HOW TO DO IT RIGHT. Setting Up an Offshore Development Center

HOW TO DO IT RIGHT Setting Up an Offshore Development Center

Executive SUMMARY s offshore outsourcing plays an increasingly strategic role in a company s operating model, and as offshore vendors have become more closely integrated within an industry s value chain, companies are establishing more strategic relationships with their vendors. Setting up an Offshore Development Center (ODC) is one of the operating models used in these strategic partnerships. This paper will describe what an ODC is, what the benefits of the ODC model are to an organization and due diligence required when setting up a ODC with a supplier organization. 2015 BLEUM 1

HOW TO DO IT RIGHT Setting Up an Offshore Development Center Background IT outsourcing began in the late 1980 s. CIO s such as Kathleen Hudson at Kodak helped capture public attention by making outsourcing a viable and serious business strategy. Her goal was to " plug into the wall and have data come out." The business continues to grow and is valued at over $58 billion. The majority of companies are in India, although a growing number are springing up in China as well. Many financial institutions and IT organizations continue to outsource their administrative and IT work offshore. New customers are also entering the scence, including retailers and non-profit organizations. Requirements in choosing an offshore partner range from straightforward tactical support, such as software testing and application development, to more strategic support such as the establishment of an Offshore Development Center (ODC). What is an ODC? In simple terms, an ODC is made up of a dedicated team of programmers and developers hand picked to complement a customer s skill set and culture. This unique team works exclusively on behalf of the customer either at the service provider s site or their own captive site in a secure environment. The infrastructure and security can be designed to meet the customer s specific standards and specifications, sometimes including co-branding. The closer the synergy between an ODC and an organization s own IT/development department, the more advantageous the relationship. The ultimate goal is for an ODC to be a seamless extension of an organization s IT department. 2 How to do it Right. Setting up an Offshore Develop Center.

Benefits of an ODC Cost Savings Cost savings through working with an ODC can range from 30-60% depending on the type of work and scale of the ODC. In major offshore markets such as India and China, significant reductions come from lower labor costs, training and recruitment. Additional savings can also be made by the customer at home with a reduction in capital expenditure. Increased speed ODC s that operate in a different time zone from their customer speed up development time, particularly if a 24-hour work day can be established. For ad hoc projects that require a quick ramp up and ramp down, ODC s can provide beneficial resources with space that can be quickly mobilized. NeoIT, a leading global services consulting firm, found that more than half of globalizing organizations want a reduction in time-to-market. Shorter product life cycles, greater competition and faster return on investment are all market factors fueling the need for increased development speed. Availability of skilled talent While not so visible to a company s bottom line, an important value proposition is the availability of talent. This is becoming an increasingly imporant factor in selecting the right outsourcing destination, especially as talent pools in popular outsourcing destinations such as India are becoming saturated. A recent report by the Wall Street Journal cited the lack of available talent in India. The paper reported that 75% of technical graduates and more than 85% of general graduates are unemployable by India's high-growth global industries. Potential clients are now turning to places like China, Russia and Brazil for their outsourcing needs. 2015 BLEUM 3

HOW TO DO IT RIGHT Setting Up an Offshore Development Center Guidelines for Vendor Due Diligence Since an ODC plays such a strategic role in a company s operations, conducting thorough due diligence on a vendor is critical. The questions below give some guidelines for the types of aspects that customers should examine when choosing a vendor as an ODC partner. Strategic Does the vendor understand the company s business goals and objectives? Is there clear understanding and buy-in from senior management as to the objectives of the ODC? Are the short- and long-term ODC objectives clear? HR Are the proper processes in place to manage the ODC operations? What safeguards exist to ensure the continuity of the ODC s key resources? Is there a process for staff transition planning? How are ODC staff motivated? Does the company offer any guarantees on staff attrition? How is the ODC recruitment process conducted? Flexibility and Customization What degree of staffing flexibility does the ODC vendor offer? Can you interview and select the ODC Project Manager and other key team members? Is it possible to review the team at any time in the relationship? What are the minimum number of heads to set up an ODC? What level of scaling flexibility is offered once the ODC has been established? What is the ODC workspace like? Can this be tailored to your needs? Is co-branding allowed? Communication How does the vendor manage transnational communication? What is the standard of English proficiency at every level within the ODC? What communication methods are used (i.e.: video/conference call, email, status reports, MSN or proprietary messaging tools)? How frequent is the communication? IP Protection Is the vendor a pure service provider, or are they also a product company? Pure service providers do not have any interest in a customer s intellectual property. A company with similar product types to one s own runs a higher risk of IP complications. What security measures are built into the infrastructure? Look out for items such as 24/7 CCTV cameras, access levels, biometric door locks, secure phones, printers, faxes and disabled computers. Is the security system audited regularly? Does the company follow internationally recognized security systems and processes like CMMI Level 5 and ISO 27001 procedures? Vendors with international certifications typically have a modern view of IP protection. Systems & Processes What systems and processes are in place to ensure on-time/on-budget delivery? What measurement and metrics are in place to align the operation of the ODC with corporate goals? What quality management tools are used? Cultural compatibility is also an area often overlooked but equally important when selecting the right partner. One should not underestimate a fit in terms of mindset, competence, communication and collaboration. 4 How to do it Right. Setting up an Offshore Develop Center.

Establishing an ODC An ODC typically is set up in phases. Figure 1 is an example of a typical approach to setting up an ODC. 2 weeks 2 weeks 2 weeks 2 weeks 2 weeks Engagement Knowledge Acquisition Benchmark Ramp Up Steady State Assemble core team Hand pick PM and business analyst Send team onsite Domain knowledge Relationship building in client s development organization Technical knowledge transfer, design and coding process & stadards ODC process definition Create first SOW Start Work Normalize infrastructure over first delivery Refine and test methodologies and processes Verify against agreed norms Increase headcount Maintain quality and productivity within agreed norms Ability to run multiple projects Shift from establishing performance to maintaining overtime Collect client development environment configuration details ODC infrastructure is created Summary At the end of day, for an ODC to operate as an effective strategic partner, the most crucial element is the nature of the relationship. Relationships between ODC s and their clients must be based on a two-way interchange and strong communication. For some organizations this may require a change in thinking to move the relationship from transaction-oriented to relationship-oriented. This shift in attitude will ensure a high value proposition in terms of time and cost savings, as well as a lasting strategic partnership. 2015 BLEUM 5

HOW TO DO IT RIGHT Setting Up an Offshore Development Center About ounded in 2001, Bleum is a China-based IT outsourcer to U.S. and European companies in financial services, retail, software development, manufacturing and industrial products as well as non-profits. Bleum drives improved performance for clients by developing, managing, testing and maintaining applications that are core to their businesses. Led by senior executives from top global technology and consulting firms, Bleum's Western management practices, English-only workplace and dedicated development centers enable it to become an integral extension of its clients' IT organizations. To learn more, visit www.bleum.com. 6 How to do it Right. Setting up an Offshore Develop Center.