Offshore Outsourcing: The Guardian View

United Technologies and its subsidiaries have worked out a successful strategy for sending IT work to India (read “Inside Outsourcing in India”), but there is definitely more than one way to skin that cat. There are probably more like 50. For another angle on offshore outsourcing management, we talked to IT executives at The Guardian Life Insurance Company of America, a $7.2 billion company.

When Guardian Executive Vice President and CIO Dennis Callahan began outsourcing to India two years ago, his goals were similar to those of UTC’s CIO John Doucette: Replace high-priced local consultants, increase quality, expand the resource pool and retain control through vendor aggregation. And he had just as much experience in India as the folks at UTC did.

But rather than begin in the piecemeal project-by-project fashion that UTC chose, Callahan dove right in, setting up a dedicated development center of more than 100 people at Mumbai-based Patni Computer Systems. Marty McCaffrey, executive director of Software Outsourcing Research, says, “Usually it’s better to negotiate the first project and then get a master agreement in place that allows some flexibility. But today some companies are comfortable with setting up a dedicated center right off the bat.”

Guardian mitigated some of the risk of committing to a vendor by beginning with a pilot project—developing a new variable annuity product—and scaling up from there. The company also decided it was best to split up the work among several large outsourcers and vendors. Again, Guardian diverged from UTC’s tactics (an automated analysis and bidding process) and took a more personal approach. Callahan joined the U.S.-India Business Council, asked peers for advice and went on fact finding missions. Then, supported by Guardian’s IT vendor management office, he and his team narrowed a field of 23 providers down to two, initially selecting Covansys, a Farmington Hills, Mich.-based company specializing in Indian outsourcing, and Patni. Later the insurer added New Delhi-based NIIT, which has multiple locations outside of India, to give itself more global options when tensions flared in Kashmir.

Guardian selected its vendors based on company size, price, Capability Maturity Model level, quality of metrics, complementary business model and collaborative approach. Guardian was looking for companies with experience in the insurance industry and with the enterprise systems it uses. Also key to Callahan was a strong U.S. presence. “I want some of those offshore people working onsite to already be based in the U.S. and not to have to travel back and forth to India,” says Callahan. “I like the notion of strong local management that I can look in the eye

Since the relationship began, Callahan has been able to make a lot of eye contact at the monthly IT steering committee meeting, where offshore project status and metrics are reviewed with managers from each vendor. Among the metrics tracked are customer satisfaction (the vendor provides results of quarterly surveys of Guardian employees who rate each vendor consultant), offshore leverage, quality metrics, knowledge retention (how many workers have moved off the account, for example) and productivity.

Starting out at a 50-50 offshore-to-onshore employee ratio, Guardian has since been able to move to a more cost-conscious 70-30 ratio, with its offshore partners handling 40 percent of all of Guardian’s development and maintenance. Experts say 80-20 is the optimal mix for development, and that’s what the company is shooting for.

Unlike United Technologies, Guardian hasn’t been as interested in bringing the Indian companies’ processes in-house. “We’ve taken some of their best processes and integrated them with ours, but we all operate under the standards and processes put forth by the Guardian project management office,” Callahan says. “It was very important to us that we did not have to create some separate apparatus for managing offshore work.”

One thing both of these companies agree on, however, is the importance of the first months of the relationship. “You can never take your eyes off it. The first three months and your pilot project are critical,” says Guardian’s Shelley McIntyre, second vice president of IT in charge of offshore management. One of the biggest mistakes she says she made during that time was failing to set expectations properly in-house. “There’s the whole expectation of productivity. But if you hire a new employee, you don’t expect him to be 100 percent productive on his first day,” McIntyre explains. “I could have done a better job of educating all of IT that it’s no different than that for offshore workers.”

So far, Guardian seems pleased with the progress. Within the first year, the company recouped its initial costs, from initial vetting of vendors to transitioning people and systems, and now saves about $12.5 million a year. Guardian has expanded its partnership with Patni, signing a $35 million, seven-year contract in March (a big deal by Indian standards). And it is already piloting a business process engineering project—dental claims entry—with Secunderabad-based Satyam Computer Systems.