Offshore Outsourcing Chris Moore Mike Loomis Survey of

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Offshore OutsourcingChris MooreMike Loomis
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Survey of current status of offshore
outsourcing What is offshore outsourcing? Why
are companies using offshore outsourcing for IT
functions? When did the trend begin? Where
are the top destinations for outsourcing IT
work? Who is outsourcing offshore? How is
offshore outsourcing accomplished?Case
study Monsanto HP Global Delivery India
Center YashGeneral guidelines
Presentation Objectives
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Offshore outsourcing, a type of business process
outsourcing (BPO), is the exporting of IT-related
work from the United States and other developed
countries to areas of the world where there is
both political stability and lower labor costs or
tax savings. Outsourcing is an arrangement in
which one company provides services for another
company that could also be or usually have been
provided in-house. Offshore simply means "any
country other than your own." The Internet and
high-speed Internet connections make it possible
for outsourcing to be carried out anywhere in the
world, a business trend economists call
globalization. In general, domestic companies
interested in offshore outsourcing are not only
trying to save money in order to be more
price-competitive against each other, but also to
enable them to compete with businesses in other
countries.
What is offshore outsourcing?
Source whatis.com
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Why are companies outsourcing?
Source http // outsourcinginstitute.com /
oi_index. Online survey of 1,100 buyers of
outsourcing services, 2003.
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Why are companies outsourcing offshore?
Source http//ventoro.com. Online survey of
5,231 executives who are buyers of outsourcing
services. ? 2004.
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http//commonziffdavisinternet.com/download/0/2216
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? H. Ross Perot founded EDS in 1962.? Back
in the mid-1980s, the model was to use offshore
labor for low-end, low-cost work such as language
localization, device and printer drivers, and
motherboard production.Source Robinson,
Marcia, and Kalakota, Ravi, Offshore Outsourcing,
Mivar Press, 2004 ? In the early 1990s, Jack
Welch implemented the 70-70-70 rule for GEs IT
work.Source Robinson, Marcia, and Kalakota,
Ravi, Offshore Outsourcing, Mivar Press, 2004.

When did offshore outsourcing begin?
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One of the first mega-deals in the world of IT
outsourcing was the 3.2 billion contract between
Xerox and EDS in 1994. The initiation of offshore
outsourcing took place in 1994 and
1995.Source Erber, G, Sayed-Ahmed, A.,
Offshore Outsourcing A Global Shift in the
Present IT Industry, Intereconomics,
March-April, 2005, pp. 100-113. ? (N)early
100 of Fortune 500 companies had no offshore
outsourcing of IT functions in 1990 by 2002, 50
to 70 were outsourcing some IT functions
offshore.Source Carmel, E. Agarwal, R., The
Maturation of Offshore Sourcing of Information
Technology Work, MIS Quarterly Executive, 1(2),
2002, pp. 65-77. ? December, 2003 Forrester
Research Study 60 of Fortune 1000 firms
were not outsourcing offshore 30
experimenters 5 committed 5 full
exploiters
When did offshore outsourcing begin?
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? India ? China ? Malaysia ? Czech Republic
? Singapore ? Philippines ? Brazil ? Canada ?
Chile ? Poland
Where is the IT work going?
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Offshore locations ranked by financial structure
Note Calculated on a scale of 1 to 4. Sources
A.T. Kearney, Economist Intelligence Unit, OECD,
World Economic Forum Global Competitiveness
Report, CB Richard Ellis, Forbes, EDS, local
government statistics, independent compensation
surveys.
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Offshore locations ranked by business environment
Note Calculated on a scale of 1 to 3. Sources
A.T. Kearney, Economist Intelligence Unit and
Foreign Direct Investment Confidence Index? 2003,
A.T. Kearney/Foreign Policy Globalization Index ?
2003, World Economic Forum Global Competitiveness
Report, Business Software Alliance, local
government agencies.
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Offshore locations ranked by people skills
Note Calculated on a scale of 1 to 3. Sources
A.T. Kearney, Organization for Economic
Cooperation and Development, World Bank, U.S.
Census Bureau, World Economic Forum Global
Competitiveness Report, Carnegie Mellon Software
Engineering Institute, Customer Operations
Performance Center, Educational Testing Service,
local government agencies.
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India is the top offshore location
Note The numbers in the bars are index numbers.
The weight distribution for the tree categories
is 403030, meaning that the financial structure
is rated a scale of 1 to 4, and the business
environment and people skills are on a scale of 1
to 3. Source A.T. Kearney.
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India is the top offshore location
Source A.T. Kearney
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Who is outsourcing offshore?
WIPRO Epson NCR Thomson General
Motors Honeywell Sun Microsystems SATYAM
Texas Instruments TRW Ford Motor Company
World Bank Reuters U.S. Robotics
TATA GE IBM Boeing Dell Citibank
Microsoft PATNI GE ATT Emerson
Electric Hewlett-Packard Bendix Met Life
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How is offshore outsourcing accomplished?
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How is offshore outsourcing accomplished?
Captive Model Company builds, owns, staffs, and
operates offshore facility. High cost, high
risk, high control. Joint-Venture Model Customer
and supplier share ownership in offshore
operations. High cost, high risk, control
depends on amount of ownership.
Source Rottman, J. Lacity, M., Proven
Practices for IT Offshore Outsourcing,Sourcing
and Vendor Relationships, Vol. 5, No. 12, ?2004
Cutter Consortium.
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How is offshore outsourcing accomplished?
Build-Operate-Transfer Model Supplier owns,
builds, staffs, and operates the facility on
behalf of the customer. Ownership and employees
transfer to the customer after completion. Medium
cost, medium risk, medium control. Fee-for-Servi
ce Model Customer signs a contract for services
in exchange for paying the supplier a fee. Low
cost, low risk, low control.
Source Rottman, J. Lacity, M., Proven
Practices for IT Offshore Outsourcing,Sourcing
and Vendor Relationships, Vol. 5, No. 12, ?2004
Cutter Consortium.
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Company backgroundDescription of outsourced IT
activity Total offshore picture SAP
developmentOffshore suppliers HP Global
Delivery India Center YashManagement
practices Practices before offshore
outsourcing Current offshore practices Challenge
s Comparison to best practices
Monsanto Case Study Objectives
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Monsanto Case Study
Source Rottman, J. Lacity, M., Proven
Practices for IT Offshore Outsourcing,Sourcing
and Vendor Relationships, Vol. 5, No. 12, ?2004
Cutter Consortium
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InterviewsMonsanto PMO ManagerMonsanto
Development CoordinatorMonsanto Systems
AnalystHP GDIC Offshore CoordinatorYash
Offshore Coordinator
Monsanto Case Study
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Company backgroundMonsanto employees 15,000IT
staff 600 (contractors not included)2004
Monsanto revenue 5.5B2004 IT budget 96M
(1.8 of revenue)
Monsanto Case Study
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Monsanto Case Study
Herbicides
Seeds
Animal Agriculture
Traits
Source www.monsanto.com
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Monsanto Case Study
Operations Lead ASI
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Monsanto Case Study
Description of offshore outsourced IT activity
Operations Lead ASI
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Monsanto Case Study

• SAP Development
• SAP is an Enterprise Resource Planning packaged
  software.
• SAP runs your entire business sales
  distribution, purchasing, finance, HR, production
  planning, etc.
• These business functions are grouped into SAP
  modules and are integrated.
• Module business logic is based on industry best
  practices.
• SAP has to be customized when it is implemented
  because every business will have variations on
  this business logic.
• SAP developers write custom programs within the
  SAP system, using a programming language called
  ABAP, to account for these variations.
• The programs can include reports, interfaces to
  external systems, documents, and modifications to
  SAP transactions.

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Monsanto Case Study

• HP GDIC
• (Hewlett Packard Global Delivery India Center)
• Originally Digital GlobalSoft.
• Bought by Hewlett Packard in 2004.
• Headquartered in Bangalore.
• CMM level 4 certified
• 2500 employees, 1000 SAP Developers in
  Bangalore
• Career path Developer, Tech Lead, ODC
  Manager, Offshore Coordinator
• Experience Majority of Developers have 2 4
  years.

Sources www.hpglobalsoft.com Offshore
Coordinator of HPGDIC, interviewed in person by
Mike Loomis and Chris Moore on November 1, 2005
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Monsanto Case Study

• Yash
• First client was John Deere.
• Headquartered in Moline, IL.
• Named Fast 500 IT Consulting Firm by Inc.
  Magazine
• Staff in U.S. and Hyderabad, India.
• Privately held company.
• Annual revenue in 20-30M range.
• IT specialties SAP, Oracle, Microsoft,
  Interwoven
• 200 employees
• ISO9001 certified, not CMM certified
• Experience Typical Developer has 5 years.

Sources www.yash.com Offshore Coordinator of
Yash, interviewed in person by Mike Loomis and
Chris Moore on November 2, 2005
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Monsanto Case Study

• SAP Development In-house Roles
• Project Manager
• Business Users
• Systems Analysts
• Development Coordinators
• Developers

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Monsanto Case Study
SAP Development In-house Communication
Users
Systems Analysts
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Monsanto Case Study

• SAP Development Offshore Roles
• Project Manager
• Business Users
• Systems Analysts
• Development Coordinators
• On-site Offshore Coordinator
• Offshore Technical Lead
• Offshore Developers

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Monsanto Case Study
SAP Development Offshore Communication
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Monsanto Case Study

• SAP Development Process
• Systems Analyst designs request. Systems Analyst
  writes specification.
• Development Coordinator assigns work to Offshore
  Coordinator.
• Offshore Coordinator reviews request, seeks any
  clarification from Systems Analyst.
• Offshore Coordinator works with Offshore
  Technical Lead to assign work to Offshore
  Developer.
• Offshore Developer develops program, works with
  Offshore Technical Lead for assistance, works
  with Offshore Coordinator for request
  clarification.

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Monsanto Case Study

• SAP Development Process
• Offshore Developer tests program. Offshore
  Technical Lead reviews program with Offshore
  Developer.
• Offshore Technical Lead/Offshore Developer
  deliver finished program to Offshore Coordinator.
  Offshore Coordinator informs Systems Analyst that
  program is ready to test.
• Systems Analyst tests programs, notifies Offshore
  Coordinator of any problems. Offshore Coordinator
  may fix problems on-site, or return program to
  Offshore Developer/Offshore Technical Lead for
  fixes.

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Monsanto Case Study

• SAP Development Process In Detail
• Systems Analyst designs request. Systems Analyst
  writes specification.
• PMO Manager Specifications typically evolve as
  the project moves along.we are a highly
  interactive culture. Its like a group of people
  standing around each other working (together).1
• Systems Analyst (With offshore) more effort is
  needed to write specifications.it was taking
  double the time, because you have to do a lot
  more pre-work developing the design.2
• Development Coordinator The specifications in
  general need more detail, but an experienced
  developer would ask more questions.3

Sources Systems Analyst of Monsanto, interviewed
in person by Chris Moore on November 3, 2005
Dev. Coord. Of Monsanto, interviewed in person by
Chris Moore on November 2, 2005.
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Monsanto Case Study

• SAP Development Process In Detail
• Development Coordinator assigns work to Offshore
  Coordinator.
• Development Coordinator I look for clearly
  defined requirements, not complex where possible.
  We learned it was best to keep complex work
  on-site.3
• PMO Manager Each individual IT team worked with
  their offshore resources differently. People
  tried different ways of working with offshore. We
  tried a few projects without the offshore
  coordinator, and those did not work.1

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Monsanto Case Study

• SAP Development Process In Detail
• Offshore Coordinator reviews request, seeks any
  clarification from Systems Analyst.
• Systems Analyst The offshore coordinators
  experience is critical.2
• Development Coordinator I will sometimes talk
  with the Offshore Coordinator, and maybe we will
  both talk with the Systems Analyst. If I am more
  comfortable with the Offshore Coordinator, he
  gets more range.3

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Monsanto Case Study

• SAP Development Process In Detail
• Offshore Coordinator works with Offshore
  Technical Lead to assign work to Offshore
  Developer.
• Offshore Coordinator I do not actually assign
  work to the developers. I work with a technical
  lead (in India) to make assignments.4
• Offshore Coordinator I have a skill matrix to
  determine a pool of possible people to assign
  work to. I then work with a technical lead (in
  India) to make assignments.5
• Systems Analyst (Not aware of assignment
  process.)2
• Development Coordinator (Not aware of assignment
  process.)3

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Monsanto Case Study

• SAP Development Process In Detail
• Offshore Developer develops program, works with
  Offshore Technical Lead for assistance, and works
  with Offshore Coordinator for request
  clarification.
• Offshore Coordinator This is a Monsanto model.
  At other clients, developers work directly with
  the systems analysts. I am not sure if one model
  is better than the other.4
• Systems Analyst The time zone difference mostly
  works to our advantage. People are constantly
  developing.2
• Development Coordinator Time zone difference
  has advantages and disadvantages, but mostly it
  is a disadvantage. During heavy testing, we only
  get one turnaround per day.3

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Monsanto Case Study

• SAP Development Process In Detail
• Offshore Developer tests program. Offshore
  Technical Lead reviews program with Offshore
  Developer.
• Offshore Coordinator Developer creates a test
  plan, but Monsanto does not get it, because they
  didnt want it. The technical lead (in India)
  does peer review of the developers program.5
• Offshore Coordinator The Offshore Coordinator
  will sometimes have to work with the systems
  analyst to gather test data for the developers.
  There is also a QA team that tests program.4
• Development Coordinator (Unaware of code
  reviews.) We had to create a code checklist for
  the developers to follow to ensure quality.3
• Systems Analyst (Unaware of code reviews.)2

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Monsanto Case Study

• SAP Development Process In Detail
• Offshore Technical Lead/Offshore Developer
  deliver finished program to Offshore Coordinator.
  Offshore Coordinator informs Systems Analyst that
  program is ready to test.
• Systems Analyst Communication was lacking,
  sometimes I wasnt notified that a program was
  ready.2
• Development Coordinator The Offshore
  Coordinators would usually test code before
  turning it over and would fix any problems. Some
  offshore coordinators were more diligent than
  others.3
• PMO Manager One of the cultural barriers was
  that we would never hear bad news, until it was
  too late. And then when you would finally hear
  bad news, the response was but people are
  working very hard.1

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Monsanto Case Study

• SAP Development Process In Detail
• Systems Analyst tests programs, notifies Offshore
  Coordinator of any problems. Offshore Coordinator
  may fix problems on-site, or return program to
  Offshore Developer/Offshore Technical Lead for
  fixes.
• Offshore Coordinator The Offshore Coordinator
  must be a senior level developer.5
• Offshore Coordinator The Offshore Coordinator
  often makes program changes.4
• Development Coordinator Sometimes there were
  too many changes for the offshore coordinator to
  make, and they became a bottleneck. Development
  coordinators had to take over the organization of
  issue resolution, and Monsanto developers had to
  take over some of the code. (This was not common
  to all projects)3

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Monsanto Case Study

• SAP Development General Thoughts
• Ideal Offshore Coordinator to Developer ratio
• Offshore Coordinator 16 or 17.4
• Offshore Coordinator 15.5
• Development Coordinator 15.3
• Systems Analyst Not more than 16 or 17.2
• Note During the high-point of offshore
  development, it was 113 for HPGDIC.

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Monsanto Case Study

• SAP Development General Thoughts
• Camaraderie
• Systems Analyst You know.Im surprised.even
  though they are from my own country, I dont have
  same level of rapport with them. Rapport is very
  important.2
• Development Coordinator There is no
  camaraderie. I know some names (of the
  developers), but dont know them well enough to
  know their strengths and weaknesses.3
• Offshore Coordinator We should have sent some
  developers to the client site for a while. Then
  you would have a team.5
• Offshore Coordinator I told my wife I dont
  want to do this (offshore outsourcing).I feel
  bad for these people.5

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Monsanto Case Study

• SAP Development General Thoughts
• Language
• Offshore Coordinator Language is not an issue.
  English is the language spoken at business
  meetings, even at the offshore office.4
• Development Coordinator (During interviews)
  sometimes I thought they did not understand us.
  It could have been a lack of technical
  understanding or a language problem.3
• Systems Analyst Not an issue. Most speak at
  least three languages, the regional language, the
  national language, which is Hindi, and English.2

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Monsanto Case Study

• SAP Development General Thoughts
• Status Reporting
• Offshore Coordinator I provide a monthly
  status report to show what is being worked on,
  and defects and other metrics. I also provide
  weekly a status report to give detailed status on
  what is being worked on.5
• Development Coordinator During critical times,
  we had daily conference calls with all the
  developers. This helped.3
• Offshore Coordinator The daily conference
  calls were helpful for damage control. Often
  times, the developers dont feel the same
  pressure that I do.5

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Monsanto Case Study

• SAP Development General Thoughts
• Future of the Relationship
• Offshore Coordinator The Monsanto relationship
  (with our company) is good and healthy.4
• Development Coordinator Lately its been
  easier, but we havent assigned complex work. I
  dont think you can have the majority of your
  staff offshore.3
• Systems Analyst Now I am not as frustrated as
  I used to be.because it was taking me double the
  time.but the latest offshore company I have been
  working with is better.2
• PMO Manager Our expectations were not met. The
  developers were not very skilled. It wasnt a
  good fit between the offshore model and the
  Monsanto model.1

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Monsanto Case Study
Best Practices
Source Rottman, J. Lacity, M., Proven
Practices for IT Offshore Outsourcing,Sourcing
and Vendor Relationships, Vol. 5, No. 12, ?2004
Cutter Consortium
49
Offshore Outsourcing
Questions?
50
Additional References
1PMO Manager of Monsanto, interviewed in person
by Chris Moore on November 9, 2005 2Systems
Analyst of Monsanto, interviewed in person by
Chris Moore on November 3, 2005 3Development
Coordinator of Monsanto, interviewed in person by
Chris Moore on November 2, 2005 4Offshore
Coordinator of Yash, interviewed in person by
Mike Loomis and Chris Moore on November 2,
2005 5Offshore Coordinator of HPGDIC, interviewed
in person by Mike Loomis and Chris Moore on
November 2, 2005