Outsourcing: No Longer a Yes-No Decision

As outsourcing and offshoring continue to mature and to seep into the very DNA of Western corporations, we need more sophisticated management models to understand this phenomenon and take full advantage of it.

Until recently, the decision to use offshore IT resources was regarded as binary. Will you or won’t you? Red or Blue? This way of thinking is outmoded: Ash Rangan, former CIO of Conexant and a veteran of offshoring thinks that a “collaborative development” model is more appropriate. “It’s no longer simply about out-tasking,” he says. “Whether your offshore team is part of your company, or part of a vendor, it is much smarter to think of a blend. You are developing a project in partnership with the offshore group and a continuum model is much better than a binary one.”

According to Rangan, the decision to outsource is no longer a short-term tactical cost saving move. It’s far more strategic and going into 2006, it’s also based on the sheer availability of talent, particularly for many newer technologies.

What does that mean in real terms? Rangan, who was at AST Research prior to Conexant, says that it is vital for the CIO to have a personal perspective on the offshore location, whether it is India, Russia or elsewhere. Some CIOs may find it odd that employees in India expect corporate transportation, meals at work and other such benefits. If they are setting up their own India office, CIOs and CFOs might question these unusual benefits. “But they are simply table stakes for being considered as a credible employer in that ecosystem”, according to Rangan. Taking it one step further, Sun Microsystems recently decided to give raises to its offshore development staff even at a time when stateside wages were frozen; offshore workers deal with their local ecosystem on a daily basis and policies imposed from afar without that personal perspective can have unintended consequences.

According to Rajiv Jain, CTO of New Products for AmericanGreetings.com, “Managing global teams is like walking on water. It’s quite easy if the requirements (like the water) are frozen. But if specifications are fluid, you can end up getting drenched and messy.” Jain previously managed global software projects at ATT Wireless (now Cingular) and has also worked at IBM, Teligent and Charles Schwab.

To minimize the messiness, Rangan thinks it is very important to create a sympathetic bond between the offshore and stateside teams. “CIOs are generally eager to engage with the offshore team in early stages but it’s important to NOT let the interest taper off. I co-opt my offshore staff in annual planning and in the impact on our global human resource roadmap.” Rangan also found important nuances between offshore centers located in different regions of India. People originally from Hyderabad (where Oracle and Microsoft have significant operations), are often eager to return to their hometown and the staff turnover there is somewhat lower. On the other hand, in the areas around Delhi, the capital city, a large percentage of the employees did not grow up there; loyalty and retention are bigger challenges there.

To keep the teams in synch, Rangan recommends that CIOs visit remote locations at least once a year. Line managers should make more frequent trips and there should be a happy blend of offshore members visiting the west and vice versa.

At Sun Microsystems, Director Avinash Agrawal has run teams based in France, India and multiple locations in the United States. He’s coined the term remote site syndrome to describe how even the smartest offshore-based managers can feel unappreciated and cut off. To deal with this, Agrawal recommends that global teams are best used where their role is strategic, not tactical. Also at Sun, which has a long tradition of global development teams, first-level managers are always local to the rank-and file.

CIOs need to realize that not all their team members may be ready to pay the steep personal cost of running a global operation. “I recently took on a more intense global role at Sun. I know this means that I won’t go to the gym as much as I used to. My kids will see less of me as I travel more often. Last week I was on the phone for hours late at night to shore up a key offshore hire. Yet I had to be up again in the morning to finalize the deal with HR in California.” To mitigate burnout, Agrawal recommends rotating managers in and out of roles that involve global operations. Rangan says it’s important to explain these aspects to the stateside team in advance, so they know what they are getting into.

On the positive side, Rangan echoes what executives at General Motors, Ford and Toyota have known for decades. Working in a global role is mind-expanding. It opens up career opportunities and builds leadership skills at all levels. “Managers who have been involved in global operations tend to become more integrative leaders, in my experience,” declares Rangan.

“It’s also important to develop simple, real-time metrics to manage global IT projects,” believes Jain of AmericanGreetings.com. As offshore wages rise, salary arbitrage will be less important; daily staff productivity and quality will become the core measures of global success. Different locations will start to develop centers of excellence where certain skills can best be performed in specific locations, be it Moscow, Mumbai, Seattle or Taipei.

So where is all this going to lead us? As IT organizations begin to offshore network operations and other ongoing activities, the center of gravity for IT may start to shift overseas. It is possible that some companies may prefer to locate their data centers offshore. And eventually it will make sense for some Western companies to locate their CIOs at the offshore location. Manufacturing companies have run global executive teams for decades where the VP of manufacturing may reside in Singapore or Shanghai. It’s only a matter of time before this happens to IT.

Gunjan Bagla is a principal with Amritt Ventures, a Los Angeles-based advisory service that helps North American corporations do business with India. His clients include Agilent Technologies and Midway Games. Reach him at usa@amritt.com.