Made in India

The Software Engineering Institute's (SEI) Capability Maturity Model (CMM) identifies levels of maturity for a software organisation.The Institute evaluates software processes for development, re-engineering and maintenance across enterprises and assesses them at levels from one to five; with five being the highest.

According to Infosys, organisations at Level Five are at a stage where they are optimising processes. It indicates a very high level of process maturity, which the Infosys claims is key to ensuring predictability of software solutions and has only been attained by approximately 1.5 per cent of software companies in the world.

Hello. Is Anybody Coding?

Commit to communicating early and often.

In September 1998, consulting firm Headstrong (formerly James martin and co) opened a new 24-hour Global Development Centre (GDC) in Manila, Philippines. The GDC's mission is to deliver large scale, time critical solutions to clients anywhere in the world as an extension to in-house development teams. Employing over 200 IT professionals, the GDC provides development and testing through to outsourced maintenance. Developers use the videoconferencing facilities in the centre to design and demonstrate new applications.

For example, Headstrong's clients may need a customised demonstration rapidly. Having already invested in offshore development, which Headstrong admits is often difficult to get them to do at all, they may not have the time to fly all the way to Manila and back. So Headstrong demonstrates the solution via video.

According to Headstrong's principal, Michael Dobrijevich, the GDC currently has no Australian clients. However, Paul Smeaton, AllFinanz program director, Suncorp Metway has never found the need for videoconferencing in his dealings with Infosys. After a few standard phone calls in the early stages of the project, he says he dropped out of the loop and left it to his internal project manager to communicate with the Infosys project manager.

Franklins did have videoconferencing facilities, says the company's former IT director Hemant Kogekar, but he also did not use them for offshore projects. Rather he made extensive use of the Internet to communicate and share documents, backed up with standard phone calls.

Gartner analyst Rolf Jester does think that managing projects is a bit more complex when some of the people involved are remote. He says language is not an issue in most cases of offshore outsourcing, but that there are cultural issues for both sides when they're dealing across countries, even when they purport to speak the same language.

Kogekar agrees this can be a challenge but has found that good communication in itself and having the provider's project manager onsite can bring down the cultural barriers. He advocates no more than 80 per cent of the project taking place offsite.

Although quality is a big differentiator for Kogekar in choosing offshore service providers, skills shortage can play a part, and he considers cost to be the major driving force for most people. This is still the case in Australia where employment costs are much higher than, say India. In fact, according to Kogekar, the following salary comparisons apply between the two countries. His figures come from a feasibility study he conducted in his present role as a management consultant on establishing offshore operations for a local company.

"The up-front costs are lower, even taking into account travel and local expenses, but you also get better results because [Indian companies] concentrate on getting it right first time," he says.

Despite this, Kogekar concedes that the cost difference is still much smaller for Australian than US organisations and is one reason they are less keen to engage offshore companies. The other reason, he believes is attitude. Australian companies, he says, are very relaxed about speed-to-market and lack the results orientation and urgency about getting things done. Coupled with this is an unwillingness to accept that Indian companies can actually deliver what they promise, a misperception he stresses.

"Indian software companies have the drive and the access to resources to deliver. A lot of them are at the high end of the Software Engineering Institute's Capability Maturity Model (CMM). They have invested the time and effort in good quality management and consequently don't suffer so much if there's staff turnover, because if the processes are in place, someone else can step in," he says.

Indeed, it was Infosys' CMM Level Five ranking that led Paul Smeaton, AllFinanz program director, Suncorp Metway, to choose the Bangalore-based IT services company to assist Suncorp Metway in developing a customer indexing system. The system is a complex one, says Smeaton, and his main concern was to bring it in on time and to budget, while providing a quality deliverable.

"Infosys [with its Level Five ranking] could provide predictability around that and back it up with fixed pricing. That was its key value proposition," he says.

Infosys came on board in mid 2001 and according to Smeaton, has taken on primary responsibility for the application development in what is the first project of its kind for Suncorp Metway. Infosys specified the requirements at Suncorp Metway's head office in Brisbane, from which Smeaton says they were able to negotiate a fixed price and a reasonably fixed timeline. Payments are made when predetermined milestones are hit and as Smeaton points out, under this arrangement, Infosys has relieved him of much of the associated risk.

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"Infosys is confident it can deliver because of its quality rating, and some of the deliverables I've seen the company produce so far, such as the specifications, have been first class," he says.

Once programming, unit and system testing have taken place in India or at Infosys' other development centres in the UK, US, Canada, a small team from Infosys will return to Brisbane with the deliverable for acceptance testing and handover. There are two such deliverables due, in April and June 2002. Smeaton says Suncorp Metway has other projects on the drawing board encompassing middleware technology and the integration of front and backend systems that may also involve Infosys.

"Applications development is Infosys' core business, financial services is Suncorp Metway's," Smeaton says. "I don't really see this as outsourcing as we're not actually replacing an internal department. We're using Infosys to complement us with skills we're short on and add shareholder value by delivering projects on time and to budget."

Nor does it matter to Smeaton that the actual development is taking place offshore.

"Somebody raised the question [of offshore development] when I was presenting the idea to our internal IT department. But at our request, Infosys has a project manager onsite in Brisbane with whom we can discuss and deal with any issues that may arise at a management level.

"As far as the development team is concerned, I don't care if they're across the road, interstate or overseas because the reality is that I don't deal with those people, the project manager does. It's contractually up to Infosys to deliver, whatever," says Smeaton, who adds that the events of and subsequent to September 11 have not affected his confidence in Infosys given its recent strong financial results.

According to Gartner, enterprises selecting service providers should always undertake a risk analysis, part of which should consider the vendor's business continuity plans. Kogekar adds that, as in all types of outsourcing, organisations should choose a partner in tune with their needs: size-wise and for whom they're an important client.

"I believe that if you try to do smaller things with big suppliers, you get second rate-people, whereas if you do smaller things with medium sized players you get top people," he says.

Nor has it all been clear sailing for Kogekar when it comes to offshore outsourcing. He admits to a small, but unmitigated disaster at Citibank, where there was not enough due diligence in place and work was inappropriately given to a very junior person. In fact, Kogekar believes that very small projects are not worth contracting out offshore and as a rule of thumb cites five person years as the project minimum.

Kogekar says another unmitigated disaster befell Franklins' parent company, Dairy Farmers, when it engaged the services of a Philippines-based company to undertake software maintenance of a key system. According to Kogekar, the provider lacked the high-quality processes practised by Indian companies, it had nobody onsite at one point, there were lots of interpretation gaps and Dairy Farmers was exerting too much control and changing the requirements. Dairy Farmers finally dropped the provider, but Kogekar says it was an unhappy experience all round.

In fact, like Smeaton, Kogekar is a strong believer in engaging the best, then letting them get on with the job and just holding them accountable for the results. His motto is monitor but don't try to control.

"Too many clients want to control the inputs rather than the outputs, and that's why outsourcing fails," Kogekar says. "Focus on what you want, in terms of functionality and when you want it, but don't ask Â'how' so much. By employing good companies and letting them control their own processes and disciplines, you'll get good results."

Offshore outsourcing is no longer an emerging trend - it's a regular practice for some companies. But what makes the difference between sinking and swimming when you send key projects overseas?

The federal government caused a minor furore late last year with the release of a report by the Department of Foreign Affairs and Trade's Economic Analytical Unit that suggested there are "significant opportunities" for Australian companies to cut costs by investing in and outsourcing to the IT-enabled sector in India. The report, New Economy Old Economy, drew swift criticism from the Opposition, unions and even some local recruitment firms, who accused the government of promoting India at the expense of Australian jobs.

Political rhetoric aside, outsourcing key business functions such as applications development offshore may not be the most appealing proposition to some CIOs given the perceived instability of the region in which many providers are based; a perception exacerbated by the US-led response to the events of September 11, 2001. However, according to Rolf Jester, Gartner's Asia Pacific research area director for the IT services market, Indian companies, especially, are very well capitalised and when they see an issue that might be a stumbling block to their business they fix it fast. "The uncertainty and instability in that general part of the world has worried some potential users but [Indian] companies have bent over backwards to prove how stable and secure they are and demonstrate what sort of business continuity plans they have in place. They've had to do it in order to reassure their customers, and it's worked," Jester says.

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Concurrent, and to a degree consequential, to the world's political troubles are of course the world's current economic problems. Cost is often touted as the principal reason for outsourcing or contracting out offshore and META Group claims that economic uncertainty is actually increasing interest in offshore outsourcing. Nobody from META Group (worldwide) was available to comment on this assertion. Nor was the organisation able to supply any research or other information to back it up. Be that as it may, any cost advantages for Australian CIOs are likely to be significantly less than for their US or European counterparts, given the current worth of the Australian dollar. Indeed, some purport that the combination of its low dollar and relative political stability potentially make Australia a country to outsource to.

Jester, though, maintains that cost should not be the reason for outsourcing anything. Rather, access to skills and, in particular, quality, should be the key drivers. "[Outsourcing] may be cheaper but isn't always," says Jester. "The leading Indian service providers are very high quality companies and that is their strongest selling point. They are also very skilled in particular vertical and even micro-vertical markets like stockbroking where they really understand the applications and business processes as well as possess the technological talent."

In fact, according to Gartner, the long-term trends driving the offshore outsourcing industry remain. Infosys and other Indian vendors have reported signing significant deals since the terrorist attacks of September 11. The perception of risk by Western enterprises - however misplaced - will likely hurt the earnings of India's software industry through the first half of 2002 but probably not in the long term, Gartner says.

And while offshore outsourcing as a concept has been slow to take off in Australia, Jester believes this is an issue of both supply and demand. On the supply side, he says that Indian companies haven't needed to focus on Australia. The US and European markets have proved very lucrative for them and consequently they have tended to ignore the rest of the world, where their relative cost advantage is also weaker.

On the demand side, Jester thinks there is also reluctance on the part of Australians to embrace the concept and a somewhat parochial attitude that everything has to be done locally. "Despite us being a virtual society these days, people are not yet totally comfortable with things being done for them elsewhere," Jester says. However, he believes this is changing, albeit slowly, and anticipates more multi-country collaboration on IT projects in the future.

Infosys, Satyam and Wipro all have a presence and local clients in Australia and Orange's chief information officer Michael Young, for one, says that in the various CIO roles he has held in Australia he has been approached, quite aggressively in some instances, by Indian companies. On each occasion he knocked them back as he felt the risk of offshore development outweighed the potential benefits. This may not always be the case, he concedes, but the timing of the "cold calling" would have to be right.

Hemant Kogekar, on the other hand, used offshore companies for development both when he was head of technology at Citibank and IT director at Franklins. His experience with Indian software companies has been very positive and says his reasons for choosing them over local organisations is that they use a better software quality process and discipline.

"This in turn gives better results at lower cost," Kogekar says. "I also found that we could get better documentation and timely delivery of software. They [the providers] could ramp up to meet tight deadlines better than local organisations. Australian companies try to recruit good people, but good people leave and projects consequently falter. That's why engaging companies with good quality processes, rather than necessarily better quality people, pays off."

While at Citibank, Kogekar says he used a number of offshore companies in a limited way. However, their people predominantly worked onshore at Citibank's premises, rather than actually doing the development offshore. At Franklins, Kogekar engaged offshore providers to assist with Y2K, GST and a supply chain re-engineering project. In the case of Y2K, some of the provider's development staff also worked onsite at Franklins. For GST, though, the provider had a senior project manager onshore, but the majority of the development and coding took place in India.

The supply chain project was perhaps more typical of what takes place onshore/offshore when engaging an offshore developer. A project manager from Zensar, the provider, came into Franklins to spec the company's requirements. The high level design also took place locally. The project then essentially shifted to India where Zensar did the detailed design. This was sent back to Franklins for review, after which Franklins' senior project manager and others visited India for a week to fine tune the design with Zensar, change some requirements and iron out any problems. Franklins then gave the go ahead for coding to commence. After initial testing, the system came back to Franklins for acceptance testing and implementation. According to Kogekar, the project was very successful.

Zensar also took on the maintenance and support of Franklins' legacy systems onshore, and Kogekar was planning to move this offshore when Franklins' fortunes changed and he departed the company.

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Adapting your offshore strategy to an insecure world.

In the best of times, offshore outsourcing is a tough sell to business executives wary of foreign entanglements. But today, amidst economic recession and terrorist warfare, there is heightened anxiety about the notion of handing off critical IT projects to vendors in such remote locales as India, Pakistan and the Philippines. At some companies, senior business executives have banned all foreign travel, and a few cautious CIOs have backed away from prospective offshore deals because of tightened budgets or perceived security risks. In response, the offshore vendors - mainly India's, which are the biggest players in the marketplace - have launched aggressive marketing campaigns in the US, featuring happy customers giving testimonials that are aimed at easing people's concerns about offshore security.

Mind you, there's no evidence that companies with existing offshore ties are trying to sever them. High quality and low cost have always been the dual attraction of offshore outsourcing. According to a recent Forrester Research report, offshore customers save an average of 25 per cent on IT projects sent overseas, where skilled labour is plentiful and cheap, and industry analysts believe that that value proposition will continue to outweigh security concerns as IT budgets tighten in 2002. Since September 11, Forrester (US) analyst Christine Overby, author of the recent offshore study, says she's revisited 10 of the original companies she surveyed, and nine of them plan to continue with minimal or no change to their offshore strategy. "The one Â'wait-and-see' was a user I would classify as on-the-fence - even before September 11," Overby says.

Even so, the offshore market has had a tough year. Prior to the terrorist attacks, the US economic downturn had resulted in slowed growth for many of the offshore vendors, some of which cut their staffs, rates or both to stay competitive. Marty McCaffrey, cofounder of Global Outsourcing, a California-based offshore consultancy, estimates that the Indian offshore industry, which had been enjoying 50 per cent annual growth, will likely dip to 20 per cent to 30 per cent in 2001. And since September 11, there has been a palpable buzz of uncertainty about the security of offshore marketplaces. Executives with little or no global experience are particularly leery of foreign deals; one vendor reports a prospective customer backing out of initial talks because some of the programming work was going to be subcontracted to Pakistan. And even some business associates of offshore veterans are a little jittery. At one prominent media company with plenty of offshore experience, a senior vice president responded to September 11 by cancelling all international travel for employees in 2002. The CIO doesn't expect that order to stand, and even if it does, the company's existing offshore deals shouldn't be affected (they don't require foreign travel).

Despite the occasional panic, CIOs with significant global experience say offshore outsourcing remains viable. "I don't see any new attitudes toward offshore at my company nor in the industry either," says Kim Ross, CIO of Florida-based Nielsen Media Research (the TV ratings company), which has outsourced software development to Cognizant Technology Services in India since 1995. When Nielsen first undertook offshore development, Ross had to address senior management's questions about doing important work in an unstable political environment, and he had to develop contingency plans in case of business disruption. "But you have to worry about [contingency plans] no matter where you outsource - even in the United States," Ross says.

Thus, the key to offshore success today is not just ensuring that your people and systems are protected but making certain that senior business executives (and shareholders) understand what protective measures you've taken to secure your assets in an insecure world. Here are some tips from offshore outsourcing veterans.

MINIMISE FOREIGN TRAVEL. In six years of offshore outsourcing, Nielsen CIO Ross has travelled to India just once - and that was after the first year of working with Cognizant. The truth is, once you get past negotiations (where it really does pay to visit a vendor's site and ensure you aren't walking into a sweatshop situation), offshore deals require very little travel. These contracts are managed quite successfully by the customer's home-based project managers and the vendor's account team, which frequently is split between the offshore location and the customer's own headquarters. There is value in having in-house staff interact closely with the offshore team, but many companies are now finding videoconferencing to be a whole lot more cost-efficient than foreign travel.

KEEP THE CODE LOCALLY. Software piracy has always been a concern when doing business globally. But most offshore projects are no longer all done at the vendor's remote site, on the vendor's own systems (which may be corrupt or insecure). Typically, offshore vendors work via the Internet off their clients' systems, applications and data, which all are housed on the customer's own site or secure network. In Nielsen's case, roughly one-fourth of new software development is sent overseas. "But they're working on software that's duplicated or resides here," Ross says. "The real assets are code and business knowledge, and in our case they stay here."

HAVE A BACK UP PLAN. Aside from international travel, the biggest concern many people have about offshore outsourcing is: what happens if communications or electricity is cut off? And in India, where electricity and telephone service fail daily, that is a legitimate issue. But it's also been dealt with. According to McCaffrey, the top 20 Indian vendors all have redundant communications systems (including satellite and fibre-optic capabilities), and many of them also have personnel deployed overseas, also working on redundant systems. That is true at Nielsen, where roughly one-fourth of Cognizant's account team is based in Florida, augmenting Ross's own 400-member IT staff. "If we somehow lost capacity in India, it would disrupt some projects, but no aspect would cause a mission-critical failure," Ross says. At LexisNexis, the Ohio-based news and information service provider, senior international liaison William Lewis's backup plan includes multiple offshore sites. He started sending IT projects offshore to India in the mid-90s but in 2000 decided to place some work elsewhere in the world. "I just don't want everything in one basket," Lewis says. Today, Lewis has IT work offshore in India and the Philippines, and he's on the verge of signing an onshore deal with an American Indian-owned vendor.

USE A THIRD-PARTY BROKER. For companies that simply don't want to take on the risk of dealing directly with an offshore vendor, here's a new option: do it through a third party. Outsource the work to locally based vendors that will subcontract at least part of the job to their own long-established offshore partners. In the US, IBM Global Services, PricewaterhouseCoopers and Providio are among the companies that are starting to broker offshore work for domestic clients, assuming not just the responsibility for delivering results but responsibility for contract negotiation and project management. It costs more to use these companies than it does to deal directly with offshore vendors, but Forrester's Overby points out that the third-party brokers also minimise complexity, lock in the right expertise and keep labour costs in check. By 2005, Overby predicts, more than half of the US companies that go offshore will do so indirectly, just as a means of minimising risk and headaches.