Developer

Outsourcing overseas

Sending software development tasks overseas is the latest cost-cutting phenomenon, but is it a case of 'you get what you pay for'? How can you optimise offshore development?

Moving offshore

However, such major companies are moving a growing proportion of their work to low-cost countries such as India. Last November, EDS announced its Best Shore initiative: -a seamless on-shore/near-shore/off-shore application development and delivery model," according to an EDS statement.

-EDS Best Shore offers our global clients exactly what they have asked us forââ,¬"consistently superior service around the world at competitive prices," says Paulett Eberhart, president of EDS's Solutions Consulting line of business. -Whether clients need applications development or delivery, or information technology outsourcing or business process outsourcing, EDS can provide a consistent, seamless environment regardless of global location," he adds.

-Global sourcing and delivery of application services provides low-risk, consistent, and reliable development expertise in multiple global locations," says Dan Zadorozny, president of Applications Services for EDS Solutions Consulting. -As a result, over the next year, EDS will increase personnel and resources by some 40 percent to support client demand for global sourcing." The company estimates 20,000 employees will be delivering Best Shore services by the end of 2004, but currently there are 4500 employees at 13 facilities, including locations in India, Brazil, and New Zealand.

IBM has recognised the question of geographical and political instability identified by Raffoul, as well as related issues including foreign currency risks, resource availability, and infrastructure capabilities of different countries. Its equivalent of Best Shore is Transparent Geography, -the industry's most comprehensive and diverse pool of resources for managing geopolitical risks while providing cost-effective delivery of application management services," according to a company statement, with operations in a variety of locations including low-cost nations such as India, Mexico, Argentina, Brazil, and China.

IBM has been developing software in India for years, with outputs including parts of AIX and VisualAge, but the use of Central and South American locations is especially relevant to projects for customers in the US market, since these countries are in similar time zones and are relatively close to the continental USââ,¬"the distance from New York to Rio de Janeiro is roughly half that from Los Angeles to Shanghai. However, Collins-Smee says -I think the idea of geographical proximity is waning."

And she isn't convinced that other countries (including India, where IBM has a development centre in Bangalore) offer a real cost advantage. Australia is -very cost competitive with other countries," she says.

IBM is building a development centre in the Victorian regional city of Ballarat, which will enjoy lower infrastructure costs than capital city locations, she says. Over the next few years, inflation is expected to be much higher in India than Australia and this will further improve Australia's relative position. Local customers are taking a longer-term view which includes this consideration. -If you shift a job to India, it'll be there for several years."

There is much greater interest in offshore development among IBM's US customers, she said, because of the bigger difference in costs.

Last December, Hewlett-Packard followed the lead of IBM and EDS, announcing that it would transfer a substantial portion of its IT services business to India, citing cost pressures in the consulting and integration markets.

Service level agreements
Another issue involves service level agreements, where there is a big gap between traditional vendors and overseas outsourcers. According to Raffoul, those offered by the latter tend to be -very primitive" and -do not reflect the business operation" being based on IT-centric measures.

As for moving in-house development overseas, -it's not an agenda item" for most companies. Some banks have successful joint ventures in India, but these are -special cases," says Raffoul. -I don't see it as a trend." Moving a code factory overseas could give a 30 percent cost reduction -if you get it right," he says. That would only apply to a situation with very well-defined requirements and little need for local interaction, otherwise the savings would be less.

Collins-Smee agrees: setting up the communications and security infrastructure and so on is -a daunting task," she says.

Raffoul also warns that organisations should expect to spend 5-7 percent of the contract price on the costs of managing an overseas relationship. -If you have vague requirements, maybe it's not a very good option," he says.

He expects software development and maintenance outsourcing to increase, -but it's yet to be seen [how much of] it will go offshore."

Although Quest's Aronoff suggests offshore development could slow down a project, there are situations where it can speed things up. If an organisation can arrange a follow-the-sun model where developers in two or three well-spaced time zones hand over the project at the end of each business day, more work can theoretically be completed in a given period.

IBM has used this model, and a large internal Siebel implementation is currently shuttling between Australia and Europe in this manner. However, the company's Australian operation is not currently involved in follow-the-sun projects for external customers. The model is especially applicable to production support and customer support activities, according to Collins-Smee.

One problem is that throwing more people at a development project does not necessarily mean it will be completed more quickly. Although Fredrick Brooks' classic book The Mythical Man-Month explained over 20 years ago that the management problems caused by increasing the size of a team can more than offset the extra work that theoretically can be done, this issue is not always recognised.

But follow-the-sun is not quite the same as using more people. Time savings can be made if one group's output is another's input and the units of work can be completed in a day. For example, as far back as 1997, IBM used a system where programmers and analysts in the US would review work just completed in Europe and Asia, and provide specifications for the next day's work. This iterative arrangement shaved one-third from development cycles. But as Aronoff points out, the closer relationship between people at the same location can reduce the number of iterations needed to complete the project.

Kanbay uses a similar model, says Spring. The company's main points of delivery are Australia, Hong Kong, Singapore, the UK, and the US, so its staff can work face to face with clients during local business hours, then hand over tasks to the development centre in India and receive the response for the start of the next working day.

Beck observes that Kanbay's approach is -particularly advantageous when you get to the end of a project and you're into user education and acceptance testing." Test users try to break the system and log any faults they uncover. With an offshore development team, these problems can be fixed overnight, whereas onshore development means the test and development teams can only work on alternate days, he explained.

IP all over the place
Speaking as a private individual, Legato System's vice president and chief solutions officer Bobby Young warns of the risk of intellectual property leakage when using developers in other countries. -If you want to keep your intellectual property protected, keep it somewhere they have laws to protect it," he says. -Before I take something [offshore] again, I'll ensure I have legal protection."

Young's comments refer to allegations by Legato that eight engineers from its operation in India left to join another firm, taking with them certain pieces of Legato's intellectual property. The matter is still the subject of litigation. As a result of this alleged incident, Young thinks it is better to take skilled individuals from overseas to the US rather than have them work in their home countries.

A company needs to have a presence where the work is being performed in order to protect its interests, Young believes. -[International] collaboration just does not work when you've got cultural differences," he says.

Beck, whose industry experience prior to joining Kanbay included the use of overseas outsourcers, agrees about the importance of cultural issues, but says -culturally, I think India has been a good fit," adding that -cricket has been a big bonding thing".

Before putting its staff on a particular job, TCS ensures they are trained in the local culture, the client's industry and the client itself, as well as in relevant technical skills. -We look for a very successful outcome so we have a happy reference site," says Johnson.

Oracle's development centres around the world are all subsidiary companies, staffed by Oracle employees. They are -an extension of the development community based at Redwood Shores [California]," says Richard Rendell, senior director of the Australian product development centres.

These centres provide software for the global market as well as for local needs, he says. The key advantage is that -we get the best ideas from the best people around the world." Work on any particular module is the responsibility of a specific centre, he explains. This permits flexibility of working hours (as it avoids the need to handover the project at a set time each day), but -it's a round the clock development model," he says, because there's always someone working on each product.

Communication between different sites is important, says Rendell, but it becomes a routine part of the operation. -A lot of it is about process, and whether you're engaging people in those processes."

The responsibilities of development centres are -not just writing the code," he says. They may also employ curriculum development staff working alongside the developers to ensure that training materials are ready at the same time as the software, legislative analysts to help ensure products meet local requirements, global or regional product managers, and so on.

Look out for . . .
While Beck's perspective is probably coloured by his current role at Kanbay, he is (to mangle a metaphor) a gamekeeper turned poacher.

He suggests four things to look for when choosing an overseas outsourcer:

  • a blended, multi-site service, not a pure offshore play;
  • experience in jobs like yours (-otherwise they are learning on the job, and there is risk.");
  • proof that the onshore/offshore blend has worked successfully (eg, if local and overseas companies are partnering to bid, has that relationship been tested?); and
  • the peopleââ,¬"check the resumes and credentials of the lead staff that will be assigned to your project.

Johnson endorses that last point, noting that TCS routinely includes the resumes of senior project staff when bidding for a contract.

Collins-Smee's tips for successful outsourcing are:

  • consider your business strategy (are your customers ready for the effects it will have?);
  • model the financial implications carefully, including inflation projections (and presumably currency fluctuations), any transition costs and the overall risk profile; and
  • check whether local outsourcers can provide competitive quotations (remember: the project will probably be less complex and less risky if kept onshore).

Subscribe now to Australian Technology & Business magazine.

Moving offshore

However, such major companies are moving a growing proportion of their work to low-cost countries such as India. Last November, EDS announced its Best Shore initiative: -a seamless on-shore/near-shore/off-shore application development and delivery model," according to an EDS statement.

-EDS Best Shore offers our global clients exactly what they have asked us forââ,¬"consistently superior service around the world at competitive prices," says Paulett Eberhart, president of EDS's Solutions Consulting line of business. -Whether clients need applications development or delivery, or information technology outsourcing or business process outsourcing, EDS can provide a consistent, seamless environment regardless of global location," he adds.

-Global sourcing and delivery of application services provides low-risk, consistent, and reliable development expertise in multiple global locations," says Dan Zadorozny, president of Applications Services for EDS Solutions Consulting. -As a result, over the next year, EDS will increase personnel and resources by some 40 percent to support client demand for global sourcing." The company estimates 20,000 employees will be delivering Best Shore services by the end of 2004, but currently there are 4500 employees at 13 facilities, including locations in India, Brazil, and New Zealand.

IBM has recognised the question of geographical and political instability identified by Raffoul, as well as related issues including foreign currency risks, resource availability, and infrastructure capabilities of different countries. Its equivalent of Best Shore is Transparent Geography, -the industry's most comprehensive and diverse pool of resources for managing geopolitical risks while providing cost-effective delivery of application management services," according to a company statement, with operations in a variety of locations including low-cost nations such as India, Mexico, Argentina, Brazil, and China.

IBM has been developing software in India for years, with outputs including parts of AIX and VisualAge, but the use of Central and South American locations is especially relevant to projects for customers in the US market, since these countries are in similar time zones and are relatively close to the continental USââ,¬"the distance from New York to Rio de Janeiro is roughly half that from Los Angeles to Shanghai. However, Collins-Smee says -I think the idea of geographical proximity is waning."

And she isn't convinced that other countries (including India, where IBM has a development centre in Bangalore) offer a real cost advantage. Australia is -very cost competitive with other countries," she says.

IBM is building a development centre in the Victorian regional city of Ballarat, which will enjoy lower infrastructure costs than capital city locations, she says. Over the next few years, inflation is expected to be much higher in India than Australia and this will further improve Australia's relative position. Local customers are taking a longer-term view which includes this consideration. -If you shift a job to India, it'll be there for several years."

There is much greater interest in offshore development among IBM's US customers, she said, because of the bigger difference in costs.

Last December, Hewlett-Packard followed the lead of IBM and EDS, announcing that it would transfer a substantial portion of its IT services business to India, citing cost pressures in the consulting and integration markets.

Service level agreements
Another issue involves service level agreements, where there is a big gap between traditional vendors and overseas outsourcers. According to Raffoul, those offered by the latter tend to be -very primitive" and -do not reflect the business operation" being based on IT-centric measures.

As for moving in-house development overseas, -it's not an agenda item" for most companies. Some banks have successful joint ventures in India, but these are -special cases," says Raffoul. -I don't see it as a trend." Moving a code factory overseas could give a 30 percent cost reduction -if you get it right," he says. That would only apply to a situation with very well-defined requirements and little need for local interaction, otherwise the savings would be less.

Collins-Smee agrees: setting up the communications and security infrastructure and so on is -a daunting task," she says.

Raffoul also warns that organisations should expect to spend 5-7 percent of the contract price on the costs of managing an overseas relationship. -If you have vague requirements, maybe it's not a very good option," he says.

He expects software development and maintenance outsourcing to increase, -but it's yet to be seen [how much of] it will go offshore."

Although Quest's Aronoff suggests offshore development could slow down a project, there are situations where it can speed things up. If an organisation can arrange a follow-the-sun model where developers in two or three well-spaced time zones hand over the project at the end of each business day, more work can theoretically be completed in a given period.

IBM has used this model, and a large internal Siebel implementation is currently shuttling between Australia and Europe in this manner. However, the company's Australian operation is not currently involved in follow-the-sun projects for external customers. The model is especially applicable to production support and customer support activities, according to Collins-Smee.

One problem is that throwing more people at a development project does not necessarily mean it will be completed more quickly. Although Fredrick Brooks' classic book The Mythical Man-Month explained over 20 years ago that the management problems caused by increasing the size of a team can more than offset the extra work that theoretically can be done, this issue is not always recognised.

But follow-the-sun is not quite the same as using more people. Time savings can be made if one group's output is another's input and the units of work can be completed in a day. For example, as far back as 1997, IBM used a system where programmers and analysts in the US would review work just completed in Europe and Asia, and provide specifications for the next day's work. This iterative arrangement shaved one-third from development cycles. But as Aronoff points out, the closer relationship between people at the same location can reduce the number of iterations needed to complete the project.

Kanbay uses a similar model, says Spring. The company's main points of delivery are Australia, Hong Kong, Singapore, the UK, and the US, so its staff can work face to face with clients during local business hours, then hand over tasks to the development centre in India and receive the response for the start of the next working day.

Beck observes that Kanbay's approach is -particularly advantageous when you get to the end of a project and you're into user education and acceptance testing." Test users try to break the system and log any faults they uncover. With an offshore development team, these problems can be fixed overnight, whereas onshore development means the test and development teams can only work on alternate days, he explained.

IP all over the place
Speaking as a private individual, Legato System's vice president and chief solutions officer Bobby Young warns of the risk of intellectual property leakage when using developers in other countries. -If you want to keep your intellectual property protected, keep it somewhere they have laws to protect it," he says. -Before I take something [offshore] again, I'll ensure I have legal protection."

Young's comments refer to allegations by Legato that eight engineers from its operation in India left to join another firm, taking with them certain pieces of Legato's intellectual property. The matter is still the subject of litigation. As a result of this alleged incident, Young thinks it is better to take skilled individuals from overseas to the US rather than have them work in their home countries.

A company needs to have a presence where the work is being performed in order to protect its interests, Young believes. -[International] collaboration just does not work when you've got cultural differences," he says.

Beck, whose industry experience prior to joining Kanbay included the use of overseas outsourcers, agrees about the importance of cultural issues, but says -culturally, I think India has been a good fit," adding that -cricket has been a big bonding thing".

Before putting its staff on a particular job, TCS ensures they are trained in the local culture, the client's industry and the client itself, as well as in relevant technical skills. -We look for a very successful outcome so we have a happy reference site," says Johnson.

Oracle's development centres around the world are all subsidiary companies, staffed by Oracle employees. They are -an extension of the development community based at Redwood Shores [California]," says Richard Rendell, senior director of the Australian product development centres.

These centres provide software for the global market as well as for local needs, he says. The key advantage is that -we get the best ideas from the best people around the world." Work on any particular module is the responsibility of a specific centre, he explains. This permits flexibility of working hours (as it avoids the need to handover the project at a set time each day), but -it's a round the clock development model," he says, because there's always someone working on each product.

Communication between different sites is important, says Rendell, but it becomes a routine part of the operation. -A lot of it is about process, and whether you're engaging people in those processes."

The responsibilities of development centres are -not just writing the code," he says. They may also employ curriculum development staff working alongside the developers to ensure that training materials are ready at the same time as the software, legislative analysts to help ensure products meet local requirements, global or regional product managers, and so on.

Look out for . . .
While Beck's perspective is probably coloured by his current role at Kanbay, he is (to mangle a metaphor) a gamekeeper turned poacher.

He suggests four things to look for when choosing an overseas outsourcer:

  • a blended, multi-site service, not a pure offshore play;
  • experience in jobs like yours (-otherwise they are learning on the job, and there is risk.");
  • proof that the onshore/offshore blend has worked successfully (eg, if local and overseas companies are partnering to bid, has that relationship been tested?); and
  • the peopleââ,¬"check the resumes and credentials of the lead staff that will be assigned to your project.

Johnson endorses that last point, noting that TCS routinely includes the resumes of senior project staff when bidding for a contract.

Collins-Smee's tips for successful outsourcing are:

  • consider your business strategy (are your customers ready for the effects it will have?);
  • model the financial implications carefully, including inflation projections (and presumably currency fluctuations), any transition costs and the overall risk profile; and
  • check whether local outsourcers can provide competitive quotations (remember: the project will probably be less complex and less risky if kept onshore).

Subscribe now to Australian Technology & Business magazine.

Moving offshore

However, such major companies are moving a growing proportion of their work to low-cost countries such as India. Last November, EDS announced its Best Shore initiative: -a seamless on-shore/near-shore/off-shore application development and delivery model," according to an EDS statement.

-EDS Best Shore offers our global clients exactly what they have asked us forââ,¬"consistently superior service around the world at competitive prices," says Paulett Eberhart, president of EDS's Solutions Consulting line of business. -Whether clients need applications development or delivery, or information technology outsourcing or business process outsourcing, EDS can provide a consistent, seamless environment regardless of global location," he adds.

-Global sourcing and delivery of application services provides low-risk, consistent, and reliable development expertise in multiple global locations," says Dan Zadorozny, president of Applications Services for EDS Solutions Consulting. -As a result, over the next year, EDS will increase personnel and resources by some 40 percent to support client demand for global sourcing." The company estimates 20,000 employees will be delivering Best Shore services by the end of 2004, but currently there are 4500 employees at 13 facilities, including locations in India, Brazil, and New Zealand.

IBM has recognised the question of geographical and political instability identified by Raffoul, as well as related issues including foreign currency risks, resource availability, and infrastructure capabilities of different countries. Its equivalent of Best Shore is Transparent Geography, -the industry's most comprehensive and diverse pool of resources for managing geopolitical risks while providing cost-effective delivery of application management services," according to a company statement, with operations in a variety of locations including low-cost nations such as India, Mexico, Argentina, Brazil, and China.

IBM has been developing software in India for years, with outputs including parts of AIX and VisualAge, but the use of Central and South American locations is especially relevant to projects for customers in the US market, since these countries are in similar time zones and are relatively close to the continental USââ,¬"the distance from New York to Rio de Janeiro is roughly half that from Los Angeles to Shanghai. However, Collins-Smee says -I think the idea of geographical proximity is waning."

And she isn't convinced that other countries (including India, where IBM has a development centre in Bangalore) offer a real cost advantage. Australia is -very cost competitive with other countries," she says.

IBM is building a development centre in the Victorian regional city of Ballarat, which will enjoy lower infrastructure costs than capital city locations, she says. Over the next few years, inflation is expected to be much higher in India than Australia and this will further improve Australia's relative position. Local customers are taking a longer-term view which includes this consideration. -If you shift a job to India, it'll be there for several years."

There is much greater interest in offshore development among IBM's US customers, she said, because of the bigger difference in costs.

Last December, Hewlett-Packard followed the lead of IBM and EDS, announcing that it would transfer a substantial portion of its IT services business to India, citing cost pressures in the consulting and integration markets.

Service level agreements
Another issue involves service level agreements, where there is a big gap between traditional vendors and overseas outsourcers. According to Raffoul, those offered by the latter tend to be -very primitive" and -do not reflect the business operation" being based on IT-centric measures.

As for moving in-house development overseas, -it's not an agenda item" for most companies. Some banks have successful joint ventures in India, but these are -special cases," says Raffoul. -I don't see it as a trend." Moving a code factory overseas could give a 30 percent cost reduction -if you get it right," he says. That would only apply to a situation with very well-defined requirements and little need for local interaction, otherwise the savings would be less.

Collins-Smee agrees: setting up the communications and security infrastructure and so on is -a daunting task," she says.

Raffoul also warns that organisations should expect to spend 5-7 percent of the contract price on the costs of managing an overseas relationship. -If you have vague requirements, maybe it's not a very good option," he says.

He expects software development and maintenance outsourcing to increase, -but it's yet to be seen [how much of] it will go offshore."

Although Quest's Aronoff suggests offshore development could slow down a project, there are situations where it can speed things up. If an organisation can arrange a follow-the-sun model where developers in two or three well-spaced time zones hand over the project at the end of each business day, more work can theoretically be completed in a given period.

IBM has used this model, and a large internal Siebel implementation is currently shuttling between Australia and Europe in this manner. However, the company's Australian operation is not currently involved in follow-the-sun projects for external customers. The model is especially applicable to production support and customer support activities, according to Collins-Smee.

One problem is that throwing more people at a development project does not necessarily mean it will be completed more quickly. Although Fredrick Brooks' classic book The Mythical Man-Month explained over 20 years ago that the management problems caused by increasing the size of a team can more than offset the extra work that theoretically can be done, this issue is not always recognised.

But follow-the-sun is not quite the same as using more people. Time savings can be made if one group's output is another's input and the units of work can be completed in a day. For example, as far back as 1997, IBM used a system where programmers and analysts in the US would review work just completed in Europe and Asia, and provide specifications for the next day's work. This iterative arrangement shaved one-third from development cycles. But as Aronoff points out, the closer relationship between people at the same location can reduce the number of iterations needed to complete the project.

Kanbay uses a similar model, says Spring. The company's main points of delivery are Australia, Hong Kong, Singapore, the UK, and the US, so its staff can work face to face with clients during local business hours, then hand over tasks to the development centre in India and receive the response for the start of the next working day.

Beck observes that Kanbay's approach is -particularly advantageous when you get to the end of a project and you're into user education and acceptance testing." Test users try to break the system and log any faults they uncover. With an offshore development team, these problems can be fixed overnight, whereas onshore development means the test and development teams can only work on alternate days, he explained.

IP all over the place
Speaking as a private individual, Legato System's vice president and chief solutions officer Bobby Young warns of the risk of intellectual property leakage when using developers in other countries. -If you want to keep your intellectual property protected, keep it somewhere they have laws to protect it," he says. -Before I take something [offshore] again, I'll ensure I have legal protection."

Young's comments refer to allegations by Legato that eight engineers from its operation in India left to join another firm, taking with them certain pieces of Legato's intellectual property. The matter is still the subject of litigation. As a result of this alleged incident, Young thinks it is better to take skilled individuals from overseas to the US rather than have them work in their home countries.

A company needs to have a presence where the work is being performed in order to protect its interests, Young believes. -[International] collaboration just does not work when you've got cultural differences," he says.

Beck, whose industry experience prior to joining Kanbay included the use of overseas outsourcers, agrees about the importance of cultural issues, but says -culturally, I think India has been a good fit," adding that -cricket has been a big bonding thing".

Before putting its staff on a particular job, TCS ensures they are trained in the local culture, the client's industry and the client itself, as well as in relevant technical skills. -We look for a very successful outcome so we have a happy reference site," says Johnson.

Oracle's development centres around the world are all subsidiary companies, staffed by Oracle employees. They are -an extension of the development community based at Redwood Shores [California]," says Richard Rendell, senior director of the Australian product development centres.

These centres provide software for the global market as well as for local needs, he says. The key advantage is that -we get the best ideas from the best people around the world." Work on any particular module is the responsibility of a specific centre, he explains. This permits flexibility of working hours (as it avoids the need to handover the project at a set time each day), but -it's a round the clock development model," he says, because there's always someone working on each product.

Communication between different sites is important, says Rendell, but it becomes a routine part of the operation. -A lot of it is about process, and whether you're engaging people in those processes."

The responsibilities of development centres are -not just writing the code," he says. They may also employ curriculum development staff working alongside the developers to ensure that training materials are ready at the same time as the software, legislative analysts to help ensure products meet local requirements, global or regional product managers, and so on.

Look out for . . .
While Beck's perspective is probably coloured by his current role at Kanbay, he is (to mangle a metaphor) a gamekeeper turned poacher.

He suggests four things to look for when choosing an overseas outsourcer:

  • a blended, multi-site service, not a pure offshore play;
  • experience in jobs like yours (-otherwise they are learning on the job, and there is risk.");
  • proof that the onshore/offshore blend has worked successfully (eg, if local and overseas companies are partnering to bid, has that relationship been tested?); and
  • the peopleââ,¬"check the resumes and credentials of the lead staff that will be assigned to your project.

Johnson endorses that last point, noting that TCS routinely includes the resumes of senior project staff when bidding for a contract.

Collins-Smee's tips for successful outsourcing are:

  • consider your business strategy (are your customers ready for the effects it will have?);
  • model the financial implications carefully, including inflation projections (and presumably currency fluctuations), any transition costs and the overall risk profile; and
  • check whether local outsourcers can provide competitive quotations (remember: the project will probably be less complex and less risky if kept onshore).

Subscribe now to Australian Technology & Business magazine.

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