Maturity Phase of IT Outsourcing

Source: Webspacestation
As I was surfing the Web the other day, an expressive headline caught my attention: "Outsourcing is stupid". I looked through the article by Alan Fisher, co-founder and Chairman of Iron Speed, Inc., only to find out that "outsourcing is stupid when you can do the work cheaper at home." Ironically, this anti-outsourcing truism sounds to me pretty much the same as the first rule of outsourcing (as I formulate it): outsourcing is the best solution when you don't possess enough in-house expertise and/or budget for an IT development project. It's great when you can afford to develop in-house everything you need, but what if have to retrain your employees or hire new ones, pay for re-equipment, and deliver a project against a tight deadline? I'm afraid your choices are limited to giving up or resorting to the outside expertise. No wonder the notorious drawbacks of IT outsourcing and criticism from the general public don't seem to affect the scope of this omnipresent phenomenon.

New Opportunities - New Relationships

According to 2004 IT Outsourcing Study conducted by DiamondCluster International, 86% of Global 1000 IT executives and providers of IT outsourcing services who participated in the study expect outsourcing to further increase next year. Moreover, outsourcing is more than simply cost savings now. "While reducing costs is still the number one reason fueling the outsourcing trend, another key factor is that companies are looking to free up internal resources to focus on more critical initiatives," says Tom Weakland, who leads the outsourcing advisory services practice at DiamondCluster International. Globalization creates new opportunities for those businesses that know how to establish sophisticated and interdependent relationships with their offshore vendors. These "enhancement" and "frontier" relationships, as Gartner calls them, are typical for the maturity phase of IT outsourcing.

Offshore Dedicated Team

At its maturity phase, outsourcing advances beyond the conventional project model: offshore vendors provide their customers with exclusive full-time dedicated resources on a long-term basis. An Offshore Dedicated Team (ODT) customized to the customer's requirements, practices, and even culture operates as an extension of the in-house staff. The ODT model sets the customer free from such problems as incorporation, recruitment, office lease, infrastructure set-up and maintenance. Using an ODT, a business can reduce development costs, get access to specific skills, gain better control over the entire development process, achieve easy scalability, and have the accumulated expertise transferred back in-house.

Microsoft, Intel, Sun Microsystems, IBM, Dell, Motorola, and other major IT corporations have been using offshore development centers for years. By outsourcing work to their offshore centers, these companies advance their technologies, obtain substantial cost savings, and at the same time allow their in-house teams to concentrate on their core tasks.

Nowadays, an increasing number of mid-size businesses outsource large-scale and/or continuous projects to offshore dedicated development centers and teams. Such projects involve custom software development and/or maintenance, R&D, testing, QA. The time of operation of an ODT is normally six months or more, otherwise the invested time and effort don't pay off.
Making Assurance Doubly Sure
Even though the ODT model provides significant advantages in terms of process control and cost savings, the risks related to offshore outsourcing require that a number of precautions as prudent vendor selection, proper planning, and effective management be taken.

There is no point trying to create an ODT from scratch. An outsource service provider that already has the required infrastructure and access to highly qualified labor force will make the process of ODT set-up and operation quick and easy.

Selecting an outsourcing partner, the most reasonable option is contacting a U.S. based company with operations overseas. The onshore/offshore model normally ensures a better customer service experience, more reliable communications, and cheaper banking operations when compared to the pure offshore model. Besides, American clients feel more confident and at ease operating within the U.S. business and legal standards. Third party references are great, but background checks are even better.

The potential problem with communication across the time zones should be discussed and solved upfront. The best way around this problem is overlapping shifts that allow the in-house team and the ODT to effectively cooperate. The communication plan has to provide for online meetings, reports, and briefings.

A crucially important issue is the process of information transfer from the ODT to the in-house team. This process involves bug tracking and task management online collaborative systems, scheduled milestone reviews, and deliveries that include source code, documentation, and delivery reports.

The operation risks can be minimized by effective planning. Among the issues that have to be covered by plans are the business continuity, disaster recovery, resumption, and crisis management.

Turning Disadvantages into Advantages

The ODT model isn't a panacea that cures every outsourcing disease, but it can turn a number of disadvantages into advantages.

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Lost control over the project or the outsourced part of it. The conventional project model requires that vendors should take control - at least in part - over projects that are outsourced, and this is the challenge any business involved in outsourcing faces. The ODT model secures the customer's tight control over the entire process and makes it possible to increase the quality of work while decreasing the amount of time and effort.
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Difference in time zones. The difference between the customer and vendor may be seven hours or more, so the in-house team is likely to arrive at the office at the same time when the vendor's employees are leaving. Thanks to the recruitment conditions and process control provided by the ODT model, shift overlapping and, moreover, round-the-clock programming become easily available. When the in-house team and ODT work in shifts, development continues 24 hours a day, and the turnaround period is halved.
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Projects farmed out by vendors to subcontractors. Some vendors diversify their activities to such an extent that being competent in any particular area becomes problematic for them. A lot of vendors advertise services and even take up projects having little expertise in appropriate areas. Moreover, nearly all vendors try to accumulate as many projects as they can, and then place the highest emphasis on the most profitable of them. As a result, a number of projects - in full or in part - are farmed out to subcontractors. Needless to say, this situation is virtually impossible with an ODT directly controlled by the customer.

Conclusion

Offshore dedicated development centers and teams brought about at the maturity phase of IT outsourcing provide a number of advantages that otherwise just aren't possible to achieve. Using an ODT, a company can reduce contract arrangement time, improve project management and control, and increase overall resource efficiency. Last but not least, project costs can be cut down by 60% or even more. Would you call it stupid?