Introduction

The trend towards offshore outsourcing of IT services has grown rapidly, with buyers primarily driven by the promise of substantial cost savings and the opportunity to strengthen their focus on core activities. Although the majority of outsourcing customers are satisfied, the number of buyers questioning the value of their outsourcing deals is on the rise. According to the 2005 Global IT Outsourcing Study by DiamondCluster International, the number of buyers prematurely terminating their outsourcing deals has doubled since the previous year to 51 percent, and the number of satisfied buyers has dropped from 79 percent to 62 percent. The study warns that the blame for buyer dissatisfaction is not solely attributable to providers.

This article presents 5 tips to help buyers prepare for offshore outsourcing of software development projects.

1. Are you ready?

For the majority of buyers the number one driver for offshore outsourcing is cost savings. This is often based on a simplistic assumption that all things being equal, except labour rates, outsourcing will result in cheaper projects that are no better and no worse than in-house projects. However, the reality is that all things are not equal. An offshore project faces specific challenges especially with regards to communication, emanating from language and cultural differences combined with the provider's lack of intrinsic domain knowledge.

Ask yourself the question "how effective is our project communication?" E.g. Are users able to articulate all of their requirements? Is there a mismatch between expectations and deliverables? Do all stakeholders share the project vision and objectives? Are all stakeholders aware of the project variables and the project constraints? If there is considerable room for improvement, you may not be ready to outsource.

Before taking the plunge, tighten your requirements processes, and ensure that you have workable standards and effective tools in place for documentation and communication. Consider using tools such as stpsoft ReqSheet, Telelogic Fastrak or Telelogic DOORS to capture and communicate user requirements, and consider using storyboarding tools, such as stpsoft Storyboarding, to validate that the user requirements have been understood. Measure the gap between expectations and deliverables, and use this as a barometer for improvement. The smaller the gap the less your projects will cost - you may then be ready for outsourcing, but the chances are that you may no longer need to.

2. Conduct a formal tender process

Selecting the right offshore partner is critical for the success of your future outsourced projects. Treat the tender process as a major project and assign your best people to the team. Produce the Invitation To Tender (ITT) through consultation with representatives from each stakeholder community, and ensure that internal expectations are realistic.

The quality of the ITT responses will to some degree reflect the quality of the information contained within the ITT. For example, offering detailed information about the scope of the project will make it easier for providers to bid a realistic price. Downplaying scope may result in lower quotations, but will inevitably result in increased project pressures later.

Many providers are based within the same geographic region, so try to arrange site visits in a single trip. Speak to the offshore teams and understand how they work. Ask yourself whether your project teams and end users will feel comfortable with their methodologies and practises. Ask them how they would accommodate your particular approach and practises. Watch the team at work and always ask for references.

An offshore partnership is fraught with project threatening and career threatening risks, so don't just rely on your instincts. Ensure that bids are judged by a panel with broad representation across all stakeholders.

3. Construct a win-win contract

The length and complexity of outsourcing contracts often gives rise to differing assumptions between buyer and provider. Such assumptions can be at the heart of outsourcing problems and buyer dissatisfaction.

Begin the contract phase by working with the provider to produce a joint 'terms of reference' paper. This paper will serve as a foundation for the contract and should be reviewed by key members of the buyer governance and provider execution teams. The paper should avoid legal speak, and should succinctly describe the essence of the relationship. The paper should clearly outline buyer and provider goals, and should seek to align the relationship around these goals. For example, the buyer may want to cut costs and increase quality, and the provider may wish to seek further revenue opportunities as well as gain a foothold in a particular market. Shaping a relationship where the objectives for both parties can be met will help direct the negotiations, enthusing both parties and minimising the 'could have got more' or 'gave too much' syndrome.

4. Establish a project governance team early

Your on-going relationship with the provider will be managed by the project governance team. Establish the team as soon as a provider has been selected and ensure that key members are involved in reviewing the terms of reference and contract drafts.

A good mix of business, management, technical and interpersonal skills within the project governance team is essential. However, offshore development projects have an added dimension, that of managing an offshore provider, for which the team may not have experience. Seek external support from experienced consultants to shorten the learning curve and avoid expensive mistakes.

5. Plan for transition and begin with a pilot project

A common buyer misconception about outsourcing is that costs will reduce or service will improve almost as soon as projects are handed over. Unrealistic expectations lead to buyer dissatisfaction and increased pressure on the provider to deliver value. This has a spiralling affect with increased pressure adversely affecting service and quality, leading to further buyer dissatisfaction.

Plan for the transition phase and set clear expectations. For example, the provider could spend a few months replicating the buyer's infrastructure, implementing new practises, and training their execution team in the buyer's business domain. During the transition phase ensure that progress is regularly communicated to all stakeholders.

Expect that the transition will not be smooth, and begin with a non-critical pilot project. Use the pilot for both parties to educate themselves on how the other works, and how they can best work together. Regularly review progress during the pilot and fine-tune the process based on recommendations agreed by both parties.

Finally, once the pilot is complete have an open discussion with the provider to determine the best way forward, focussing on the provider's ability to deliver and the effectiveness of your governance procedures.

Back to top