Introducing Offshore Concepts

Introducing Offshore ConceptsExecutive Briefing. Nick Krym, 02-07-2006

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Good Reasons for Going Offshore


Feature Set 11

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‘06 Application and Service Expansion

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Q1 - Q2

Q2 - Q3

Q3 - Q4


Engineering Team: State of the Nation

• Hiring – more lessons learned– Time– Cost– Salary– Fit– Retention

• Project XXX – some lessons learned– Legacy code– Skills– Methodology

• Brief inventory of Achilles’ heels– Resource dependency – Ability to execute– Ability to grow– Legacy– Infrastructure– Ability to deal with demand spikes


Offshore Outsourcing: Major Risks

• Cost-Reduction Expectations

• IP Security/Protection

• Process Differences

• Data Security/Protection

• Vendor Failure to Deliver

• Scope Creep

• Government Regulation

• Geographical Dispersion

• Vendor Financial Stability

• Cultural Differences

• Turnover of Key Personnel

• Knowledge Transfer

• Communication Issues

• Loss of Team Spirit


Major risks specific to our team• Cost-Reduction Expectations

– Reasons / Elements• Low rates designed to masquerade real costs• Most offshore activities are characterized by very high overhead and startup cost• Most of offshore staff is less productive than on-site resources• Knowledge transfer / product handover generate addition substantial expenses

– Mitigation• 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

• We need to define some reporting framework that will allow us to communicate realities of the financial aspects of the engagement

• Cultural Differences & Geographical Dispersion– Reasons / Elements

• Time difference• Scope control• Root cause analysis• Initiative• Self-confidence • Hierarchy • Body shop mentality • Communication overhead• Communication breakdowns and failures

– Mitigation• Time / style expectations with internal staff• Dedicated liaison for dealing with offshore• Travel budgets• Processes• Documentation


Major risks specific to our team, cont.

• Turnover of Key Personnel– Reasons / Elements

• India’s large cities have close to 25% IT personnel turnover• 25% turnover ~ 50% hidden rate hike

– Mitigation• Handpick geographies and companies• Put contractual elements for key personnel retention• Build redundancy into the team

• Knowledge Transfer– Reasons / Elements

• Domain expertise • Communications• Geographical issues

– Mitigation• Core resource development• Processes and documentation• Travel budget

• Data Security and IP Protection– Reasons / Elements

• IP – code access• Data

– Mitigation• Processes• Security


Personnel Issues• Main issues

– Is my job at risk?– Is my salary at risk?– Is my career at risk?– Is my quality of life at risk?– We are OK as we are, why change?– What’s in it for me?– After all said and done there is more said then done

• Mitigation– Consistent non-stop messaging– Consistent aggressive motivation– Be prepared to pay above market– Staff redundancy – Process improvements


Offshore Outsourcing: Partnership Drivers

• Product offering / competitive strength

• Market opportunities / time to market

• Company scalability / flexibility

• Dealing with resource constraints– Financial consideration /

Budget– Infrastructure / Office– Sub-optimal resource

composition– Resource demand sawmill– Access to skilled resources /

missing competence

• Concentration on core competency

• Dealing with back log

• Process maturity

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Offshore Outsourcing: First Steps

• Commitment

• Establishing Strategy

• Budget

• RFP

• Vendor Selection

• Establishing partnership

• Pilot

• Full scale engagement

• Reevaluation Cycle

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Vendor Selection: Main Factors• Competitive Pricing

• Access to Resources

• Delivery Track Record

• Turnover Rate

• Data Security

• IP Protection

• Project Management

• Process Fit

• Account Management

• Cultural Fit

• Financial Stability

• Longevity

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Vendor Selection: Other Factors & Process

• Financial Issues– When do we get the investment– Volume of the investment– Allocation of the investment

• Executive Factors – Board– Partnerships– Executive Team

Vendor Comparison

Vendor 1 Vendor 2 Vendor 3 Vendor 4 Vendor 5Criteria Weight Rating Weighed

RatingRating Weighed




RatingCompetitive Pricing 20 3 60 4 80 4 80 3 60 5 100Access to Resources 18 3 54 3 54 3 54 3 54 2 36Delivery Track Record 15 4 60 4 60 4 60 4 60 1 15Turnover Rate 13 2 26 2 26 2 26 2 26 2 26Data Security 10 5 50 3 30 5 50 5 50 3 30IP Protection 10 4 40 4 40 3 30 4 40 4 40Project Management 8 3 24 3 24 3 24 3 24 5 40Process Fit 8 2 16 2 16 1 8 2 16 2 16Account Management 8 2 16 3 24 5 40 5 40 3 24Cultural Fit 6 3 18 3 18 4 24 3 18 3 18Financial Stability 4 2 8 2 8 2 8 2 8 2 8Longevity 1 5 5 5 5 2 2 3 3 2 2

Total 377 385 406 399 355

• Resource Constraints– Product Management– Project Management– Architects

• Type of work we decide to outsource

– Infrastructure– Application– Maintenance

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Top IT offshore resource producers: capacity

Country Average Salary of college graduate ($US) in 2001

Salary “rumors” for IT professionals in ($US) 2005

Total Number of college graduates in 2001

Average Cost of IT resources a year in 2001

Estimated number of IT employees in 2001

India $2,400 $13,000.00 2,100,000 $5,880 415,000

China $2,000 $9,500.00 950,000 $8,952 200,000

Philippines $2,900 $17,000.00 380,000 $6,565 290,000

Mexico $1,400 $11,000.00 137,000 $7,400 N/A

Ireland $19,500 $35,000.00 43,200 $29,000 23,000

Russia $2,000 $19,000.00 450,00 $7,500 N/A

Ukraine $1,900 $14,000.00 78,000 $7,200 N/A

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Top IT offshore resource producers: risks

Country Infrastructure

Operating Environment

Skills Availability

Cultural Compatibility

English Skills

Political Climate

Cost

China Poor to good

Challenging

Moderate Poor Poor Moderate

Low

India Poor to good

Moderate High Good Good Moderate

Moderate

Ireland Good Good Moderate Good Good Moderate

High

Mexico Good Poor Poor Good Good High High

Philippines

Poor to good

Poor Moderate Fair Good Moderate

Moderate

Russia Poor to good

Challenging

Moderate Fair Fair Low Moderate

Ukraine Poor to good

Challenging

Fair Fair Fair Low Low

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Top IT offshore resource producers: outlook

Country Resource Turn Around

Local Presence

Account Management

Project Management

Access to Relevant Development Skills

General Fit as a Partner

China Low – Med

Med Low – Med Low – High Low – Med Med – High

India Med – High

High Med – High Med – High Med – High Med – High

Ireland Med Low Med Med – High Med Low

Mexico Med Low Low – Med Low – Med Low Low

Philippines

Low – Med

Low Low – Med Med Med – High Med

Russia Low – High

Low – Med

Low – Med Med Med – High Med – High

Ukraine Low – Med

Low Med Med Med Med – High

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Example of Salary rumors – Neusoft, Inc.

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Some Thoughts on the Strategy• Geography

• Type of vendors

• How many vendors

• Type of activities to be outsourced

• Projects to be outsourced

• Work allocation

• Pilot strategy

• Success criteria

• Reevaluation strategy

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Q & A• Questions?

• Suggestions / Ideas / Critique?

• Next Steps?

Introducing Offshore Concepts

Business

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