Put the World to Work

By Jonathan James

March 1, 2001 —

Why, according to a recent survey, are 40 percent of U.S. companies planning to engage in global applications outsourcing within the next year or two? It all boils down to supply and demand. The growth in Internet and intranet projects, the continuing drive to automate critical business processes, and the need to maintain legacy systems are all creating demand for IT professionals. Yet, the number of computer science graduates dropped 42 percent between 1986 and 1995. The result is that more than 400,000 technical jobs are vacant in this country's $300 billion software and services market, according to the Information Technology Association of America.

Global outsourcing has the potential to fill a substantial portion of this gap. A number of developing countries have invested heavily in technical education and can provide a ready supply of bright people at a relatively low cost. Infrastructure improvements in many developing nations, particularly in the area of telecommunications, and the fact that IT professionals tend to work independently, make it possible to bring this talent to bear on virtually any programming task.

Traditionally, the most active location for staging these types of IT initiatives has been India. A strong supply of English-speaking software programming talent, favorable government and tax incentives and a 12-hour time difference that complements U.S. time zones are some of the advantages that this country has to offer. American corporations appear to be taking notice. According to equity research firm Jefferies & Co., more than 185 Fortune 500 companies outsourced some aspect of their IT requirements to India in the 1999-to-2000 time frame.

How can you take advantage of the benefits of outsourcing without falling victim to the potential pitfalls? The first step is selecting the right business applications. The most appropriate candidates generally are large projects that have been defined to the point that they do not require day-to-day interaction between business and development teams. While many companies think of outsourcing first as a method of handling new application development, it's important to note that it has equal or greater relevance to maintenance and enhancements of existing applications. Many companies prefer to handle strategic initiatives with their internal IT staff, because they have greater knowledge of business rules, and outsource the maintenance of legacy systems. This approach has the advantage of maximizing the knowledge capital invested in individual professionals by enabling their dedication to maximum value-added activities.

IT managers who have sent work overseas agree almost to a person on the need for a vendor-supplied project manager at the client site. The on-site manager is responsible for maintaining close contact with business managers and transmitting a sense of urgency to the development staff. Ideally, the on-site manager should develop a sense of shared ownership of and responsibility for the project with the customer. It is particularly important that the on-site manager be experienced in handling the administrative and cultural challenges involved in outsourcing. Nearly all applications can be affected by shifts in internal and external drivers, such as changes in the regulatory environment. The on-site manager is responsible for quickly identifying such changes and developing and implementing plans to accommodate them.

Another value-added service provided by the on-site manager is transcending cultural differences. American business people have certain expectations about how technology projects should progress, how priorities should be established, and the vital importance of communicating potential obstacles on a timely basis. Many countries in the developing world do not necessarily manage projects according to Western styles and standards. In particular, many Asian cultures place a considerable emphasis on maintaining face, with the result that overseas managers and programmers are known for keeping quiet even when problems have arisen. The model of locating the overseas programmers within a Western-style business organization under the direction of an on-site project manager who is knowledgeable in business, technical and cultural issues ensures that U.S.-style project-management values are maintained.

Effectively communicating the outsourcing plan within the client organization is crucial. The support of the executive team, IT staff and user community is usually required to successfully outsource an application. Most IT staff members will look at how the outsourcing project affects them as individuals. If you tell a programmer that he is being provided with a training program that will prepare him to participate in a more strategic project, he will nearly always enthusiastically promote the transfer of knowledge to the outsourcing team. On the other hand, suppose the programmer hears about the outsourcing project through the grapevine and then one day a person arrives to learn his job. There's a good chance that the programmer will intentionally withhold information in an effort to improve his bargaining position.

Paying attention to these issues will help ensure successful global outsourcing. Companies that follow the guidelines described here generally experience cost savings ranging from 20 percent up to 50 percent. If the company previously relied on a consulting strategy, the savings tend toward the higher end of the spectrum, while if long-term employees previously managed the applications, the savings tend to be less. Companies that take advantage of global outsourcing also typically experience faster response to business drivers. When a manager comes in and says, "I need three reports for the board of directors tomorrow morning," the work can be done by the offshore team during its normal working day. But whether a project is being run from the next cubical, next city or 8,000 miles away, solid project management is the key to successful execution.

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