How to Win in Software Offshoring?

Software offshoring though sounds luring due to attractive rates and abundant resource pool; but it is

a tough nut to crack for the technology companies’ decision makers especially if they are not aware

about the rules of the game. In this blog Faichi’s CEO and Founder has addressed those offshoring

issues and proposing ways to resolve them. Find out how…

IT offshoring has been going on for 20 years now and has picked up tremendously during the last

decade. Most of the companies in the west have done offshoring in some form or another and might

have faced the heat of offshoring. Though they might have shifted from one offshore vendor to

another, the pains might have remained the same, with a little variation here and there.

What are the benefits of offshoring?

Wants to build but doesn’t have in-house expertise

One of our customers wanted to build a Microsoft SCOM Plugin for one of their products and they

did not have any SCOM experts. We, with our Manageability and plugin expertise, architected the

solution and built it for them.

No legal entity in India and doesn’t want to deal with legal hassles.

So they simply subcontract it, asking whether you guys can set up our team. This way, they get a

presence in India without getting into legal complications, and everything is taken care of

Unsure of HR Laws

The other trigger is reaching those offshore markets where they know there is a huge pool of

resources, but they don’t have any reach in these markets. So we become their point of contact,

through which they can tap into the Indian market. We know the HR policies and the labour laws,

which make it easier for us to operate and build efficient teams in these markets.

Major Challenges you might face when offshoring your IT projects:

Lack of Transparency

They don’t know exactly which resources are working on their project, what their skill set is, their

experience, or whether they are a perfect skill set match. Two or three people interface at the project

level, but there are 20 people working behind.

In fact the value product companies expect a flat hierarchy where the tasks are given to any

available developer. Yes, you do have architects who can architect the solution, after which any

developer should be able to pick it up, assuming they have the same skill set level. In reality, the

way it works is that there is very archaic hierarchical organisation in a typical IT services company

where a fresher reports to a person with two years of experience who, in turn, reports to someone

with 5 years experience. Next comes the project manager who manages the client directly. However,

in reality, the person who is fresh out of college or 1 year experience is doing the job. So the

consulting companies who are still wondering how to run this system are advising technology

companies to stand up and start running.

Cost Ambiguity

Let’s say there is a standard cost

$4000 per month per developer. For this, am I getting a senior resource or a junior one? Yes, there

is a concept of blended rate, but then the question is whether you are really getting value for your

money. That is obviously linked to the productivity where companies wonder whether the productivity

from 20 people deployed in the US is equivalent to the same number of employees in an offshore

set up in India, China or Philippines.

Productivity Nightmares

Many companies are okay going with the flow and working without a transparent model, saying that

they don’t care as they don’t know about it and prefer not questioning the whole system as they

conveniently believe that they don’t understand it. It’s only when the productivity is hit, the offshore

team is questioned. That’s when they start peeling the onion. When someone questions the

productivity, they try to find the answers by looking at the quality of resources and blame it on the

hierarchical model and the high attrition of the vendor.

High Attrition

Attrition is of two kinds, one where people leave the organisation and second is when a resource is

moved to another client’s project within the same services company, so there is no dedicated

resource model. So when you start peeling, you see all these hidden layers of non-transparent work

and the entire faith in the offshoring system is lost.

Culture Mismatch

Your management might not understand the client culture. These are softer issues, but might lead to

communication and project delivery issues. The communication capabilities of the offshoring team

definitely play a crucial role while deciding the offshore destination because in the absence of water

cooler conversations and friendly online conversations, out of sight could become out of mind.

During such times, there is a need of formal communication process to be set in place. I think it’s a

balance of rates, quality of resources and quality of communication that determines the success. .It

is no longer about the rates the way it was a decade ago; and when I refer to the quality of

resources, I mean the productivity of resources which is directly proportional.

How to solve these offshoring issues?

Choose a right fitted vendor

A lot of companies work with huge service vendors. It’s fine if you are looking for 200 or bigger size

teams, but if you are looking for smaller teams, then the kind of work the bigger companies can do

for you will not be the same as what medium size companies will do. It’s all about the engineering

team; and if you can build a similar or better skillset compared to the US, a bigger pool of resources

is required compared to the US as the availability of resources is much more in offshoring countries

like India. The last is rate competitiveness, which refers to the availability of quality resources that

comes much before rates. That’s the reason why somebody would prefer a medium size offshoring

partner.

Vendor to imbibe US product company culture

At Faichi, the founders and senior managers had a chance to work in product development

companies in the US and understand that any product company will solve this problem by hiring

talented resources that are good individual contributors and not throw bodies at a problem, because

if you will throw bodies at the problem, you are throwing away money.

The key is to work with an offshore partner exactly the same way the way you will make your own

team. So, if you need five resources for a project, they should be equally capable of solving the

problems of the same nature. If there are issues backlog lined up in a prioritised order, any

developer can pick up a task and resolve without assigning tasks as per skills and aptitude of

different team members. You don’t have to identify and assign tasks based on junior and senior

resources skill set. If everybody can do everything, then you are covering for attrition as everyone

knows what others are doing and can handle things smoothly when someone leaves. This way, you

are creating a backup. You don’t have to deal with waterfall project management issues; and you

can work in an agile model. They key is to offer that model.

Vendor to reduce attrition by retaining talented people

Talented people want to work on a challenging problem and they know their worth in the market. So

if you can satisfy these two factors, along with flexible company policies and a culture similar to the

US, which is more open, this is what these people are looking for. In Faichi, we align our culture with

the client’s culture. In terms of openness, we are absolutely transparent with our team members and

take them on the same page about our growth strategy and the projections of the company moving

forward. The policies and the benefits that we offer are much more in line with the innovative ways of

thinking vs. the traditional job model. In terms of challenges, we believe that product development

companies in the US have enough challenges to offer to these people. In terms of salaries, these

quality resources will be a bit costlier as compared to the average rates of the large vendors who

give a blended rate of junior and senior resources, whereas we offer all senior resources.

Vendor to ensure rates transparency

There are three components of rate - salaries of the employees, overhead cost of the companies

and the margins. One of our engagement models is cost plus where we tell the client that the rate is

determined by the actual salaries of the employees, overhead and the margin cost. What we do is

tell the client in a transparent way what the actual breakup of these components is when we are

quoting the rate. The clients appreciate this because they want to pay more to the right guys as they

get quality.

In India, there are some people who are making $100,000 annually, while others are making

$10,000. When a client wants to work with the experienced and expert people, they are looking for

$100,000 people. However, how can you have $50,000 annual billing if you want those guys, but no

company offers such resources as they don’t want to incur losses?

At Faichi, we provide a way to get you $10 100,000

guys if you want, or 10 $50,000 guys or $30,000 guys, if you want. So, depending on the need of the

project and based on your requirements, we can decide what experience level and quality you need

and their salaries will be proportional to that. And then we take your approval after showing the

candidates’ profiles and expected salaries, and interview them. Our overheads and margins are

anyways fixed so we have no motive to push a junior or a senior guy, instead of hiking the salaries

and then hiring junior guys to stuff the margins. So the customer can decide if they are willing to pay

for what they want.

Why companies should choose India over other Offshoring destinations?

Huge talent pool

As offshoring is going on for two decades now, there are established engagement models and

development processes. There are trained people who understand how to deal with customers in

western countries. So a lot of knowledge already exists to work with clients from all over the world.

India, probably, has the most number of computer science engineers than anywhere in the world.

Several key institutions like IITs and IIMs are quiet good and have produced good talent who have

gone to the western countries, have successfully set up businesses in these places and have given

a lot to these countries. India is right there on the map, sitting on a huge talent pool that’s equipped

with skills and the right attitude.

Strong Communication skills

Almost every kid speaks English as that’s a common language nationally and it shows in

professional interactions when they start working. India is still cheaper and enjoys a rate advantage.

Friendly labour laws

The labour laws are a bit relaxed where resources are allowed to extend and work for more number

of hours to ensure that the projects are completed without the company or the client being penalised

for it.

Conclusion

Apart from transparency and cost, the US product company culture is crucial factor that determines

the understanding of a vendor on how to build something right from the scratch or how to take a

product from point X to Y and build a roadmap for it. It needs a different mindset to do some

maintenance of a product vs. making a product. There is a difference between an architect and

maintainers and we build buildings and understand what goes in that. That’s where Faichi stands out

when it comes to offshoring.