Offshore Outsourcing: Survival Strategy of the New Millennium?
By :Abhijeet Harne & Atonu Haldar
• The IT engineering and software development outsource industry in India alone has grown into an $10B industry, pioneers like GE, IBM leading the way in the early ‘80’s forming software development centers in India’s Bangalore high tech corridor.• Now, companies both large and small are being forced to outsource, as pricing pressures surface at home from global players that have integrated into their cost structure and offerings.
• Why are so many companies outsourcing to India rather than other low cost regions?• What are the cost savings? Are they real or lost to lower productivity, poor quality?• How does one coordinate & manage engineering staff half way around the world?• What services can be outsourced and still ensure timely, defect free deliverables?• How does one integrate offshore engineering services into their existing infrastructure?
• India is known for its large, highly skilled, motivated workforce having logical and abstract thinking.• English is the technical and business language• business practices like MBO, ISO certification, Six Sigma, Malcom Balridge are in common use.• Because software development is now a major Indian export industry, intellectual property and copy right protection laws are even tougher than in the States.
• opportunistic rather than strategic -- Let’s do this project offshore to save money. Or, reduce our price to win• quality process to ensure defect free deliverables.• Not enough time and effort is spent on evaluating the service provider’s infrastructure• a full service-engineering provider rather than engaging the “Best-in-Class” provider
WORK PACKAGE defines the work (engineering activities) the engineering service provider can do remotely, work that can be done on- site and work that can only be done at the user’s engineering office.
WORK FLOW starts defining the provider work package Once the user gives work authorization and releases the project plan and design inputs, the provider can commence preparing their work plan, review inputs and submit inquiries for user for clarification. Once the clarification process is done, the engineering service provider can commence detail engineering and implementation. The provider performs internal quality checks, then releases the Work Package deliverables to the user’s engineering center or site installation, start-up and commissioning team which, completes the cycle. At the completion of the project, the provider may complete as build documentation if this is one of the deliverables.
ENGAGEMENT OPTIONS & MODEL Have the provider bid certain portions of a budgetary proposal to pull together a winning price Select a pilot project to evaluate the provider’s technical expertise, responsiveness, quality Use the provider to staff peak loading requirements which often accompany a fast track project Use the provider to provide special services, skills and expertise that be may required
ALLIANCE COORDINATION & MANAGEMENT Each side should assign an alliance manager both accountable for the engagement relationship, resolving relationship issues, handling commercial aspects.
THE FINAL ANALYSISTotal Cost-of-Ownership = f (Offshore Leverage + ProcessAdoption)Where:Offshore Leverage is a combination of the amount of engineeringoutsourced and the provider’s ability to deliver comparable results:Doing 1,000 hours engineering work, defect free with no moreengineering, management, administration, coordination than hadthe user done the work.Process Adoption is the engineering service provider’sdeployment and use of best practices, performance metrics,continuous improvement processes, workforce maturity: Doing thesame 1,000 hours engineering work above in 950 hours.