As presented at Mornings at McCormick

1. Establishing an Offshore development center Considerations and pitfalls

2. Original problem statement Growth in the US development centers was hindered by a chronic inability to staff teams in a timely and predictable manner Hiring cycle times were chronically long and some positions went unfilled for the entire fiscal year

3. Needs assessment Our needs assessment showed us that we had an immediate need for 50 to 60 people, ideally in a low cost center across a variety of software development related disciplines These disciplines included embedded software development and product assurance as well as artists and project managers We wanted to establish a combined technology and creative design center under one roof, a microcosm of how we operate in Chicago This was unprecedented for our company, no other site like this existed outside the US

4. The research Research started with data to understand what parts of the world had the desired characteristics: Desired and consistent population of qualified engineers Political stability Infrastructure Cost basis Countries considered: Ireland Singapore India

5. Country comparison Excerpted from Gartner Research, 2009

6. Early decisions Early decisions to go to India: Other countries lacked the numbers of qualified candidates Other countries lacked the cost structures Some company experience in India with small scale outsourcing-very positive Early decisions: First decision was to consider outsource versus ODC Regulatory constraints were too great on a pure outsource We had prior experience in outsource in India and wanted to take the next logical steps and become more autonomous Decision: Pursue an ODC

7. Location, location, location Learned that there were multiple tiers of cities to do business in India Tier 1: Cities like Bangalore, high cost and immense competition for resources. Huge talent pool Tier 2: Cities like Pune and Hyderabad that were less costly, less competitive for resources but still had large talent bases to draw from Tier 3: Cities like Ahmedabad that aren’t currently known for high tech talent pools or IT outsourcing, but have established a strategic intent to go in this direction Excerpted and summarized from Gartner Research, 2009

8. STPI versus SEZ We learned that there were two types of incentivized locations to site our facility STPI is a “Software technology Park” location which we found to have reasonable rents and some tax benefits but were more centrally located SEZ (Special economic zone) generally were more remote and for some reason had higher rents (larger/nicer facilities) but much better tax incentives We chose the STPI location in order to reduce the transportation issues for our employees and allow us to be more centrally located.

9. Decision to site in Pune We visited only tier 2 and tier 3 locations in order to avoid the insanity of the tier 1 locations (high turnover and high costs to operate and significant traffic congestion) We interviewed sample candidates from all candidate cities and viewed candidate office complexes from all We eventually decided on Pune, a tier 2 city with proximity to Mumbai. Able to pull resources and candidates from BOTH cities but avoiding the costs and turnover issues from tier 1 locations Pune is and has become a very popular city to do high tech business in

10. Drivers and inhibitors Drivers Number and quality and type of educational institution Overall skills availability and stability Work culture and work ethic Good environment for international business Inhibitors Infrastructure Attrition Escalating costs Lack of good quality real estate Anti globalization activism Security (information more than physical security) Excerpted from Gartner Research, 2009

11. Commerzone Multi building campus near center of Pune

12. Factors to consider when comparing cities Infrastructure: power, roads, airports, mass transit Skills availability: for the discipline and the industry background Skills retention: Issues surrounding ability to retain quality people Access to facility, travel times Cost of living Political support Quality of life Excerpted from Gartner Research, 2009

13. Differences between India and US Engineers in India are highly mobile, hence engineers in India are looking for: Maximum take home pay, less focus on benefits Maximize the quality of their resumes and work experiences Maximum technical challenges Opportunities for career advancement HR function is more employee focused in India rather than company focused as in the US (retention is a major challenge) Notice periods for resignations are much longer (one to two months) and there is a formal release process from one company to another Engineers in India are used to working with multinational firms and know the subtleties Not unusual for companies to provide lunches and transportation Much tighter information security policies

14. The next decision: how to start We decided to subcontract with a company that had local presence and could act as a “midwife” for establishing this ODC Manage the construction, build-out, hiring, on-boarding and administrative aspects of the site Recognize our firm is small, less than 2000 worldwide employees We wanted to get and keep some firm’s attention We wanted to leverage that same firm’s expertise All this, while recognizing our willingness to enter into a one time, non recurring, low fee, relationship with a firm that ideally was present in BOTH the US and India for a contract term of 2 to 3 years Dilemma: The firm’s location in India ideally would be co-located with the site of our ODC-in Pune Answer: We chose Indusa, a small(ish) outsourcing firm with operations in Oak Brook and Ahmdebad, but no operations in Pune We compromised on the location, knowing that the outsourcing firm could easily establish itself in Pune while getting a larger outsourcing firm’s attention was considered a more difficult problem to manage

15. The ODC “project” Needed help from the following internal groups: Human resources (policies, procedures and subcontracts needed to be put in place). Examples: Drug testing in country Due diligence firms in country Legal: needed to process STPI forms and establish in country presence and legal entities. Needed to hire local counsel Facilities, reviewed all drawings and submissions from the various architectural firms who submitted bids. Enforced US standards for sprinklers, battery backup, layout, safety Staffing. Needed to funnel job descriptions to Indusa, but still had to enforce our rigorous hiring process with them Functional teams were needed to understand the “pull” from the development projects Assigned an internal project manager to oversee the work

16. Security concerns Security is always a concern, but India has some special concerns: Physical security: Our campus in India has gated security at the edge of the campus, as well as building and suite security. Only suite security personnel are employees of WMS Data security: tighter controls had to be put in place, including desktop computers in lieu of laptops and no remove-able media allowed All procedures were developed well before opening of the facility

17. How to organize The dominant form of ODC organization in India seems to be a matrix form We hired an India site director, with limited authority Local leadership (dotted line) for managing local issues whilst leadership in Chicago retained its direct functional authority over the functional managers in India This way we keep functional managers engaged in the India operation, seeing it as an extension of their operations in Chicago We also kept local leadership in place so people had local recourse for solving problems that were specific to the India operation

18. Results so far Facility opened in early August, 2010 Construction cycle less than 90 days from cold shell to fully functioning office Build out costs were under budget and results were better than expected Facility rivals the appearance and feel of any of our facilities anywhere in the world Hired and on-boarded some 50 people in 60 days Turnover has been very low Productivity has basically met our expectations

19. Direct lessons learned to date Establish the legal entity first, then later set up the operation. We had much confusion and consternation trying it the other way around, ie trying to do both in parallel Spend more time on the PROCESS behind setting up the operation as we did over-focus on the physical assets (building and equipment) Choose legal counsel in the same city as the operation, to avoid communication and courier delays. Have SLAs in place with legal counsel of timeliness of turnaround and response times Have policies and relationships established before entering the country, simple things like: drug testing company, due diligence firms, security etc Hire an onsite HR person well before the hiring process is scheduled to start, we waited 60 days and the Hr person started at the same time as our newest engineering hires

20. Direct lessons learned cntd Planned for more growth, we clearly underestimated the growth needed in the facility. We are at less than 15% headroom in an office that is less than 6 months old Negotiate a transportation deal with the landlord so we can use some of the existing shuttle buses Have some hedge against currency fluctuations. We have none now and exchange rates have worked against us since we started More cultural training for those in the US working with India Spend as much energy on planning the on-boarding of the second wave of hires (and beyond) as we spent on the first wave Should bring the India leadership to travel to Chicago more often than we have, especially the site director Must keep India top of mind, with exciting projects and constant attention to details. Don’t ever message that their work is less important or lower priority

21. Vendor Perspective Critical Success Factors for success of ODC Choice of location Transport Availability of resources Retention factors Choice of vendor Knowledge of different models of setting up an ODC Working presence in US and India Knowledge and experience of Government rules, regulations and ways of working Local contacts at the location of choice Recruitment experience Project Management experience

22. Vendor Perspective Client-Vendor relationship Various models of working True BOT (Build Operate Transfer) Hybrid BOT Most efficient model True BOT Model Turnkey responsibility to vendor Crystal clear allocation of roles and dependencies to both vendor and client personnel Logical transition from outsource to owning and operating an ODC

23. Vendor Perspective Transition to owning/operating an ODC Start by outsourcing Nuances of the ways of working in the target country Productivity, reporting methodologies Integrating working relationships between US teams and Indian teams Move to BOT Decision can vary from company to company, based on various factors