An RCG White Paper Ten Criteria for Offshore Outsourcing

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1 Ten Criteria for Offshore Outsourcing By Roy Garrad This document is the copyrighted and intellectual property of RCG Global Services (RCG) All rights of use and reproduction are reserved by RCG and any use in full requires thee advance written consent of RCG, all quotations and partial usage allowed providing the source is credited.

2 Specifically, where is the offshore work going? CIO Magazine has identified five countries as leaders in this field: The Philippines, Canada, India, Ireland, and Israel. CIO Magazine ranks Canada, Ireland and Israel in the highest category for average programmer salary, which translates into the lowest potential savings. That leaves the Philippines and India as the bestcost alternatives. Aside from cost considerations, outsourcing has to be evaluated by whether it will work for your organization. Here are 10 things to consider before making a decision. Top 10 Reasons Companies Outsource 1. Reduce and control operating costs 6. Accelerate reengineering benefits 2. Improve company focus 7. Function difficult to manage/out of 3. Gain access to world class capabilities control 4. Free internal resources for other 8. Make capital funds available purposes 9. Share risks 5. Resources are not available internally 10. Cash infusion Source: Survey of Current and Potential Outsourcing End Users The Outsourcing Institute 1. WHAT TYPES OF FUNCTIONS OR PROJECTS MAKE GOOD CANDIDATES FOR OFFSHORE OUTSOURCING? Data conversions and system migrations are typical applications taken offshore. Naturally, the company must be willing to allow their application code to be located outside their site(s) during development. Examples of data conversion involve relatively simple field changes, coding changes to support the revised data formats, and regression testing. System migrations are similar in that the goal is to maintain current functionality while the underlying software, database, or technology platform is upgraded as quickly as possible. Examples of this include upgrading legacy applications, converting from one platform to another (Windows to Linux for example), and moving to the latest release of a software package. Application development projects are also good offshore candidates. From a standard Software Development Life Cycle (SDLC) perspective, offshore work is most beneficial in the construction and testing phases where end user interaction is limited, and the task is well defined. For stable applications, most maintenance activities can be performed remotely so application maintenance is also a good candidate for offshore outsourcing. Many large companies already centralize system support, making maintenance a remote activity for most of the end users. Since users may be located overseas, moving the maintenance operations closer to these locations could have added benefits. For 24X7 maintenance requirements, the support infrastructure must be up to thetask and some local support will be needed. With the right communication infrastructure, Call 2011 RCG Global Services, Inc. All Rights Reserved. Proprietary and Confidential. Page 1

3 Center or Help Desk functions can be moved offshore, provided language difficulties can be overcome. 2. HOW BIG DOES THE PROJECT NEED TO BE TO MAKE SIGNIFICANT SAVINGS? In absolute terms, assuming a mix of offshore and US based resources, a 5 10 person engagement is needed to justify taking a project offshore. This could be a single project, function, or series of smaller projects managed together. A smaller project may serve as a lowrisk pilot, providing both you and your offshore partner are prepared to underwrite it as an initial investment that will bring benefit from later endeavors assuming the pilot is successful. You can expect to incur one time costs just evaluating your options. Ideally, this will involve travel to prospective offshore locations. On a per project basis, the offshore option may make the difference you need to get approval to go forward in the current economic climate. If your IT department has a staff of 1,000, you should estimate that at least 50 positions or 5% of your headcount will be reduced. This will generate noticeable, long term savings. 3. IS THE PROJECT WELL DEFINED? Well defined projects that allow the project team to work independently and autonomously are ideal. For example, projects like data conversions and system migrations work well because little or no user interaction is required until user acceptance testing. Likewise, development tasks like remote construction are good candidates if you have a sound development methodology in place and reasonably firm requirements and design. Offshore testing with a properly constructed software product is another function to consider. The lower offshore rates make rework or changes less expensive too, but remember that changes will also involve extensive communication and management overhead. With excellent electronic communication, and clearly defined roles and responsibilities, maintenance works well. 4. ARE THE RIGHT RESOURCES READILY AVAILABLE? Does the offshore staff, have the necessary experience with your particular software? For example, there may be a very small installed user base of SAP or PeopleSoft in that part of the world, so there will be very few local resources. But the local installed user base tells only part of the story. In some cases, the local talent pool is enriched by temporary workers returning home. If offshore resources are not available in sufficient quantities for your needs, they will have to be trained, so the anticipated savings may not be realized as quickly RCG Global Services, Inc. All Rights Reserved. Proprietary and Confidential. Page 1

4 5. IS YOUR ENVIRONMENT EASILY LEARNED? If it s a development project, consider if your offshore partner wrote the requirements or built the design? If it s a maintenance or testing project, did your partner develop the application? If so, the learning curve should be short. If not, you may have to keep your existing staff in place longer, while the new company learns your environment. 6. DOES THE VENDOR HAVE GOOD PROCESSES? Being SEI or ISO rated is often used as a selection criterion. However, both these quality measures have been changing. In the last four years, the SEI Capability Maturity Models have been upgraded, and the new CMMI models (I=integrated) improve upon the best practices of previous CMM models in many important ways. Look at this rating, but also beyond it. SEI requires specific processes for software service providers, but does not require regular reassessments. So ask when and how the company was assessed and by whom. If the assessment occurred several years ago, ask how the vendor s processes have changed since that time. ISO requires regular re certification, but historically ISO has not been as concerned with the actual process itself so be sure to ask about the process, and what processes will be followed on your project. In addition, remember that you now become part of the process, so your existing procedures have to match the vendor s. If they don t, then one (or both) of you has to change. 7. WHAT PROJECT SUPPORT WILL THE VENDOR PROVIDE ON SITE? The ratio of off site to on site people will range anywhere from 2:1 to 10:1, depending on the project type or phase. Even though the bulk of the work may be done offshore, it s likely that some component will need to remain onshore. The onshore contingent will be the people you see at your site every day, so they will be the more senior team members. Some of the offshore team may need to visit your site initially, incurring relatively high travel costs. Offshore projects also bring an overhead in both infrastructure and effort expended in communication. Even if the onsite staff is working at a discounted rate, the big savings are in the more junior offshore team, so the offshore team has to be large enough and the project long enough for labor savings to offset other costs. A good rule of thumb is to expect to an average of one person onshore (on site) for every four persons offshore. 8. WHAT REPORTING MECHANISM APPLIES? Appointing a single manager or contact to manage the vendor is a good step. Both sides will have higher level contacts in place for regular meetings, escalation of issues, and change control. You will need to agree what measurements will be used to track progress. For a 2011 RCG Global Services, Inc. All Rights Reserved. Proprietary and Confidential. Page 2

5 project, this may be project milestones. If these milestones are too far apart, set interim goals for better control. For a testing function, you could measure test cases written and tests executed but it s hard to make a vendor responsible for completing the test if it s your code and it still doesn t work. For a maintenance or help desk function, track time to respond to issues and to resolve problems. In all cases, keep it simple, at least at first. Ideally, measurement will be a by product of the process, rather than an end of week activity that might consume significant time and effort. 9. WHAT SORT OF GET OUT CLAUSE DO YOU HAVE? If it all goes bad, or if you just want to bring it back in house, how do you escape? How much will it cost you to take your system back? Simple arithmetic tells you the painful answer. If you were lucky enough to save 60% in costs on a past project, it would be difficult to accept any increases for the same function in the future. This could be very significant if a large IT function like a Help Desk is involved. Even worse, if it s a project with a critical deadline, it could affect cost and schedule. You ll need to have contract language that protects you. 10. SHOULD YOU CHOOSE COMPANY OR COUNTRY FIRST? Choosing a country first helps you remove one more variables from the equation and may help you make your decision sooner. On the other hand, working with a contact you know should go a long way towards leveling the country playing field. If you already have companies that you re comfortable with, the local representative will usually be directly accountable to you and will have a vested interest in your mutual success. If your needs are large enough, perhaps you should look at outsourcing to more than one country in order to mitigate risk as several companies have done over the last year. Offshore outsourcing can be a powerful force, if the selection is done correctly. You may get 60% savings on an offshore technical conversion with little on site support, but you won t get it on a badly defined project that requires a lot of user interaction, or when your internal processes cramp the style of the vendor and make them 50% less efficient. In all cases, do your homework. Give the vendor a trial run on a low risk project and measure the results. ABOUT RCG GLOBAL SERVICES RCG Global Services ( has a rich history of providing professional services to the Global 1000 marketplace. Our industry expertise allows us to engage business executives in discussions about specific business initiatives. Our repeatable blueprint to affect 2011 RCG Global Services, Inc. All Rights Reserved. Proprietary and Confidential. Page 3

6 business change typically involves the application of technology. Our technology design and implementation follows a rigorous predictable approach that ensures a customized solution tailored to the client. We are committed to helping our clients define and realize ideas and are CMM certified enterprise wide. Each Business Consulting offering follows a consistent, proven approach to developing strategy and conducting analysis that leads to a custom fit implementation roadmap. Technology solutions are based upon repeatable processes and practices applied to Development & Integration, Business Intelligence & Data Delivery, QA & Software Testing, Application Management and Project Management. RCG serves 360 clients and 7 of the Fortune 10 across a range of markets, with special focus on the insurance, retail, healthcare, entertainment & hospitality, and energy & utilities industries. RCG is based in Edison, New Jersey, with 12 offices nationwide, an Offshore Delivery Center in the Philippines that is assessed at SW CMMI Level 5, and a global recruiting engine RCG Global Services, Inc. All Rights Reserved. Proprietary and Confidential. Page 4