Indo-Soft: Capacity Planning in Software Services

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1 August 2006 Indo-Soft: Capacity Planning in Software Services At 8:00 a.m. there was still dense fog outside the office window. Venkat knew some software engineers on the Zinger team wouldn t be able to report to the office on time due to serious traffic disruption caused by the poor visibility. He wished the month of January in Gurgaon, India, was a lot more productive on all fronts. He knew his problem was not that his engineers would be late today; they often worked way past 6 p.m. His real concern was that something was not right about the way that the maintenance of Zinger was being managed. They were taking a lot longer to provide corrective patches for the software (or fix the bug, as their geeks often called it). Clearly, Zinger had more defects than what was originally expected by Indo-Soft, but that could not lead to such long wait times for defect correction. Was it poor training of new engineers? Was the service contract with the client too aggressive? Should they add more engineers and if so, how many and from where? As Venkat gulped the last ounce of his morning coffee, he knew that he had better have a definitive plan of action to convey to his major US client before the conference call scheduled for 10 p.m. that night. Offshore Software Development in India Over the last decade, offshore development of IT services has shown significant growth. The International Data Corporation (IDC) estimates that the global demand for IT services will be USD 1,082 billion by the year The offshore component of global IT services demand is expected to rise from Swaminathan This case was prepared by Professor Jayashankar Swaminathan with the help of doctoral student Sriram Narayanan as the basis for class discussion rather than to illustrate good or bad administrative practices.

2 USD 39.6 billion in 2004 to nearly USD 70 billion by the year In line with this growth, overall Indian IT-enabled services and in particular software services have also shown significant growth (see Figure 1). India has emerged as an important offshore location in the software arena. In a recent survey of managers, India was the top choice among US businesses that were looking to outsource technology work overseas. The advantages of offshoring cited in the survey included cost competitiveness, a highly skilled labor pool, and a high level of service maturity. 2 According to the National Association of Software and Service Companies (NASSCOM) in India, As of December 2005, over 400 Indian companies had acquired quality certifications with 82 companies certified at SEI CMM Level 5 higher than any other country in the world. 3 The Software Engineering Institute Capability Maturity Model (SEI-CMM) is a framework developed by the Software Engineering Institute at Carnegie Mellon University to identify the best processes, and Level 5 is the highest level that a firm can achieve. In the past decade, Indian industry has grown not only in numbers, but also qualitatively in terms of the nature of engagement and the type of work being done. NASSCOM, in its strategic review of the Indian IT services industry for 2005, stated, Over time off-shoring software has grown from one-off, project-based engagements involved in low-end activities to longer term engagements often involving multiple, more complex tasks. 4 The growing complexity was reflected in both the variety and the depth of services offered. In terms of variety of services, the IT services market in India has also expanded from the provision of custom application development and maintenance services to the provision of other services such as packaged software implementation, systems integration, network consulting and integration, IT 1 NASSCOM Strategic review 2005: The IT industry in India. National Association for Software and Service Companies, New Delhi, India. 2 McDougall, P India, Canada, and China Are Top Outsourcing Destinations, Information Week. 3 NASSCOM Strategic review 2005: The IT industry in India. National Association for Software and Service Companies, New Delhi, India. 4 NASSCOM Strategic review 2005: The IT industry in India. National Association for Software and Service Companies, New Delhi, India. Page 2

3 consulting, and IT support and training. 5 Of all the IT services, the biggest share has come from custom application development and maintenance, which accounted for 51% of India s total exports in and had an offshore content of 85%. 6 In terms of depth, the export of global R&D services and product development services from India is expected to grow rapidly, from a current USD 2.3 billion to USD 8 11 billion by The growth and change in the market has also impacted the nature of the engagement between customers and vendors. Successful vendors over a period of time have grown their portfolio from one-off, project-oriented engagements to dedicated offshore centers. In one-off project engagements, the vendor operates independently on different projects and does not have a dedicated set of engineers for each client. In a dedicated offshore center, a group of engineers functions like the employees of the customer working offshore. In most cases, they support the on-site teams in the maintenance and testing of various software/product releases. Important benefits for both the US and the offshore firm are gained from this set-up. The US firm gains greater control and capabilities over the outsourced activities as well as benefitting from rapid product development capabilities. The supplier gains greater client-specific experience, and its engineers develop better familiarity with the task, culture, and requirements of the client, which promises improved productivity. However, in this set-up both firms become more closely coupled in terms of day-to-day activities. Therefore, delays or problems at the offshore site have an immediate impact on client operations in the US. Indo-Soft and Zinger In the early 1990s Indo-Soft derived a large part of its revenue from on-site work (work from client facilities in the US), doing one-off projects for various clients. Only a small part of its revenue was generated from offshore work. Through superior performance, it has grown considerably over the last 5 6 NASSCOM Strategic review 2005: The IT industry in India. National Association for Software and Service Companies, New Delhi, India. 7 NASSCOM Strategic review 2005: The IT industry in India. National Association for Software and Service Companies, New Delhi, India. [please confirm that this is the correct source information for this footnote] Page 3

4 decade both in the quality and quantity of work from its key clients. Today, as a USD 500 million company, a significant proportion of Indo-Soft s revenue comes from dedicated offshore centers that deliver services such as development, maintenance, verification testing, and consulting in application and technology domains. Indo-Soft has worked with several product companies to help them maintain existing products in the marketplace and develop newer products faster by exploiting the time difference between India and United States. Venkat, whose full name is Venkatraman Ramachandran, joined Indo-Soft in 2002 after receiving his bachelor s degree in Computer Science. Since then, he advanced rapidly within the organization, becoming a Project Manager in His first responsibility as Project Manager was to maintain Zinger a new software product that was recently released to the market by MY-IT, Indo-Soft s top client in the US market. Zinger was a systems software product that enabled communication in corporate LANs (Local Area Networks) and WANs (Wide Area Networks). The primary advantage Zinger offered to customers was compatibility to diverse standards, as it integrated several technologies within a single platform. In many cases, Zinger could be deployed very quickly, because it was compatible with most of the existing products in the market; that was its main differentiation. Being a new product, it was starting to gain a considerable amount of success in the market. The requirement for more features in the software was also growing, in line with its increasing installation base. It was common practice at this time to release a standard product offering and then customize it by adding more features based on individual clients requirements. A significant amount of development cost was incurred, however, in adding such features and maintaining the software over its lifetime. In MY-IT s case, these costs were estimated to be 70% of the total development cost (which was in line with the competition). To reduce this cost, MY-IT had offshored the maintenance of the products to Indo-Soft, enabling MY-IT engineers to focus on other innovative projects that required advanced skills. Venkat s team had proven its efficiency in working in an offshore environment. His team was responsible for the following: (a) repairs including corrections of mistakes or errors in the software code (generally referred to as bugs ); (b) preventive maintenance including technical upgrades and the Page 4

5 restructuring or rewriting of pieces of software code; and (c) enhancements including adding, changing, or deleting software functionality to adapt to changing business requirements. Venkat s team spent a majority of their time on repairs to correct the defects reported by customers, developers, and testers of Zinger. Product Deployment Zinger was becoming more popular in its market segment. The adoption rate of the product was increasing, and the sales forecast was 500 new installations a week for the next six months. This rate was expected to grow further in the coming months. The projected incoming rate of defects, taking into account the installation base of the Zinger, is shown in Table 1. As the number of new product installations grew, several customers needed additional features that required modifications to the product. An increase in the number of feature additions to the products and in the complexity of interactions among the modules also increased the number of incoming defects. A high rate of incoming defects increased the wait times for resolution, which were beginning to creep up to higher levels than the client found acceptable. Although the defect rates were projected to increase at this point, past history with other products suggested that once the software stabilized in the field, the rate of incoming defects would be reduced significantly. People Management Indo-Soft faced an annual employee turnover rate of 15%, which was better than the industry average of 20% but was still high. The growth in the industry and the strong demand for competitive labor made it possible for the best employees to increase their salaries by 40% 60% when they changed employers. In this knowledge-intensive industry, turnover was troublesome, because a considerable amount of time and effort was required to bring engineers to their peak productivity. Most new engineers became more productive as the length of time they had been with the team increased (see Table 2 for estimates). Given the investment required to train a new employee, it was in the best interest of a project Page 5

6 manager to not follow the hire and fire strategy for capacity management. The current experience profile of the engineers who were working in the Zinger team is shown in Table 3. Defect Resolution All incoming defects (bugs) had to go through a sequential process (see Figure 2), and MY-IT had a tool to record all the details pertaining to the history of the defect. Each defect came with a severity rating of 1 to 5. A severity rating of 1 indicated that the defect seriously affected the functioning of the software, while a severity rating of 5 indicated that the defect was minor and was more in the line of an potential future enhancement. In line with the seriousness of the defect s impact on the software, the customer was extremely conscious of delays in resolving defects of severity 1 and 2 and was willing to tolerate delays for defects of severity 3, 4, and 5 as long as the overall targets were met. Each defect was assigned to one engineer on the team, and the engineers were expected to work on the defects with the highest severity ratings first. When a new defect came in, it was assigned to the engineer with the smallest number of defects in his/her workload at the time. The engineer first checked if the defect had previously occurred and had been resolved. If not, the next step was to check the validity of the defect. Here the engineer would recreate the defect to see for himself/herself the nature of the problem. Sometimes this step involved putting together a set of equipment similar to that described in the report filed by the customer. Because the hardware was shared across multiple projects for the same client, the lack of availability of equipment to recreate the defect sometimes created further delays. Once the validity of the defect was established, the engineer started the defect resolution process. Given the random arrival of defects, often an engineer would need to stop his/her current work on a defect in order to work on a more severe defect. Therefore, when summaries of resolution time (measured from the time of assignment) were analyzed, it was common to find that some of the lowestseverity defects took the longest time for resolution. Further, the most severe defects had to be fixed, which implied that if a resolution could not be found, the team typically invested additional time and Page 6

7 effort in looking for workarounds to get the customers operations to function until a resolution was found. Such workarounds took time away from the existing effort to debug. Capacity Management Many of the above factors affected the operational capacity of the team in terms of the number of defects resolved. Even though there was considerable variation in incoming defects as well as in engineer productivity, the Zinger team was known to invest their work hours very productively. Each engineer worked for 24 days in a month. The long wait times for defect resolution were the result of inadequate capacity. Although it would be ideal to recruit many more engineers, Venkat also had to consider the future implications of such hiring. The projections estimated that the defect rates would go down starting in June Venkat knew there were several possibilities to make the situation better. He could do a detailed process analysis to improve the engineers productivity levels. A second option would be to revisit the process by which defects were assigned to individual engineers. Yet another alternative would be to manage employees learning and turnover. As he planned for the right capacity for the team, he needed to ensure that sufficient capacity was added to keep the client happy in the short term. As Venkat stared from his office window, and saw engineers from his team merrily walking in, his mind drifted back to his days as a fresh recruit and the simple, carefree, happy times of endless coffee and debugging. Today as an engineer he could even earn double what his starting salary was. The ringing phone woke him up and his assistant Sheila reminded him of the 10 p.m. meeting with the client. He knew he needed a capacity plan by then. Page 7

8 Figure 1: Indian ITES and Software Services Revenue Indian IT Services and Software Revenues in comparison to Overall IT-Enables Services Revenues ITES Revenue IT services and Software Figure 2: The Flow of Defects in a System Bug Submitted Bug Reopened Yes Previously Resolved? No Bug Assigned Is the Bug Valid? No Trash the Bug Yes Perform debugging task Is a bug fix available No Close bug and provide workarounds Yes Verify Bug Fix Page 8

9 Table 1: Projected Incoming Defect Rate Month Incoming Defect Rate* (defects per month) November Current Month December January February March April May June July August September October November December * Incoming defect queue at the beginning of November 2005 was zero defects. Table 2: Engineers Experience and Average Productivity Length of Time Average No. of Days with the Team to Resolve a Defect * 6 months 8 > 6 months to 18 months 6 > 18 months 4 * The number of working days available per month per engineer is 24. Page 9

10 Table 3: Experience of Existing Team Members (as of beginning of January 2006) Engineer Name Experience Rajiv Catherine John Rekha 2 years, 2 months 4 months 9 months 1 year, 4 months Table 4: Distribution of Defect Severity Severity Distribution of Severity (percentage of total defects) % % % % % Page 10

11 Questions to consider: 1. Suppose Venkat commits to his clients that by the end of December 2006 he will reduce the total defect queue in the product to zero while taking care of severity 1 and 2 defects on a month-by-month basis. Can Venkat do this without recruiting additional people? If not, what should be his recruitment plan? Indo-Soft s human resources division has a hiring lead time of one month. To simplify calculations, assume all engineer inductions happen at the beginning of the month and all defects for the month are filed at the beginning of the month. What are the implications of the above assumptions in terms of capacity estimation? 2. What are the strategies you would suggest for improving the workflow in the team to improve capacity? 3. What are your recommendations to Venkat for the overall capacity management issues at Indo-Soft? Page 11

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