FSO Online Magazine

	Offshore information systems development has become increasingly important for IT managers. Benefits include lower costs, improved quality and a 24-hour development-cycle by leveraging differences in time-zones.
H.R. Rao

However, offshore development introduces significant management issues associated with differences in culture, distance and time-zones. Analysts of client organizations may have to coordinate with individuals with whom they may have never had any face-to-face interaction. A study of past outsourcing arrangements reveals a formula for success that many companies should be able to implement - with proper planning.

In order to address coordination issues and minimize associated risks, an IT outsourcing relationship often starts with service provider executives being present in a supportive mode at the client site. But in the long-term, this time and money arrangement becomes cost-prohibitive. This is when the relationship typically takes the shape of a hybrid mode of having a small percentage of onsite presence, whereas the majority of the team is at an offshore location. Depending on the criticality of the project requirements and budget, the onsite-offshore distribution could typically range from 25%/75% or 30%/70%. When the business processes are standardized, the project can move to a complete offshore execution model.

Onsite in this context would refer to a project location in USA, whereas offshore would refer to a development center in another country with services at cheaper rates. Typically, the onsite-offshore engagement with a new client would start off by hiring one/more service provider’s consultant/s onsite, on a time and material (T&M) basis to prove the vendor’s project execution capabilities. Depending on the vendor’s offshore capabilities, the relationship would mature to an extent where a pilot project could be conducted by the onsite-offshore team.

Finally, after a contract would be established in the form of a fixed-price contract or T&M basis, a project management hierarchy as depicted in Figure 1 is created. (The chart below illustrates a typical project management hierarchy for a project executed in an onsite-offshore methodology ). The onsite account is headed by a relationship accounts manager with multiple projects being executed under his leadership. Each project leader reports to him/her as to the project status and newer business opportunities to extend the relationship with the client. The client organization has the full flexibility of contacting the relationship manager directly to escalate high priority project/resource management related issues. If the particular project is being executed as an offshore-onsite model, there is also a project manager responsible for smooth execution of the project. Typically, there would be many such projects under his leadership. The offshore project leader deals with daily project management activities for the offshore team.

Figure 1: Offshore outsourcing coordination structure

In the onsite team, each consultant typically works with one/more client analysts. There is also a person in the onsite team who forms the liaison between the analysts and the offshore team for ensuring the quality of the deliverables. Typically, the person is maintaining the communication channel between the client analysts and the offshore team. He/she thus forms the most important link for successful execution of the project and takes up this role as an added responsibility. Depending on the size of the project and/or the nature of the contract, this might be the only person present at the client site and an ambassador representing the service provider’s capabilities. This role thus forms the "zipper" to bind the client and service provider organizations. This entity can become the most significant enabler for substitutional movement causing evolution from a support to a reliance / alliance type outsourcing relationship [1].

The challenges faced by a liaison role are reduced when outsourcing services are being executed within geographical/cultural boundaries. In that case, it is much easier to bridge the communication gap, as the teams do not have to adhere to time differences and face-to-face interactions are more convenient due to geographical proximity. Moreover, it is much easier to resolve issues through such meetings as opposed to the dependency on teleconferences and emails. The onsite-coordinator role is thus very crucial to the success/failure of an offshore outsourcing business model and without proper focus may turn out to be the weakest link in the chain, causing a disruption between two otherwise very efficient organizations. The coordinator has two major goals and a few sub goals as well:

Manage Client Expectations: The onsite coordinator should effectively communicate the cross-border cultural diversity and geographical time difference issues to the client. He/she should allocate a certain percentage of work-hours for coordination related tasks with client’s consent. During the initial setup phases of the offshore project execution, there might be infrastructural issues involved while trying to build the offshore team. For an onsite consultant it is much easier to clarify a doubt by directly communicating with the client, but the lead-time for the offshore team might be up to a whole day, due to the differences in time zones. It is often observed that the coordinator is willing to commit his team to meet all the requirements expressed by the clients, without first checking back with his off-shore developers. Later, if any of these requirements cannot be met, clients are dissatisfied, even if the project would otherwise be called a success. This usually turns out to be a major issue when transitioning from an onsite to offshore model. The management of expectations also includes setting proper targets for the offshore team acceptable to the clients to ensure customer satisfaction and long-term sustainability of the relationship. It is therefore expected that increased communication between the onsite coordinator and users, particularly in the initial stages of the project, will improve the likelihood of success of the offshoring engagement [2].

Manage Communication Channels: This is a complex issue to bridge the gap between two heterogeneous groups of individuals. These differences are not limited to the national/regional level but also the organizational, professional and team culture. The onsite coordinator forms the single most important entity in maintaining the relation and hence must be able to comprehend and communicate effectively without causing any disruptions in the relationship. As per Dun and Bradstreet’s Barometer Of Global Outsourcing study, as many as 25% of all outsourcing relationships fail because the client does not clearly communicate its needs, costs exceed expectations, and poor service quality [3]. It can be speculated that poor quality of service as conceived by the client is usually an after-effect of communication gaps and unmanaged expectations. As often happens in IS development, there are phases where the development team encounters unexpected obstacles. When these are not periodically communicated to the client and projects miss deadlines, clients are unhappy and believe that the provider did not put in the required effort. Therefore, an increase in the frequency of feedback by the liaison member from the offshore team and communicating the issues/concerns to clients by the onsite coordinator is expected to improve transparency and improve the likelihood of success [4].

Management of client expectations and communication channels call for the coordinator to handle other sub issues as well.

Dealing with Cultural Diversity: The offshore-onsite model implies working with heterogeneous groups of individuals. This has its own challenges of dealing with cultural differences related to national/regional, organizational, professional as well as team culture. The differences might be hierarchical in nature with respect to the power distance being maintained. Thus for example if the offshore team has a vertical organizational hierarchy, then the coordinator should communicate through proper hierarchy to escalate project related issues. On the other hand, if the team is very horizontal in nature, then a more consultative approach is appropriate for smooth transition. There might also be diversity, due to individuals belonging to individualistic versus collectivistic cultures. In the former, we might find a particular individual assuming responsibility for fault/reward, whereas in the latter, even though the tasks maybe done by an individual, the team would assume the responsibility. The onsite coordinator should be able to understand the differences and train team members to adapt to the customer’s operational preferences. Appreciating cultural differences will also help build trust and confidence in the relation between the two strategic partners. Increasing awareness of cultural diversity issues awareness should therefore form one of the building blocks for an effective off shoring engagement [5].

Risk Management: The virtual team concept might make the client analysts feel "blindfolded". The coordinator should take up the responsibility of alleviating this perception of poor communication through regular status updates from the offshore tasks and maintaining regular contact with the team through the use of collaborative technologies. However, some risks still remain regarding infrastructure related issues such as network communication breakdowns, power outages and political turbulences. A good way to mitigate such uncertain risks would be to break down the tasks to their constituent components and maintain a common repository for configuration management. For example, it is common for snapshots of repositories and databases to be replicated onsite. This achieves two objectives. First, due to the smaller size of each task, less rework might be necessary due to loss in infrastructural breakdowns. Second, by having a common configuration management repository over a shared network, the onsite consultants can continue working on the latest version without causing any disruption due to offshore absence. By improving service continuity and the predictability of IT budgets, effective risk management and distribution is expected to improve the likelihood of success of the liaison role [6].

Effective Time Management: The offshore-locations usually are located in different time zones with large time differences. This would imply that the coordinator might have to attend teleconference meetings at late hours of the night to match the offshore work-hours. This arrangement should be rotated uniformly so that, both entities (coordinator and the offshore team) take up turns in organizing such meetings to distribute the stress caused due to working beyond the regular hours.

While this is only a summary of some of the challenges, it illustrates that offshore sourcing involves coordination between two separated teams and is a challenging endeavor. Identifying the type of the project complexity and severity, as well as the business impact is critical for client organizations and service providers to decide on the coordinator skill set needed to get the maximum benefits from the onsite-offshore outsourcing relationship. Obvious cost benefits are achieved through the cheaper labor rates, but there are hidden costs associated with management of virtual teams. This would mean increased management effort involved in defining and monitoring the contractual engagement. Through effective relationship management and hence increased reliability for service continuity, firms can reduce the regular monitoring costs and ensure a smooth transition to absorb the IT offshore service provider as an extended arm of the organization.

Permission is required to reprint articles from FSO Magazine.

For hard copy reprints or high resolution pdf e-mail at reprints@fsoutsourcing.com