys,” says Chou. Adds Frank Yuof Augmentum, “From the beginning we only hired the best talent we could find in the United States and China.”

Yu says Augmentum was different than most offshore service providers because it specialized in complex development work from day one. That’s why Openwater felt “it would be much easier for Augmentum employees to go down the ITO 2.0 path than anyone else.” The two partners “took the best talent in both places to create strong teams ready to build complex software,” he adds.

Working with Chinese developers is not a problem for Openwater. Language is a non-issue. “Leonard insists everyone begins speaking English when they walk in the door,” says Chou. He also points out that “software development has its own language.”

Time zones were a benefit, not a challenge. “We get a 24-hour day,” says Chou.

Communication works because a lot of it is face-to-face. Chou says service networks move away from e-mail because “context is often lost.” So Openwater leadership goes to China every three months. “We dine. We drink. We socialize and we work,” he says. Augmentum also routinely sends its developers to San Francisco to work at the Openwater offices.

Why China?

Yu calls himself “an India” person. He started two captives in India beginning in the 1990s. Then he moved to China and started captives there. “Today, China is a viable alternative to India,” he observes. He predicts, “Eventually China will be a better opportunity” because of scale. “You can go anywhere in the world if you just need 20 really smart people. China has the ability to produce tens of thousands of really smart people,” he explains.

Another advantage to Chinese suppliers: Buyers who want to enter China’s growing domestic marketplace use offshoring as their initial point of entry. “Companies want to increase their customer footprint in this large, emerging market,” Yu points out. He adds Augmentum, which has offices in Shanghai and Beijing, has Chinese buyers as well as U.S. household names like EMC, Intel, Motorola, and Microsoft.

Yu adds that the upcoming summer Olympics “will generate a huge investment in IT.” He calls it “a mini Y2K,” the defining historical event that helped launch ITO 1.0 in India. He predicts the Olympics will generate “billions of dollars in IT investment.”

And then there’s ITO 2.0. “We’ve made tremendous inroads into ITO 2.0,” says Yu. “It’s no longer just about cheap labor.”

Lessons from the Outsourcing Journal:

  • ITO 1.0 was about moving to low-cost-labor countries. ITO 2.0 is about harnessing the collective intelligence of the best people and using the network to connect people and relevant information.
  • The Chinese Olympics will generate billions of dollars in IT investment; Frank Yu of Augmentum labels it a “mini Y2K,” which will help China-based outsourcing suppliers.
  • China will become a major outsourcing player because it can generate a large number of talented people. Also, companies that want to tap into the emerging marketplace can start by working with a China-based provider.

1 Comment on "Start-up Outsources to China ‘For the Best Brains’ to Implement ITO 2.0 | Article"

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  1. It is great to see someone writing about China instead of constantly reading about India, which has the highest level of attrition and rate increases, which appears to be swept under the rug.

    As many of our clients are telling us, India is becoming less and less relevant when it comes to access to brian power and quality work.

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