Proven Practices Research: Offshore Sourcing of IT Work

1. Proven Practices Research:Offshore Sourcing of IT Work Dr. Joseph W. Rottman Dr. Mary C. Lacity May 24, 2005 presented to Marquette University and SIM Wisconsin Chapter

2. Outsourcing: n= 72 organizations British Aerospace DuPont Inland Revenue Enron IRS Rigg’s Bank South Australia Swiss Bank Insourcing/Backsourcing: n= 18 organizations Continental Baking Brown Group Westchester County Occidental Petroleum Ralston Purina Vista Chemicals MEMC Application Service Provision: n=10organizations Corio EDS Host Analytics mySAP Zland Business Process Outsourcing: n = 4 organizations BAE Systems Lloyd’s of London Offshore Outsourcing: n = 39 organizations Anonymous Case Studies: Primarily Fortune 500 companies & their offshore suppliers 15 Years of Sourcing Research: Case Studies Coauthors include Leslie Willcocks (Warwick), David Feeny (Oxford), Thomas Kern (Erasmus), Rudy Hirschheim (LSU)

3. Offshore Sourcing Cases

4. 30 Practices to meet Offshore Challenges:Some are HR Practices, others have HR Implications How can U.S. organizations develop and implement a global sourcing portfolio? (7 practices) How can U.S. organizations mitigate risks? (6 practices) How can U.S. organizations effectively work with offshore suppliers? (10 practices) How can U.S. organizations ensure cost savings while protecting quality? (7 practices)

5. Ideally U.S. IT managers should manage their own HR, not their suppliers’. In reality, many U.S. IT managers still micro-manage the supplier's staff through monitoring, training, and rewarding.

6. Practices to effectively manage internal HR 1. Openly communicate the sourcing strategy to internal IT employees through every phase 2. Retain 9 Core IT Capabilities in-house 3. Empower Project Managers 4. Elevate your own organization's CMM certification to close the process with the supplier Practices to minimize the need to micro-manage supplier's HR 5. Select suppliers by considering 12 supplier capabilities 6. Use fixed price contracts to mitigate workforce risks 7. Let project team members meet face-to-face to foster camaraderie Practices used to micro-manage supplier's HR 8. Give offshore suppliers domain specific training 9. Overlap onshore presence to facilitate supplier-to-supplier training 10. Recognize good supplier employees 11. Tactfully cross-examine, or replace, the supplier's employees to overcome cultural barriers 12. Require supplier to submit frequent status reports

7. Phase 4: Institutionalized Focus on Value-added Size of Market Customer Learning Phase 3: Market Matures Richer Practices Emerge Focus on Quality Phase 2: Early Adopters Best & Worst Practices Emerge Focus on Costs Phase 1: Hype & Fear Time 1. Openly communicate the sourcing strategy to internal IT employees through every phase

8. Business and IT Vision Business Systems Thinking Relationship Builder Contract Facilitation IS Leadership; Informed Buying Delivery of IS Service Contract Monitoring Technical Architecture Design of IT Architecture Technical Doer Vendor Development 2. Retain 9 core IT capabilities Feeny & Willcocks, Sloan Management Review, Vol. 39, 3, 1998, pp. 9-21.

9. 3. Empower project managers Architects/ DBAs/ Security/etc. Offshore Supplier Delivery Team The Popular Funnel Design PMO Project Managers Onsite Supplier Engagement Manager Offshore Supplier Delivery Team Local Business Units Offshore Supplier Delivery Team

10. 4: Elevate your own organization’s CMM certification to close the process gap Other CMM Practices: Bring in a CMM expert with no domain expertise to flush out ambiguities in requirements Flexible CMM: Negotiate the CMM processes for which you will and will not pay ”The overhead costs of documenting some of the projects exceeded the value of the deliverables." – Global Team Leader member, Biotech “You ask for one button to be moved and the supplier has to first do a twenty page impact analysis--we are paying for all this documentation we don't need." – Project Manager, Financial Services

11. 5: Select suppliers by considering 12 supplier capabilities Relationship Capabilities Planning & Contracting Organization Design Governance Customer Development Leadership Program Management Business Management Process Re-engineering Behavior Management Delivery Capabilities Technology Exploitation Transformation Capabilities Domain Expertise Sourcing Feeny, D., Lacity, M., andWillcocks, L., "Taking the Measure of Outsourcing Providers," Sloan Management Review, Vol. 46, 3, Spring 2005, pp. 41-48.

12. Planning & Contracting Organization Design Customer Development Governance Leadership; Program Management Business Management Process Re-engineering Behavior Management Domain Expertise Technology Exploitation Sourcing Behavior Management:the capability to motivate and manage people to deliver service with a “front office” mindset • How do suppliers orient new employees to their culture? • How do suppliers reward and incent desired behaviors? One Indian offshore supplier hires only Indians with a minimum six years experience living in the U.S., sets their hours as 1:00 to 10:00 to minimize time zone effects, and involves entire Indian families in the company.

13. Planning & Contracting Organization Design Customer Development Governance Leadership; Program Management Business Management Process Re-engineering Behavior Management Domain Expertise Technology Exploitation Sourcing Leadership:the capability to identify, communicate, and deliver the balance of delivery, transformation, and relationship activities to achieve present and future success for both client and provider. • Requires individuals who have the vision, experience, ability, and clout to serve as "CEO" of the relationship. • 76 case studies of EDS, IBM, CSC, Accenture with similar contracts found customer/supplier leadership as main explanator of customer satisfaction • Every customer expects the supplier’s A team • Often customer demands a change in leadership with first few months—on both sides!

14. 6: Use fixed-price contracts to mitigate workforce risks With time & materials contracts, the supplier employees may be inexperienced, fatigued, or slow With fixed price contracts, suppliers are incented to put most productive people to maximize margin

15. 7. Let project managers meet supplier employees face-to-face to foster camaraderie "Once you get good at specking out what you need face-to-face, then an awful lot of the work happens by e-mail and it’s just follow up questions and lots of that happens by e-mail" – Jerry, Global Leadership Team member, Biotech

16. 8. Give offshore suppliers domain specific training to protect quality

17. On Site Overlap 3 – 6 Months Trains Supplier ProjectLead 2 Trains Offshore Delivery Team On Site Overlap Supplier ProjectLead 3 Trains 9. Overlap onshore presence to facilitate Supplier-to-Supplier training. Industrial Equipment Manufacturing Customer Project Leads and Architects Train Supplier Project Lead 1 Project Duration On Shore - On Site Off Shore

18. 10: Recognize Good Supplier Employees “The offshore site loves when we come to visit, it pays tremendous dividends." PMO Director, Beverage Company

19. 11: Tactfully cross-examine, or replace, the supplier’s employees to overcome cultural barriers • Evasive about project status • Unwillingness to challenge the customer • Will not express incomprehension "The place could be on fire and they would say, ‘Oh it’s great, a little warm, but it is great!” -- Head of Offshore Program Management Office, Biotech

20. 12: Require supplier to submit frequent status reports

21. Further Reading Rottman, J., and Lacity, M., "Twenty Practices for Offshore Sourcing," MIS Quarterly Executive, Vol. 3, 3, 2004, pp. 117-130. Rottman, J., and Lacity, M., "Proven Practices for IT Offshore Outsourcing," Cutter Consortium, Vol. 5, 12, 2004, pp. 1-27.