How to run a successful off-shoring engagement

Tuesday 13 September 2011

6.00pm - 8.30pm (refreshments available 30 minutes before)

BCS London, Davidson Building, 5 Southampton Street, London, WC2E 7HA | Maps

Karim Hyatt FBCS CITP CEng MIoD

The word 'offshore' conjures up the promise of affordable development resources, but also of deadlines missed, communication nightmares and low quality software and, as a result, missed budgets and late releases. Based on 10 years' experience in running product development in a variety of countries, this talk looks at effective and proven strategies to make sure your Indian, Chinese or Far East engagement is successful, and crucially what the correct motivation should be to 'go offshore'.

About the Speaker:

Karim Hyatt FBCS CITP CEng MIoD has 30+ years' experience in software product development and 11 years as an interim CTO (Chief Technical Officer). He has been involved with product development in Financial Servers, Manufacturing, Tourism & Leisure, Retail and communications with time equally spent between FTSE 100 companies and start-ups. He is passionate about software development best practice and how to effectively integrate teams in various European and world-wide locations.

Event report

Karim identified three modes of off-shoring operation. 'Captive' is where the off-shore operation is effectively just another site of the onshore organisation. While in this case there is very tight control, setting up the off-shore site can be very expensive and time-consuming as, for example, because of the need for good grasp of local legal requirements. There has to be a very strong organisational motivation to embark on such a venture, perhaps a desire to break into a major new market such as China. A 'Hybrid-Captive' set-up is similar to the Captive, but here the administration of the off-shore site is put in the hands of a local third-party who would have essential local knowledge. Finally, there is the Outsourcing option where off-shored developers are employed by a local organisation for whom on-shore operation is a client: this is by far the most common situation.

Karim argued that in the modern technological era, physical distance by itself was not a crucial inhibitor of successful collaboration. Any physical distribution of project effort, for example, to developers in different locations in the same country, could cause a reduction in productivity, and increasing that distance to across the globe was not thus such a big step. Cost reductions in the range 40-60% were often cited, but this should not be the only driver. Off-shoring provided a means by which organisations could quickly scale up their development capability. India for example had a large pool of software development talent, drawn from a population of 0.5 million IT-related university graduates. Given the relatively impoverished environment of these developers they tended to be massively motivated. An objection to off-shoring was that it could increase the vulnerability of client organisation if it completely destroyed its in-house development capability and became solely reliant on external expertise. Karim suggested the best strategy was to retain a stable core IT capability but use off-shoring to deal with fluctuations in demands for development effort.

The selection of the right partner (not 'supplier') was crucial. Important criteria included the degree to which your intellectual property would be protected by the prospective partner, the process by which changes to requirements would be dealt with, executive engagement (that is, the ease with which the on-shore customer could communicate quickly with decision-makers in the off-shored operation) and ethical alignment of two organisations in such matters as the treatment of staff. Staff turnover in the off-shore operation was a significant risk, and an enlightened attitude when dealing with staff could reduce this risk.

When it comes to negotiating a contract, it was important to get the basics right. These basics include the price, remedial procedures, notice times, and the provision for cancellation. Despite the conventional preference for fixed price contracts, time and materials contracts were usually more effective if the right controls were in place. Fixed price contracts are never really fixed price in practice because of the inevitable need to revise requirements. Time and materials contracts allowed the on-shore organisation to ramp up and down development effort in line with their evolving needs. At least some of the client project management needed to immerse themselves in the off-shore project. They needed to be involved in the selection of the off-shore team, particularly to ensure that team members had the required communication skills. There needed to be regular visits to the off-shore site ,and a good relationship at developer level had to be nurtured. This could involve taking the developers our for meals (a relatively cheap but effective way of nurturing loyalty, but one for which provision in the project budget had to be provided for explicitly).

For me, one part of the presentation that stood out was the advocacy of time and materials contracts (albeit it with tight control) which have not had a good press in recent years. Another was the need to get a good balance between the relative power of supplier and customer. A small customer with a small project might get better treatment from a smaller systems house than an industry giant (this relevance of competitive position is well-documented in the work of the business guru Michael Porter).Finally, there is the often overlooked point that off-shoring and outsourcing may reduce development and operational costs, but it is dangerous to assume management costs can be safely slashed as well.