Inside Outsourcing In India

Outsourcing to India can provide a huge payback -- if you're willing to work at it. Two offshore veterans share their hard-earned lessons to help you determine if Indian outsourcing is right for your company.

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"The benefit is that people assigned to the project feel more attuned to the company, so turnover rates are lower," says McCaffrey of Software Outsourcing Research. "And those vendor personnel are acquiring long-term knowledge about your systems, so you have a more productive worker."

Wood and four of his employees spent six months analyzing the business case, creating a proposal for CIO Ron Beaver, who approved the transition. "We went through the kind of phases a lot of companies go through in outsourcing to India," explains Beaver, who performed Wood’s role for five years before taking over as CIO. "You don’t wake up one day, fire everyone and send it all to India. You have to get comfortable with it, find the right partners and evolve in a way that makes sense for your business."

Wood then conducted the vendor bidding and selection process. Much like UTC did at a higher level, he defined Otis’s goals in outsourcing, reestablished reasons to go to India rather than other countries, and conducted Otis-specific research on the vendors. The only thing Wood didn’t have to do was negotiate price; Doucette had taken care of that. In the end, Otis stayed with Wipro, doing $3 million worth of work a year with the Indian company.

The Make-or-Break Transition Phase

Then the real work began.

As is the case with almost all offshore work, the most critical phase is the transition. "The first big issue was knowledge transfer. We were sitting on a large inventory of applications built by a variety of vendors," Wood says. He and the project leader from Wipro spent a month creating a transition plan. "The transition period requires bringing a few people who will eventually be working offshore onsite to go through the application, get an understanding of it and create the documentation that’s required," Wood says. Offshore developers were paired with someone at Otis who knew the application or with someone from the vendor who created the application. "Creating transition documentation is critical to the vendor getting off to a good start as quickly as possible," says McCaffrey. Otis created an overarching transition plan that included writing standard technical documentation outlining such things as file-naming standards, and hardware and software environments; creating a high-level project plan; identifying the best onshore and offshore managers; and providing opportunities for knowledge transfer such as job shadowing.

The transition stage also requires close collaboration with the vendor’s project leader who works onshore throughout the course of the relationship. The onsite project leader is basically a go-between, making sure the work done at Otis in terms of project requirements and specs translates into the right coding or maintenance work in India. Doucette says the project leader is the most important person in the Indian outsourcing proposition. "The mistake we made initially at Otis was trying to have our own employees communicate with the offshore workers in order to save as much money as possible," Doucette recalls. "We found we needed a strong business analyst from the offshore company working onshore as an intermediary."

Once few and far between, competent business analysts and project leaders are no longer in short supply in India, Doucette says. But that doesn’t mean Doucette and his reports rest easy. "We are ruthless on the people who come in," he says, recalling the time at Otis when he sent the vendor’s proposed project leader, who was a database administrator lacking business analysis and project management skills, back to Bangalore after just four hours.

Meanwhile, in Bangalore, Wipro was setting up the Otis shop so that employees had a development environment to plug into when they got back. The transition took four months -- January to April 2002 -- and Otis work was at a steady state by June.

In addition to being the most critical stage, the transition period is also the most costly because of high rates for offshore workers onsite and the set-up costs. Otis spent $420,000 on the transition and didn’t recoup that investment and start saving money for a year. Today, with 75 percent of the 20-person offshore team working in India and 25 percent working at Otis, Wood says the company is saving $1.4 million a year on application development and maintenance, a nice complement to the annual $7 million it has been saving by using its own captive development center of 70 employees in Pune.

The Importance of Process

If you want to know how important Wood thinks application development and maintenance processes are to working well in India, all you have to do is listen. In the course of an hourlong discussion of offshore outsourcing, Wood uses the word process 48 times, sometimes up to four times in one sentence. "You cannot underestimate the importance of structuring and defining your processes, putting tools in place to measure the performance of those processes, and having processes in place to improve those processes," he says. Sounds simple, yet complicated. Which, Wood found out, it is.

Indian companies have spent years honing rigorous development methodologies, and many are certified Level Five, the highest level of Carnegie Mellon University’s Capability Maturity Model (CMM). That means they’ve moved ad hoc, chaotic software processes (Level One -- where the average U.S. company is) to mature, disciplined software processes that allow for continual improvement in quality. But the CMM level of your Indian vendor means nothing if it is not complementing similarly rigorous processes in-house. "The vendor can only operate, at the most, two levels higher than the customer," Meta Group’s Davison explains. "If you continue to run at a Level One, the vendor will have to put more people onsite to compensate for your inadequacies, and they’ll spend all of your savings."

Wood didn’t begin investing in defining and implementing those all-important processes until the end of the transition phase, which was much too late. "It should have been the first thing we had done," Wood explains. "We should have had the basic processes well-thought-out, documented and understood by everyone before the team went offshore." If Otis’s offshore development center was larger -- say, 200 people rather than 20 -- that mistake would have been fatal; cost savings and quality would have been sacrificed completely, Wood says.

Also vital to a viable Indian outsourcing relationship is having robust quality assurance processes. "When you’re outsourcing to India, you need the rigor in your QA organization to be tenfold over what it was before to make sure what gets built is what was agreed upon," Beaver says. That’s something that’s still being developed after the fact at Otis, according to Beaver, largely because skilled QA employees are tough to find.

Continuing to invest in the Indian outsourcing relationship on an ongoing basis in order to catch mistakes and improve processes is key. As it is, Wood is automating many of the new processes as well as the metrics to monitor them using software that captures and analyzes data such as cycle times and defects. "It’s one thing to have good processes in place, but if you don’t have another process to constantly monitor and improve those processes, they will be out of date in a month," Wood says.

Even with the maturity of the Indian market, understanding the continuing high cost of ongoing management is important. "It costs a lot to keep a relationship alive and functioning properly, and that’s the biggest challenge CIOs face right now," Davison says. "You do have to expect to pay some money going forward, usually 5 percent to 7 percent, just to keep it functional."

Think Global, Act Global

Wood adds that investing in the process of Indian outsourcing "will make it that much easier to implement this model around the world." And that’s one of the goals at Otis -- to get more of the company’s locations in 200 countries and territories worldwide to benefit from Indian outsourcing. Doucette also hopes to use the initial offshore work done at Otis and Pratt & Whitney to get its other subsidiaries to India where appropriate.

UTC and its subsidiaries are exploring the possibility of sending other work to India, including call center operations and nonstrategic engineering work. After all, the only way to increase the company’s Indian savings -- barring a highly unlikely drop in labor prices there -- is to send more work there. Check back in a few years. They’ll probably have some stories to tell.

In the meantime, Beaver has some advice for other would-be outsourcers to India: "If you’re not already doing it, find a project and just get started. It’s inevitable."

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Copyright © 2003 IDG Communications, Inc.

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