You decided to outsource
your project, you sent out Requests
for Proposal, you evaluated the proposals that you received, and
you finally found out that the outsource service provider (OSP) whose
proposal best fits your requirements is an overseas company... Is
it a disappointment to you?
Will you be scared of unknown and decide in favor of a domestic
company which is only second best? My opinion is that you shouldn't
get too comfortable with the idea that outsourcing overseas is nothing
more than a foolish adventure. I can tell you a story about a really
foolish adventure in the world of outsourcing. A friend of mine works
for a big company whose premises are located across the bridge from
a small town. He told me how a whole computer management division
was fired after the company signed a contract with a small business
in the town. Now, if something goes wrong with his computer, my friend
has to wait for hours and sometimes for days until somebody comes
and troubleshoots it. As you see, ill-advised outsourcing can lead
to a disaster even when it's done across the bridge, not overseas.
So why not consider outsourcing your project to an overseas OSP?
Reasons to Outsource a Project Overseas |
A crucial determinant influencing the decision whether to outsource
a project overseas is a high return on investment. Some companies
claim that their offshore costs are 20% to 30% of what they used to
spend when they outsourced their projects to domestic vendors. Even
if you count not only person hours required to implement the project
but also the deployment and in-house personnel training costs, I believe
that you'll be able to save about 50% of your expenses if you outsource
your project overseas. The risk is comparatively high, too, but the
return on investment that you can get justfies the risk.
Another important factor is what kind of project you are going to
outsource. In theory, it's possible to outsource any IT project, even
database administration. In practice, businesses usually prefer to
keep network and database administration in house and to outsource
such projects that would allow them to concentrate on their core activities.
This is true for outsourcing both to domestic and offshore OSPs. Ian
Henderson, Head of Business Development at The Royal Bank of Scotland
International, says, "Recently, we have seen clients opt for complete
outsourcing solutions as they seek to focus on their core businesses.
We have, for example, been asked to provide simple global custody
services for one client, whilst for another private banking client
we provide a full outsourced service generating, amongst other things,
contract notes, income reporting, statements, valuations and performance
reporting. We are also finding that some clients are choosing to transfer
some services currently provided onshore to our offshore locations,
as they feel they receive better service and feel more valued here
than in the larger onshore markets."
|Even if you count not only person hours required to implement
the project but also the deployment and in-house personnel training
costs, you'll be able to save about 50% of your expenses if
you outsource your project overseas.
However, it would be wrong to think that you can outsource only non-core
projects. I read that Caterpillar Financial Services Corp. had a Web-based
financial system developed by an offshore OSP; moreover, while the
project was being implemented, the company trained its in-house staff
so that they could take on the maintain system once it was deployed.
The Right Overseas OSP
You should make sure the vendor whose proposal completely fits your
requirements is the right OSP, the one that you've been looking for,
the one that won't let you down. I don't know a universal technique
that would allow you to divide sheep from goats, but there are some
ways tested by time. Basically, the usual methods utilized when choosing
a vendor will work fine, so I'd like to mention just a few specific
- Looking for International Technical Certification such
as SEI-CMM Level 3 or 4 and ISO-9001 is a step that a lot of companies
begin with. Personally, I don't believe it necessarily guarantees
excellent quality of work, but you at least can be sure you'll
have no serious problems with the specification, plans, quality
assurance, and with the process in general. On the downside, you'll
have to pay more, so if your top priority is return on investment,
you'd better look for a vendor that will offer you the same quality
for a lower price.
- Visiting an Overseas OSP can be a wise thing to do if
you're going to outsource a long-term and expensive project, otherwise
your travel expenses may look unjustified. If you're one of those
people for whom personal contacts have decisive importance, you
might look for an overseas OSP that has the head office in the
country. Such businesses are a lot better to deal with from the
point of view of liability, but their services usually cost more,
The Factors that May Influence Your Decision
- Making sure the OSP's key personnel knows English well
enough to communicate is a must. Remember that a vendor could
hire an outside specialist to translate the proposal into English,
so e-mail, instant messaging, and telephone communication with
your potential overseas vendor must help you understand if the
employees that are going to be responsible for implementing the
project are fluent in English. They don't have to know a second
language perfectly well, but "Pidgin English" is absolutely unacceptable,
The crucial factors influencing the choice of the businesses that
outsource their projects are most often as follows:
1. the reliability of the vendor;
2. the vendor's rates; and
3. the term of implementation.
As the situation requires, these factors may trade places. There are
also other things about the vendor that you might find important:
- the ability to handle the proper kind of project;
- the knowledge and skills available;
- the company structure;
- the in-house process;
- the standards of communication;
- the way the office is run;
- the average employee profile (age, certificates, education);
- the way the security issues are handled (intellectual property,
non-competition, "code bombs," etc.);
- the difference in time zones;
- the country background and culture.
- The Iterative Approach
Unlike the traditional highly structured waterfall approach with a
fixed plan-do-test sequence of project phases, the iterative approach
typically has the form of a spiral and allows the project phases to
overlap. You can divide a complex project into manageable components
and achieve the expected results by working smart, not hard. Requirements
changes are easier to take into account and adjust, risks are usually
acknowledged in an earlier phase and thus mitigated, system components
can be reused, and integration is facilitated.
|The iterative approach typically has the form of a spiral
and allows the project phases to overlap. You can divide a complex
project into manageable components and achieve the expected
results by working smart, not hard.
"We use iterative development in two-week intervals. While one iteration
is underway, we start on the next one," says Bob Hays, vice president
and senior architect of ABN AMRO, a global bank with 110,000 employees
in 60 countries. "If our offshore providers follow a waterfall approach,
there is an impedance mismatch. Producing all that paperwork may be
useful for creating a legally defensible audit trail, but it slows
Whether you apply the waterfall or iterative approach, you can have
a project delivered and paid for in parts, and this is one of the
best ways to minimize the risk for you and your vendor.
In order not to get stuck in legal cobweb later on, have the contract
prepared by a lawyer who has the proper experience. I can tell you
just one thing: don't agree to settle any controversy and disagreement
in court of the vendor's country. If the vendor and you don't find
a better solution, this wording may be a good compromise: "Any controversy
of claim arising out of or relating to this agreement, or breach of
this agreement, shall be settled by arbitration in accordance with
the American Arbitration Association, and judgment on the award rendered
by the arbitrators may be entered in any court having jurisdiction.
There shall be three arbitrators, two to be chosen directly by each
party at will, and the third arbitrator to be selected by the two
arbitrators so chosen."
Also, you might want to include in the contract a clause that provides
for the project to be undertaken and paid for in parts.
Here to Read the Full Article
About the Author:
Basil Tesler is an Editor-in-Chief for Web Space Station®, an Illinois
based software company. Web Space Station provides total IT solutions
covering your most demanding technical needs. Our innovative approach
works for you to increase productivity, improve customer service and
reduce costs. And, we are dedicated to continually serving your needs
through our outstanding and ongoing commitment to quality and support.
See more information at http://www.WebSpaceStation.com.
Read this newsletter at: http://www.itmanagementnews.com/2004/0211.html