1

Outsourcing and Offshoring

Sandra Senti

University of Chicago

May 5, 2005

2

The Stages: From Bystander to Fully Committed

0%

Bystanders

None to initialinvestigationof offshore'spotential

None

50% to 60% ofFortune 1,000companies

Experimenters

Small 10- to 20-person projectsfor conversionof older appsor isolated newdevelopment

Uncoordinatedproject-by-projectmanagement

1% to 5%

25% to 30% ofFortune 1,000companies

Committed

30- to 50-personmission criticaldevelopmentand maintenanceprograms

Centralizedand dedicatedprogrammanagement

10% to 30%

5% to 10% ofFortune 1,000companies

Full exploiters

Large scale appsdevelopment andmanagement,remote monitoringand administration,implementation and upgrades ofpackaged apps,and BPO

Global sourcing isa core competencewith documentedbest practices

40% to 50%

3% to 5% ofFortune 1,000

companies

Stagecharacteristics

Focus of efforts

Level of programmanagement skills

Percentage of ITservices budgetgoing offshore

Size of segment

today

3

Which IT Functions Are Going Offshore?

79%

54%

36%28% 26%

21%16%

0%

25%

50%

75%

100%

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Help d

esk

4

Where will the growth be?

Application-related services Business processes, including help desk,

email, transaction processing Infrastructure will be the next big wave,

particularly around the data center

Gartner’s Global Offshore Sourcing Predictions, June 2004.

5

Risks that Require Mitigation

Security and privacy Cultural issues and/or clash Language barriers Communication challenges Distance to vendor Time zone differences (can be a plus as well as

a minus) Political instability General infrastructure of the country Management challenges

6

Critical Success Factors

Governance

Senior executive sponsorship

Internal and external communications

Vendor selection process

Project selection process

Disciplined requirements definitions

Active relationship management

7

Critical Success Factors (cont.)

Contingency planning

Significant onshore presence in early stages

Understand and focus on cultural issues

Measure performance, success

Focus on the value rather than just the cost savings

Know the market

8

What Did Stanford Stakeholders Say? The Concerns

Stanford will lose control by giving away its institutional knowledge. Core competency vs. Commodity

Maintenance is much different than development projects. Has Stanford established a process or considered the differences?

Stanford needs to improve skills (esp. writing specifications and documenting requirements)

Stanford staff will resist required behavior change to make this successful (for instance, responding to vendor in timely manner)

9

What Did Stanford Stakeholders Say? The Positives

Wipro staff is excellent, Stanford will be able to learn from them to improve service and quality levels

Specification writing and requirements communication is not a problem when business analysts are skilled and trained

Wipro has been able to accommodate Stanford feedback to improve the specification writing and business requirements development process

Outsourcing will be worth it if we can do IT better, faster and cheaper

10

What did Stanford staff say?The positives

Excellent client service Refined system development methodology Rigor and discipline in interactions Excellent communication mechanism Professional Effort to partner is clear Use of metrics key to operation

11

What did Stanford staff say?The concerns

Challenging contract negotiations Decentralized business processes make

requirements and spec writing difficult Fast turnaround requirements for docs and

sign-off Unfamiliar with Stanford business processes Business analysis not as thorough because

they don’t have the big picture

12

Best Bets: What to Outsource/OffShore

Projects with well defined requirements

Development projects with complete specifications

Be sure to bound scope of work and manage scope creep

Stable applications

Back-room applications, those with insignificant end-user interaction

Applications that do not require real-time collaboration with offshore team

13

Governance Roles and Relationships

Steering Committee Define overall strategy Establish IT, business,

HR, legal, audit, and compliance support

Charter program office

Program office

Vendor management Reporting/metrics Best practices database IT staff competency plan Communications

Stages in offshore life cycle

Due diligence Negotiations Transition Project management

14

Human Resources and Communication Considerations

Keep internal staff informed through one clear and consistent message

Work with HR on strategies to retain and/or develop staff for new roles, as needed

Communication plans for end-users and for staff members are essential

Biggest risk is loss of critical knowledge and mismatched roles and competencies rather than job loss

15

Due Diligence

Assess vendor’s overall capabilities Security, business philosophy and practices,

working conditions, capacity, HR policies Examine specific capabilities Assess quality of delivery team and project

managers Determine fit as long term strategic partner Assess physical and technical infrastructure Consider an offshore advisory management

firm to help

16

Final Words

Do not be an absentee landlord! Outsourcing does not mean abdicating responsibility

Do not lose control: knowledge is the key Establish communication processes and

communicate You’re never going to master the offshore

game unless you realize that mastering it means continuous adjustment and learning

Manage expectations, both costs and results