Gartner predicted at its ITxpo in Barcelona, Spain last March that up to 25 percent of traditional IT jobs in developed countries will relocate to emerging markets by 2010. Today, however, the press is filled with stories of companies who fail to realize the business gains they hoped to achieve by offshoring.
Doug Dickey, the President and CEO of Business Engine Corp., would like to help those companies. He's been sending up to 50% of his coding work to India since early 2000; at peak development times his offshore partner had more employees on his project than he did. Dickey has three suggestions for corporate tyros sending their applications development and maintenance (ADM) work offshore for the first time.
Some history: Business Engine Corp., a software development firm that provides software for chief financial and chief information officers to assess the performance of their groups, began offshoring its ADM work to a Mumbai outsourcing supplier for two reasons: the company needed to compress its time to market (it was really eager to get its software to market because it saw a recession coming), and it wanted to enjoy the savings made possible by labor arbitrage.
Here is his useful advice.
1. Deal with the Business Risks by Retaining Control
While companies new to offshoring are excited about the cost savings, Dickey says you can't discount the risk of assimilating work produced in two disparate places half a world away. Time zones can be tricky -- the difference between San Francisco and Mumbai is 11.5 hours. And the cultural differences are significant enough to have an impact.
"We expected the combined team could work 24/7 given the 12-hour time zone difference. We thought we could just hand work back and forth. That didn't happen. It was unrealistic on our part to think that was possible," says Dickey.
Solution: Hire a US development manager and relocate him or her to the Indian office. Business Engine's on-site manager makes all job assignments, insures accuracy, and handles quality control.
"You have to have a company manager on site who reports directly to you," says Dickey. "Our manager increased both our comfort levels and our control."
The project manager handles the hand-off calls at both the beginning and end of the workday. "Before we had an onsite manager, we spent the first 30 minutes making sure we were talking about the same things," Dickey recalls. Now, the party that is done for the day tells the party that is beginning its day what it expects the working team to get done.
2. Streamline Your Internal Processes
In the early days, rework was the rule, not the exception. "Their code failed at a phenomenal rate," routinely reaching 80%, Dickey reports. He discovered a major cause for the rework was the inability of the Indians to adhere to the coding specs.
Business Engine management then studied the process at their headquarters. If employees had a question about a spec, they would simply saunter down the hall and ask a member of the leadership team. The conversation filled in the missing pieces and allowed them to do the job right.
The Indians, of course, did not have that luxury. And when the Indians did phone home, the answers did not translate well. Dickey discovered his California employees used slang the Indians didn't understand. Once, when an Indian program failed, the American told the Indian his program "exploded, crashed, and burned." The Indian grew upset thinking his mistake actually injured company employees in San Francisco.
Solution: Create clearer design standards.
Once Business Engine made its standards crisper, the rework rate fell from 80% to between 5% and 10%. This matched the US failure rate. The new standards improved the rework rate in the United States, too, Dickey notes, as the trips down the hall became much fewer.
3. Only Deal in US Dollars
Business Engine is a small company that did not want to bear the risk of international exchange rate arbitrage.
Solution: Insist that all payments be made in US dollars.
Dollar fluctuations means the price of the services is constantly changing depending on the exchange rate. Most American businesses don't want to bear that risk, preferring to keep their costs constant. To remove that risk, Dickey has his Indian supplier bill in dollars. Likewise, Business Engine pays its supplier by depositing dollars in a US bank, where the Indian company has opened an account.