Introducing Offshore Concepts


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Introducing s/w offshore outsourcing concepts to executive management

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  • Introducing Offshore Concepts

    1. 1. Introducing Offshore Concepts Executive Briefing. Nick Krym, 02-07-2006
    2. 2. Good Reasons for Going Offshore
    3. 3. ‘ 06 Application and Service Expansion Feature Set 11 Feature Set 10 Feature Set 9 Feature Set 1 Feature Set 2 Feature Set 3 Feature Set 4 Feature Set 5 Feature Set 6 Feature Set 7 Feature Set 8 Q1 - Q2 Q2 - Q3 Q3 - Q4
    4. 4. Engineering Team: State of the Nation <ul><li>Hiring – more lessons learned </li></ul><ul><ul><li>Time </li></ul></ul><ul><ul><li>Cost </li></ul></ul><ul><ul><li>Salary </li></ul></ul><ul><ul><li>Fit </li></ul></ul><ul><ul><li>Retention </li></ul></ul><ul><li>Project XXX – some lessons learned </li></ul><ul><ul><li>Legacy code </li></ul></ul><ul><ul><li>Skills </li></ul></ul><ul><ul><li>Methodology </li></ul></ul><ul><li>Brief inventory of Achilles’ heels </li></ul><ul><ul><li>Resource dependency </li></ul></ul><ul><ul><li>Ability to execute </li></ul></ul><ul><ul><li>Ability to grow </li></ul></ul><ul><ul><li>Legacy </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Ability to deal with demand spikes </li></ul></ul>
    5. 5. Offshore Outsourcing: Major Risks <ul><li>Cost-Reduction Expectations </li></ul><ul><li>IP Security/Protection </li></ul><ul><li>Process Differences </li></ul><ul><li>Data Security/Protection </li></ul><ul><li>Vendor Failure to Deliver </li></ul><ul><li>Scope Creep </li></ul><ul><li>Government Regulation </li></ul><ul><li>Geographical Dispersion </li></ul><ul><li>Vendor Financial Stability </li></ul><ul><li>Cultural Differences </li></ul><ul><li>Turnover of Key Personnel </li></ul><ul><li>Knowledge Transfer </li></ul><ul><li>Communication Issues </li></ul><ul><li>Loss of Team Spirit </li></ul>
    6. 6. Major risks specific to our team <ul><li>Cost-Reduction Expectations </li></ul><ul><ul><li>Reasons / Elements </li></ul></ul><ul><ul><ul><li>Low rates designed to masquerade real costs </li></ul></ul></ul><ul><ul><ul><li>Most offshore activities are characterized by very high overhead and startup cost </li></ul></ul></ul><ul><ul><ul><li>Most of offshore staff is less productive than on-site resources </li></ul></ul></ul><ul><ul><ul><li>Knowledge transfer / product handover generate addition substantial expenses </li></ul></ul></ul><ul><ul><li>Mitigation </li></ul></ul><ul><ul><ul><li>We must change the expectations framework. We should NOT be expecting cost saving. Whatever we manage to save is a gravy. The benefits are in access to resources, infrastructure, skills as well as ability to deal with demand sawmill </li></ul></ul></ul><ul><ul><ul><li>We need to define some reporting framework that will allow us to communicate realities of the financial aspects of the engagement </li></ul></ul></ul><ul><li>Cultural Differences & Geographical Dispersion </li></ul><ul><ul><li>Reasons / Elements </li></ul></ul><ul><ul><ul><li>Time difference </li></ul></ul></ul><ul><ul><ul><li>Scope control </li></ul></ul></ul><ul><ul><ul><li>Root cause analysis </li></ul></ul></ul><ul><ul><ul><li>Initiative </li></ul></ul></ul><ul><ul><ul><li>Self-confidence </li></ul></ul></ul><ul><ul><ul><li>Hierarchy </li></ul></ul></ul><ul><ul><ul><li>Body shop mentality </li></ul></ul></ul><ul><ul><ul><li>Communication overhead </li></ul></ul></ul><ul><ul><ul><li>Communication breakdowns and failures </li></ul></ul></ul><ul><ul><li>Mitigation </li></ul></ul><ul><ul><ul><li>Time / style expectations with internal staff </li></ul></ul></ul><ul><ul><ul><li>Dedicated liaison for dealing with offshore </li></ul></ul></ul><ul><ul><ul><li>Travel budgets </li></ul></ul></ul><ul><ul><ul><li>Processes </li></ul></ul></ul><ul><ul><ul><li>Documentation </li></ul></ul></ul>
    7. 7. Major risks specific to our team, cont. <ul><li>Turnover of Key Personnel </li></ul><ul><ul><li>Reasons / Elements </li></ul></ul><ul><ul><ul><li>India’s large cities have close to 25% IT personnel turnover </li></ul></ul></ul><ul><ul><ul><li>25% turnover ~ 50% hidden rate hike </li></ul></ul></ul><ul><ul><li>Mitigation </li></ul></ul><ul><ul><ul><li>Handpick geographies and companies </li></ul></ul></ul><ul><ul><ul><li>Put contractual elements for key personnel retention </li></ul></ul></ul><ul><ul><ul><li>Build redundancy into the team </li></ul></ul></ul><ul><li>Knowledge Transfer </li></ul><ul><ul><li>Reasons / Elements </li></ul></ul><ul><ul><ul><li>Domain expertise </li></ul></ul></ul><ul><ul><ul><li>Communications </li></ul></ul></ul><ul><ul><ul><li>Geographical issues </li></ul></ul></ul><ul><ul><li>Mitigation </li></ul></ul><ul><ul><ul><li>Core resource development </li></ul></ul></ul><ul><ul><ul><li>Processes and documentation </li></ul></ul></ul><ul><ul><ul><li>Travel budget </li></ul></ul></ul><ul><li>Data Security and IP Protection </li></ul><ul><ul><li>Reasons / Elements </li></ul></ul><ul><ul><ul><li>IP – code access </li></ul></ul></ul><ul><ul><ul><li>Data </li></ul></ul></ul><ul><ul><li>Mitigation </li></ul></ul><ul><ul><ul><li>Processes </li></ul></ul></ul><ul><ul><ul><li>Security </li></ul></ul></ul>
    8. 8. Personnel Issues <ul><li>Main issues </li></ul><ul><ul><li>Is my job at risk? </li></ul></ul><ul><ul><li>Is my salary at risk? </li></ul></ul><ul><ul><li>Is my career at risk? </li></ul></ul><ul><ul><li>Is my quality of life at risk? </li></ul></ul><ul><ul><li>We are OK as we are, why change? </li></ul></ul><ul><ul><li>What’s in it for me? </li></ul></ul><ul><ul><li>After all said and done there is more said then done </li></ul></ul><ul><li>Mitigation </li></ul><ul><ul><li>Consistent non-stop messaging </li></ul></ul><ul><ul><li>Consistent aggressive motivation </li></ul></ul><ul><ul><li>Be prepared to pay above market </li></ul></ul><ul><ul><li>Staff redundancy </li></ul></ul><ul><ul><li>Process improvements </li></ul></ul>
    9. 9. Offshore Outsourcing: Partnership Drivers <ul><li>Product offering / competitive strength </li></ul><ul><li>Market opportunities / time to market </li></ul><ul><li>Company scalability / flexibility </li></ul><ul><li>Dealing with resource constraints </li></ul><ul><ul><li>Financial consideration / Budget </li></ul></ul><ul><ul><li>Infrastructure / Office </li></ul></ul><ul><ul><li>Sub-optimal resource composition </li></ul></ul><ul><ul><li>Resource demand sawmill </li></ul></ul><ul><ul><li>Access to skilled resources / missing competence </li></ul></ul><ul><li>Concentration on core competency </li></ul><ul><li>Dealing with back log </li></ul><ul><li>Process maturity </li></ul>
    10. 10. Offshore Outsourcing: First Steps <ul><li>Commitment </li></ul><ul><li>Establishing Strategy </li></ul><ul><li>Budget </li></ul><ul><li>RFP </li></ul><ul><li>Vendor Selection </li></ul><ul><li>Establishing partnership </li></ul><ul><li>Pilot </li></ul><ul><li>Full scale engagement </li></ul><ul><li>Reevaluation Cycle </li></ul>
    11. 11. Vendor Selection: Main Factors <ul><li>Competitive Pricing </li></ul><ul><li>Access to Resources </li></ul><ul><li>Delivery Track Record </li></ul><ul><li>Turnover Rate </li></ul><ul><li>Data Security </li></ul><ul><li>IP Protection </li></ul><ul><li>Project Management </li></ul><ul><li>Process Fit </li></ul><ul><li>Account Management </li></ul><ul><li>Cultural Fit </li></ul><ul><li>Financial Stability </li></ul><ul><li>Longevity </li></ul>
    12. 12. Vendor Selection: Other Factors & Process <ul><li>Financial Issues </li></ul><ul><ul><li>When do we get the investment </li></ul></ul><ul><ul><li>Volume of the investment </li></ul></ul><ul><ul><li>Allocation of the investment </li></ul></ul><ul><li>Executive Factors </li></ul><ul><ul><li>Board </li></ul></ul><ul><ul><li>Partnerships </li></ul></ul><ul><ul><li>Executive Team </li></ul></ul><ul><li>Resource Constraints </li></ul><ul><ul><li>Product Management </li></ul></ul><ul><ul><li>Project Management </li></ul></ul><ul><ul><li>Architects </li></ul></ul><ul><li>Type of work we decide to outsource </li></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Application </li></ul></ul><ul><ul><li>Maintenance </li></ul></ul>
    13. 13. Top IT offshore resource producers: capacity $14,000.00 $19,000.00 $35,000.00 $11,000.00 $17,000.00 $9,500.00 $13,000.00 Salary “rumors” for IT professionals in ($US) 2005 N/A $7,200 78,000 $1,900 Ukraine 450,00 43,200 137,000 380,000 950,000 2,100,000 Total Number of college graduates in 2001 $7,500 $29,000 $7,400 $6,565 $8,952 $5,880 Average Cost of IT resources a year in 2001 N/A $2,000 Russia 23,000 $19,500 Ireland N/A $1,400 Mexico 290,000 $2,900 Philippines 200,000 $2,000 China 415,000 $2,400 India Estimated number of IT employees in 2001 Average Salary of college graduate ($US) in 2001 Country
    14. 14. Top IT offshore resource producers: risks Low Low Fair Fair Fair Challenging Poor to good Ukraine Moderate Low Fair Fair Moderate Challenging Poor to good Russia Poor to good Good Good Poor to good Poor to good Infrastructure Poor Poor Good Moderate Challenging Operating Environment Moderate Poor Moderate High Moderate Skills Availability Fair Good Good Good Poor Cultural Compatibility Good Good Good Good Poor English Skills Moderate Moderate Philippines High High Mexico High Moderate Ireland Moderate Moderate India Low Moderate China Cost Political Climate Country
    15. 15. Top IT offshore resource producers: outlook Med – High Med Med Med Low Low – Med Ukraine Med – High Med – High Med Low – Med Low – Med Low – High Russia Low – Med Med Med Med – High Low – Med Resource Turn Around Low Low Low High Med Local Presence Low – Med Low – Med Med Med – High Low – Med Account Management Med Low – Med Med – High Med – High Low – High Project Management Med – High Low Med Med – High Low – Med Access to Relevant Development Skills Med Philippines Low Mexico Low Ireland Med – High India Med – High China General Fit as a Partner Country
    16. 16. Example of Salary rumors – Neusoft, Inc.
    17. 17. Some Thoughts on the Strategy <ul><li>Geography </li></ul><ul><li>Type of vendors </li></ul><ul><li>How many vendors </li></ul><ul><li>Type of activities to be outsourced </li></ul><ul><li>Projects to be outsourced </li></ul><ul><li>Work allocation </li></ul><ul><li>Pilot strategy </li></ul><ul><li>Success criteria </li></ul><ul><li>Reevaluation strategy </li></ul>
    18. 18. Q & A <ul><li>Questions? </li></ul><ul><li>Suggestions / Ideas / Critique? </li></ul><ul><li>Next Steps? </li></ul>