Studying Customer-Supplier Relationships in Global Software Development 1

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1 Studying Customer-Supplier Relationships in Global Software Development 1 Jayakanth Srinivasan Mälardalen University jayakanth.srinivasan@mdh.se Abstract The preliminary argument used by most organizations that choose to source their software from other organizations is the perceived cost savings. The nature of the relationship between the customer and supplier has to necessarily evolve in order for it to remain mutually beneficial over the long run, i.e., the 'arms-length' relationship becomes one of strategic partnering. Studying this evolving relationship requires a set of methods that capture the context within which these organizations exist, make explicit the gap (if any) between the actual and articulated nature of the relationship between the two organizations, and can be used to create some useful constructs for managing/ evolving the relationship. This paper illustrates how the paradigm of engaged scholarship has been applied to studying the EuroTel- IndiaCo relationship. 1. Introduction The preliminary argument used by most organizations that choose to source their software from other organizations is the perceived cost savings. The customer-supplier relationship in software development is as Brereton noted [1], a delicate, dynamic relationship that changes with time, demands, and different approaches to procurement. Increased market pressures forces the relationship between the customer and supplier to evolve in order for it to be mutually beneficial over the long run, i.e., the 'armslength' relationship becomes one of strategic partnering. Studying this relationship in the context of global software development requires the use of research approaches that capture both the context within which work is carried out, as well as the nature of the work being carried out. The long standing positivist tradition in software engineering research has been effective at identifying success factors and practices, but their generalizability is constrained by the context within which the research was carried out. A great example is the work of Herbsleb et al. in 2001 [2], wherein they use survey data, and data from source code changes to model delays in global software development, and use those findings to discuss implications for developing the next generation of collaboration tools. As Potts noted in 1993 [3], the focus of research in software engineering has been driven by the research-then-transfer model as opposed to the industry-as-laboratory approach. The recent ICSE workshops in 2000 [4] and 2008 [5] have highlighted that the need for innovative research approaches to study broader scale phenomena, still exists. In this paper, we discuss the engaged scholarship paradigm [6] and its application in studying the evolution of the relationship between the Platforms Business Unit (PBU) within EuroTel (a world leader in telecommunications equipment) and the Telecommunications Business Unit (TBU) of IndiaCo (one of India s largest software service providers). 2. Engaged Scholarship The paradigm of engaged scholarship was created to fill the growing gap between scientific research and professional practice primarily in the domain of organization and management studies. As a research model, the paradigm is best made actionable through an iterative process of Problem Formulation, Theory Building, Research Design, and Problem Solving. Figure 1. Elements of Engaged Scholarship 1 This research is supported in part by the Swedish Foundation for Strategic Research

2 While the textbook description of the process is direction-free, the approach we have adopted is directional, as shown in Figure 1.Problem formulation focuses on the four steps of situating, grounding, diagnosing, and inferring the problem in order to define the research question. This is carried out through conversations with individuals or groups that have either experienced the problem or know about it in detail. Theory building enables the creation, elaboration and justification of a theory, through some form of logical deduction. In this step, domain experts who have worked on the problem, as well as examples from published literature are leveraged. The research design step involves a variance or a process research design to provide an empirical means of examining the various theories generated, and the problem solving step enables the communication and interpretation of the findings. 2.1 Defining the Research Question The stakeholder-centric approach adopted as part of engaged scholarship requires the establishment of an open kimono relationship [7] between the researchers and the organizations under study, which can only be provided through engagement of the senior leadership team of the organizations. In our case, the initial point of contact was the senior leader on the customer side who had overall responsibility for managing the global supplier base. During our preliminary discussion with John (a pseudonym to protect his identity), we focused primarily on the challenges of balancing agility and discipline in software intensive systems development. Our ideas were centered on the notion that organizations struggled to effectively transition the ideas generated in research and development into actual products and services because of socio-technical challenges in which organizational issues dominated the actual technical issues. We further emphasized that another area where an organization obtained agility, was through innovation on the process front. During the hour long meeting, John strongly resonated with both the ideas, and mentioned a third, namely, obtaining agility by exploiting the supplier base. He further pointed out that his current challenge was on how best to leverage his global supplier base to support innovation within his organization. On exploring the literature in three areas: distributed software development[8, 9], software contracting [10-13], and outsoucing[14-17], we found that there were limited descriptions of the evolution of the relationship between customers and suppliers in global software development. This led to the first question we tried to address with our research, namely, How has the relationship between EuroTel and IndiaCo evolved over the last seven years? As our research progressed, we added two additional questions: How is the organization turbulence within EuroTel reflected in its relationship with IndiaCo? What are the factors that make IndiaCo successful? 2.2 Structuring the Research Following the initial meeting with John, we scheduled a series of semi-structured interviews with nine senior members of EuroTel s platform business unit. Through these interviews, that covered topical areas including EuroTel s evolution, the current state challenges facing EuroTel, the state of process improvement in EuroTel and the role of suppliers, we obtained a clear sense of the current challenges from both the organization and technical perspectives. Following the initial round of interviews, we were invited to speak at a team building workshop that involved members of both EuroTel and IndiaCo. At this workshop, we were able to both observe the dynamics between the members of both organizations, as well as gather survey data from sixteen members on the nature of the relationship between the two organizations. Figure 2. Research Structure Following the workshop, we visited the offshore site in India, where we interviewed sixteen members of IndiaCo who ranged from senior enterprise leaders, to project managers directly involved in the relationship

3 with EuroTel. Our choice of semi-structured interviews [18] and participant observation [19], was motivated both by the need to capture the context within which the relationship evolved, and the overarching goal of creating a more effective theory of software development. 3. EuroTel EuroTel is global leader in the design, development and sustainment of telecommunications equipment. From an organization structure standpoint, EuroTel is divided into three main business units: Applications, Platforms and R&D. The Applications Business Unit (ABU) acts as the primary face of EuroTel to its customers, and is responsible for creating, selling and sustaining the products. The Platforms Business Unit (PBU) provides the core technology platform around which the ABU builds the solutions for EuroTel s customers. R&D focuses on next-generation technological improvements. The case study focuses on the relationship between the Platforms Business Unit (PBU) within EuroTel and the Telecommunications Business Unit (TBU) within IndiaCo, one of India s largest software service providers. to writing their own software. Since 2001, EuroTel has moved to COTS components, resulting in the slow marginalization of the PBU. As the head of the PBU noted: Right now, we are struggling as an organization to determine whether or not PBU should exist. From a corporate standpoint, we feel that our competitive advantage lies in being a systems integrator, and not in the development of the core technology. Either we turn this business unit around or it is going to be split up and merged with ABU The relationship between ABU and PBU is an arms-length customer-supplier relationship, with the ABU generating requirements and handing it over to the PBU for development. Even though they are part of the same organization, ABU does not share customer requirements or product schedules with PBU, creating significant tensions between the two business units. As one product manager within PBU noted, We initially agreed to deliver the platform to ABU in July. Even though the requirements have changed dramatically, my team has been working round the clock to deliver the system on schedule. I just got a call from the project manager from ABU, telling me that they want the system delivered two months earlier there is just no way, that we can deliver a quality product The information hiding by ABU has significant implications on the relationship that PBU has with IndiaCo s TBU. While TBU is not completely aware of the internal organizational challenges faced by PBU, the interviews of TBU personnel highlighted the lack of information sharing by PBU and restrictive information access policies on the part of EuroTel. 4. The PDU TBU Relationship Figure 3. The Extended EuroTel Enterprise The extended EuroTel enterprise is shown in Figure 3., with the end customer s at the top of the figure, and the information flows between the various entities shown using directed arrows. While R&D and the ABU have bidirectional information flows, the ABU treats PBU as an internal supplier. Historically, EuroTel had complete ownership of their product value stream, relying on internal design expertise to create platforms from the chip design and fabrication The evolution of the relationship between EuroTel s PBU and IndiaCo s TBU is best understood in three phases: Birth, Growth, and Maturity. The relationship is slowly maturing to a point wherein TBU is perceived as a strategic partner. As the head of the PBU said at the team building workshop, We want to see more innovation coming out of TBU. In addition to meeting and exceeding our standards, we want to see TBU challenge us through open and honest communications give us the naked truth

4 4.1 Birth In early 2001, a recession in the home market resulted in EuroTel severely downsizing its headquarters by almost fifty percent. This massive reduction in manpower resulted in the organization switching from its traditional growth focus to a save the company mode. PBU was faced with an even greater shortage, as key personnel had been fired, taking with them a significant amount of tacit knowledge. The resultant culture at PBU was one of risk avoidance. As a senior manager at PBU noted, A lot of managers now would rather not take a decision, and wait for instructions from higher levels this is killing the innovation that was the core of the company. Yes, they are able to execute effectively when given orders, but they are not creating new value Given that the reduction in manpower did not result in an equal reduction on the total work that needed to be performed, PBU explored the possibility of creating a supplier base that would lower the cost footprint without impacting product quality. The organization that they tapped was IndiaCo s TBU, to take over the sustainment of one of their products. TBU s leadership recognized that this relationship had the potential for becoming a long-term strategic partnership. They realized that while this project was only a fragment of their total business, they needed to demonstrate success in order to win future contracts. TBU assembled a crack team of engineers, all of whom had significant domain expertise in the telecommunications industry. The team recognized the challenges of working in a hostile environment PBU s personnel were very wary that TDU was taking their jobs, and while they did not resist overtly, they did the minimum needed to satisfice the needs of a technical handover. Given that the provided information was not sufficient for TBU to take over the product s sustainment, the onsite team focused on reverse engineering the product and generating the needed documentation, while at the same time enhancing their understanding of the product. As one TBU project manager noted, We have better documentation on the product than PBU does. More importantly, our understanding of the product allows us to identify existing bugs in the system as well as product enhancements 4.2 Growth TBU s success in the pilot project resulted in them obtaining six additional projects from PBU, all of which were focused on the sustainment area. It was during this phase from 2003 to 2007, that the growing pains of managing an offshoring relationship came to the forefront. PBU initially treated TBU as an arms-length ondemand supplier (mirroring the relationship that they had with ABU). Additionally, while PBU had seen the ability of TBU to deliver a quality product, there was still skepticism at the corporate level within EuroTel about the role and nature of offshoring (even in the seventh year of the relationship, skepticism still remains within EuroTel). These two factors combined to result in TBU not being given access to the product information needed to effectively carry out maintenance operations. TBU institutionalized the process they had created during the pilot project to ensure that sufficient documentation was generated. At the same time, they built an escalation mechanism, that would allow TBU personnel to communicate (through their own leadership) to PBU s leadership about the lack of information or resistance from other PBU personnel. TBU s onshore-offshore model, wherein they have at least two to three key domain experts working on-site at PBU, and the remainder of the team located offshore in India, allowed them to interact in person with the key PBU stakeholders. This model enabled TBU to manage customer expectations. The growth phase also saw the establishment of a monitoring and control process, wherein TBU would track their metrics internally, and report them out at quarterly meetings with PBU. One of the strategies used by the leadership in both organizations, was to alternate the site locations of these meetings between Europe and India, to ensure that both sides obtained a pulse of the current state of the relationship. Although TBU tracks twenty five metrics internally on the state of the process and the project, they only report out five of the cost and schedule metrics that are requested by PBU. Project managers at TBU explained the gap as: We show the customers all the metrics they want to see, but most of them are only interested in the current state progress. This variation is customer expectations is reflective of the internal challenges in PBU, wherein individual project managers see TBU as being solely a service provider while others see them as strategic partners. It is important to note here, that this variation still exists within PBU. TBU s project management system is deeply coupled with the quality management system, allowing them to identify and solve problems before

5 they reach the crisis state. One of the testaments to the evolution of the relationship is the ability of project managers to communicate schedule and cost slippages ahead of time. As one project manager noted, If I see a problem coming, I would rather let PBU know ahead of time, rather than have it come up in the review meetings. There is a challenge in that our processes are more mature than those of PBU, and while they expect stringent performance on our side, their processes are often lacking 4.3 Maturity Over the last year, the relationship between TBU and PBU is slowly evolving to a state of maturity. While individual project managers in PBU vary vastly in their treatment of TBU, there is a strong sense of urgency within the senior leadership of PBU to evolve the relationship into a strategic partnership. This is visible in their transitioning complete ownership of one product to TBU. At a recent workshop that we co-facilitated, sixteen members of both organizations were involved in a process of negative visioning, future visioning, and various team building exercises. The data from the visioning exercises was consolidated and clustered to identify the five key areas of concern: Accurate and Timely Communication, Establishing a Win-Win Trust-based relationship, Shared Product Ownership, Building Competencies and Spurring Innovation, and Effective Management. In addition to their articulation of the vision, we handed out a survey to assess the current state of the relationship. The results shown in Figure 4., highlights the strong alignment between the members of PBU and TBU, with the exception of requirements generation, and sharing long term plans. Since PBU is treated as an internal supplier to ABU, they themselves do not have access to the long term plans of EuroTel, and are subject to high requirements volatility from ABU. This problem is further exacerbated by the fact that TBU does not have direct access to either the internal customers of PBU or the actual end-customers of the products. Furthermore there is significant uncertainty about the existence of PBU as a business unit within EuroTel. This uncertainty, coupled with a constant need to show cost savings (PBU demands a steady reduction in costs, while increasing the amount of work that is sent to TBU) and the steady erosion in competence within PBU, results in increased requirements volatility and the perception of information hiding on the part of PBU. That said, the relationship continues to evolve towards a partnership. TBU has consistently demonstrated excellence and is considered to be the model to be replicated within IndiaCo in terms of building and evolving a relationship. TBU recognized the need to demonstrate increased value, and built a team of experts to determine potential improvement opportunities. Given that TBU bills man-hours, and not project capabilities, this activity was carried out using internal funding. In addition to identifying the opportunities, they demonstrated the improvements at their own costs, and have received cofounding from PBU to implement additional improvements. As one of the project managers noted: We have the best insight into improvement opportunities as we are carrying out the maintenance operations. Over the last two years, we have consistently improved both the documentation and the quality of the final product. Our internal team identified twenty improvement opportunities, and executed on them using TBU funds. As a result, PBU is now cofounding some of the improvements. Our goal is to have complete product ownership, and we have to demonstrate value in order to do that. Figure 4. Assessing the State of the Relationship The participants were asked to rate the state of the relationship between PBU and TBU on a scale of 1 to 7 (with one being the worst, and 7 being the best) across various organizational and technical factors. 5. Conclusions Doing mixed-methods research to understand the socio-technical factors that govern the relationship between customers and suppliers in global software development has to meet the stringent requirements of

6 both quantitative and qualitative research [20]. Our approach to ensuring construct validity has been to create a pool of informants from both the managerial and technical roles within both organizations. Our case study data base contains the sources of evidence, as well as the interview transcripts post interview, and post validation by the informants. We ensure internal validity by capturing the explanation building process though the use of memos and storytelling. External validity is obtained through a detailed review of the literature, as well as through experience stories of the senior enterprise leaders. The case study protocol, which involves individual review by informants, organization review of the case study, coupled with presentations made to industrial and academic audiences ensures the reliability of the findings. It is important to note here that this approach has fiscal and time constraints, but the greater challenges are in obtaining access, establishing trust, and ensuring confidentiality of informants. This paper presents the findings with respect to the first question, namely: How has the relationship between EuroTel and IndiaCo evolved over the last seven years? Additionally the paper provides preliminary insights into How is the turbulence within EuroTel reflected in their relationship with IndiaCo? The answers to the third question on the factors that make IndiaCo successful merit a paper in its own right. We believe that the engaged scholarship paradigm is strongly applicable to studying broader scale issues in software engineering, and it provides an overarching framework to support the use of mixed methods in studying socio-technical phenomena. 6. References [1] P. Brereton, The software customer/supplier relationship, Communications of the ACM, vol. 47, no. 2, pp , [2] J. D. Herbsleb, A. Mockus, T. A. Finholt et al., An Empirical Study of Global Software Development: Distance and Speed, Proceedings of the 23rd International Conference on Software Engineering, pp , [3] C. Potts, Software-engineering research revisited, Software, IEEE, vol. 10, no. 5, pp , [4] S. E. Sim, J. Singer, and M. A. Storey, Beg, Borrow, or Steal: Using Multidisciplinary Approaches in Empirical Software Engineering Research, Empirical Software Engineering, vol. 6, no. 1, pp , [5] Y. Dittrich, O. Hazzan, F. Maurer et al., Cooperative and human aspects of software engineering (CHASE 2008), [6] A. H. Van de Ven, Engaged Scholarship: Creating Knowledge for Science and Practice: Oxford University Press, forthcoming, [7] D. T. Hall, K. L. Otazo, and G. P. Hollenbeck, Behind closed doors: What really happens in executive coaching, Organizational Dynamics, vol. 27, no. 3, pp , [8] J. A. Espinosa, R. E. Kraut, J. F. Lerch et al., Shared mental models and coordination in largescale, distributed software development, Twenty- Second International Conference on Information Systems, pp , [9] R. E. Kraut, and L. A. Streeter, Coordination in software development, Communications of the ACM, vol. 38, no. 3, pp , [10] S. Whang, Contracting for software development, Management Science, vol. 38, no. 3, pp , [11] A. V. Banerjee, and E. Duflo, Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry*, Quarterly Journal of Economics, vol. 115, no. 3, pp , [12] E. T. G. Wang, T. Barron, and A. Seidmann, Contracting Structures for Custom Software Development: The Impacts of Informational Rents and Uncertainty on Internal Development and Outsourcing, Management Science, vol. 43, no. 12, pp , [13] A. Gopal, K. Sivaramakrishnan, M. S. Krishnan et al., Contracts in Offshore Software Development: An Empirical Analysis, Management Science, vol. 49, no. 12, pp , [14] S. Krishna, S. Sahay, and G. Walsham, Managing cross-cultural issues in global software outsourcing, Communications of the ACM, vol. 47, no. 4, pp , [15] R. Heeks, S. Krishna, B. Nicholson et al., Synching or Sinking: Global Software Outsourcing Relationships, [16] J. D. Herbsleb, and D. Moitra, Guest Editors' Introduction: Global Software Development, [17] D. Damian, and D. Moitra, Guest Editors' Introduction: Global Software Development: How Far Have We Come?, Software, IEEE, vol. 23, no. 5, pp , [18] E. G. Mishler, Research Interviewing: Context and Narrative: Harvard University Press, [19] B. DeWalt, B. R. DeWalt, and J. A. Maxwell, Participant Observation: A Guide for Fieldworkers: Sage Publications, [20] R. K. Yin, Case Study Research: Design and Methods: Sage Publications Inc, 2003.