Proven Practices Research: Offshore Sourcing of IT Work

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Proven Practices Research:Offshore Sourcing of IT Work

Proven Practices Research:Offshore Sourcing of IT Work

Dr. Joseph W. Rottman

Dr. Mary C. Lacity

May 24, 2005

presented to Marquette University and SIM Wisconsin Chapter

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Outsourcing: n= 72 organizations

British Aerospace DuPont Inland Revenue Enron IRS Rigg’s Bank South Australia Swiss Bank

Insourcing/Backsourcing: n= 18 organizationsContinental Baking Brown Group Westchester County Occidental Petroleum Ralston Purina Vista Chemicals MEMC

Application Service Provision: n=10 organizations Corio EDS Host Analytics mySAP Zland

Business Process Outsourcing: n = 4 organizations BAE Systems Lloyd’s of London

Offshore Outsourcing: n = 39 organizationsAnonymous Case Studies: Primarily Fortune 500 companies & their offshore suppliers

15 Years of Sourcing Research:Case Studies

Coauthors include Leslie Willcocks (Warwick), David Feeny (Oxford), Thomas Kern (Erasmus), Rudy Hirschheim (LSU)

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Offshore Sourcing Cases

Stakeholder Number of Firms Number of Interviews

U.S. Fortune 500

customers13 38

U.S., large privately owned customers

2 5

Offshore suppliers 8 51Offshore intermediaries

3 5

Offshore legal

firms7 8

Total 39 107

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30 Practices to meet Offshore Challenges:Some are HR Practices, others have HR Implications

How can U.S. organizations develop and implement a global sourcing portfolio? (7 practices)

How can U.S. organizations mitigate risks? (6 practices)

How can U.S. organizations effectively work with offshore suppliers? (10 practices)

How can U.S. organizations ensure cost savings while protecting quality? (7 practices)

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Ideally U.S. IT managers should manage their own HR, not their

suppliers’.

In reality, many U.S. IT managers still micro-manage the supplier's

staff through monitoring, training, and rewarding.

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Practices to effectively manage internal HR

1. Openly communicate the sourcing strategy to internal IT employees through every phase

2. Retain 9 Core IT Capabilities in-house

3. Empower Project Managers

4. Elevate your own organization's CMM certification to close the process with the supplier

Practices to minimize the need to micro-manage supplier's HR

5. Select suppliers by considering 12 supplier capabilities

6. Use fixed price contracts to mitigate workforce risks

Practices used to micro-manage supplier's HR

7. Let project team members meet face-to-face to foster camaraderie8. Give offshore suppliers domain specific training

9. Overlap onshore presence to facilitate supplier-to-supplier training

10. Recognize good supplier employees

11. Tactfully cross-examine, or replace, the supplier's employees to overcome cultural barriers

12. Require supplier to submit frequent status reports

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1. Openly communicate the sourcing strategy to internal IT employees through every phase

Phase 1:Hype & Fear

Phase 2:Early AdoptersBest & Worst Practices EmergeFocus on Costs

Phase 3: Market MaturesRicher Practices EmergeFocus on Quality

Phase 4:InstitutionalizedFocus on Value-added

Siz

e of

Mar

ket

Cus

tom

er L

earn

ing

Time

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Business and IT Vision

Delivery of IS ServiceDesign of IT

Architecture

Business SystemsThinking

ContractFacilitation

TechnicalArchitecture

ContractMonitoring

VendorDevelopment

TechnicalDoer

RelationshipBuilder IS

Leadership;InformedBuying

2. Retain 9 core IT capabilities

Feeny & Willcocks, Sloan Management Review, Vol. 39, 3, 1998, pp. 9-21.

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3. Empower project managers

Onsite SupplierEngagement Manager

OffshoreSupplierDelivery

Team

LocalBusiness

Units

Architects/DBAs/

Security/etc.

ProjectManagers

OffshoreSupplierDelivery

Team

OffshoreSupplierDelivery

Team

PMO

The Popular Funnel Design

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Other CMM Practices:

Bring in a CMM expert with no domain expertise to flush out ambiguities in requirements

Flexible CMM: Negotiate the CMM processes for which you will and will not pay

”The overhead costs of documenting some of the projects exceeded the value of the deliverables." – Global Team Leader member, Biotech

“You ask for one button to be moved and the supplier has to first do a twenty page impact analysis--we are paying for all this documentation we don't need." – Project Manager, Financial Services

4: Elevate your own organization’s CMM certification to close the process gap

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5: Select suppliers by considering 12 supplier capabilities

Relationship Capabilities

TransformationCapabilities

DeliveryCapabilities

Planning &Contracting

Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership Program

ManagementProcess

Re-engineering

TechnologyExploitationSourcing

BusinessManagement

DomainExpertise

Feeny, D., Lacity, M., and Willcocks, L., "Taking the Measure of Outsourcing Providers," Sloan Management Review, Vol. 46, 3, Spring 2005, pp. 41-48.

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Behavior Management:the capability to motivate and

manage people to deliver service with a “front office” mindset

How do suppliers orient new employees to their culture?

How do suppliers reward and incent desired behaviors?

One Indian offshore supplier hires only Indians with a minimum six years experience living in the U.S., sets their hours as 1:00 to 10:00 to minimize time zone effects, andinvolves entire Indian families in the company.

Planning &Contracting

Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management ProcessRe-engineering

TechnologyExploitationSourcing

BusinessManagement

DomainExpertise

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Leadership:the capability to identify, communicate,

and deliver the balance of delivery, transformation, and relationship

activities to achieve present and future success for both client and provider.

Requires individuals who have the vision, experience, ability, and clout to serve as "CEO" of the relationship.

76 case studies of EDS, IBM, CSC, Accenture with similar contracts found customer/supplier leadership as main explanator of customer satisfaction

Every customer expects the supplier’s A team

Often customer demands a change in leadership with first few months—on both sides!

Planning &Contracting

Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management ProcessRe-engineering

TechnologyExploitationSourcing

BusinessManagement

DomainExpertise

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6: Use fixed-price contracts to mitigate workforce risks

With time & materials contracts, the supplier employees may be inexperienced, fatigued, or slow

With fixed price contracts, suppliers are incented to put most productive people to maximize margin

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7. Let project managers meet supplier employees face-to-face to foster

camaraderie

"Once you get good at specking out what you need face-to-face, then an awful lot of the work happens by e-mail and it’s just follow up questions and lots of that happens by e-mail" – Jerry, Global Leadership Team member, Biotech

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8. Give offshore suppliers domain specific training to protect quality

Industrial Equipment Manufacturing

Content Product, technology, project specific

Audience New hires for customer (developer/architect/team lead)

New assignments from supplier organizations

Project Leads

Delivery Onsite Training sessions of new customer employees and supplier employees.

Sessions are taped and placed on customer’s intranet

Approved vendors are given access through secure data circuits

One-to-to for Project Leads

Charges For large offshore supplier:

Customer pays supplier onshore rates if training is onshore

Customer pays supplier offshore rates if training via Intranet

For small specialized offshore supplier:

Customer pays supplier offshore rates for onshore training

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Customer Project Leads and Architects

Supplier Project Lead 1

Train

On Shore - On Site Off Shore

On Site Overlap

3 – 6 Months

Supplier Project Lead 2

Trains

Supplier Project Lead 3

On Site Overlap

Trains

Offshore Delivery Team

Trains

IndustrialEquipment

Manufacturing

Project Duration

9. Overlap onshore presence to facilitate Supplier-to-Supplier training.

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10: Recognize Good Supplier Employees

“The offshore site loves when we come to visit, it pays tremendous dividends." PMO Director, Beverage Company

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11: Tactfully cross-examine, or replace, the supplier’s employees to overcome cultural barriers

"The place could be on fire and they would say, ‘Oh it’s great, a little warm, but it is great!” -- Head of Offshore Program Management Office, Biotech

Evasive about project status Unwillingness to challenge the customer Will not express incomprehension

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12: Require supplier to submit frequent status reports

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Further Reading

Rottman, J., and Lacity, M., "Twenty Practices for Offshore Sourcing," MIS Quarterly Executive, Vol. 3, 3, 2004, pp. 117-130.

Rottman, J., and Lacity, M., "Proven Practices for IT Offshore Outsourcing," Cutter Consortium, Vol. 5, 12, 2004, pp. 1-27.