Assessing the Offshore Development Model

By Frank Mazzucco
Senior Consultant

The offshore software development model — best exemplified by the powerhouse Indian shops such as Infosys, Wipro, and Tata — presents an undeniable allure to Fortune 1000 organizations: world-class process discipline, combined with highly skilled, motivated, and well-educated developers and programmers, who are fluent in English, and whose wage demands are less than half of their Western counterparts.

Is it too good to be true?

Possibly. However, the potential benefits offered by Indian and other offshore software development organizations cannot be ignored. And while the offshore model is by no means a magic bullet to the application development conundrum, it can address some critical needs and yield significant competitive advantage. The key for client organizations is to understand the capabilities of offshore developers, to recognize what challenges they can address and what problems they can't and shouldn't be expected to solve, and to adapt appropriate management practices to take full advantage of the offshore model.

Compass was recently engaged by a client to assist in the evaluation of six leading Indian software development outsourcers. As part of the evaluation team, the author met with the vendors at their facilities in Mumbai, Bangalore , and Chennai, as well as their onshore facilities in the United States , and gained insights into their capabilities and business strategies. This report is based on those observations, as well as on the author's and Compass' approach to managing and improving software development processes.

Vendor Capabilities

The reputation of Indian software developers as having world-class process discipline is well-earned. The Indian outsourcers all have a very strong process orientation in CMM, ISO 9000, MBNQA, and other process methodologies, and they all tout their maturity and use it as marketing leverage. But, since all the major vendors are essentially on the same level, little real competitive advantage is gained, relatively speaking.

The quality of offshore developers' process capabilities should not be surprising. Sound processes and effective knowledge management are essential to the offshore business model. Specifically, issues of distance and culture become insurmountable without strictly defined and followed processes. Put differently, for US and European software organizations, developing process maturity is an opportunity to gain an edge. For the offshore vendors, it's a matter of survival.

Contrary to some recent reports, the major vendors appear to have effectively managed growth. This may in part reflect a huge emphasis on training, not just on technical and process skills, but also on teamwork, communication, and on the ability to work in interchangeable roles. In addition, employee turnover, which has been a problem in recent years, seems to have abated.

Knowledge Management

The most basic driver of the importance of knowledge management (KM) is the time and geography differences between India and Western clients, which make traditional communications less effective. More specifically, KM tools are needed to facilitate coordination between on-shore and off-shore teams, and to track and communicate project status, particularly to update clients with respect to off-shore activities.

Infrastructure

The Indian vendors appear to be successfully addressing infrastructure issues that had been problems for them in the past. All of the vendors observed demonstrated a high-quality network infrastructure, including good redundancy, and vendor and path diversity. Telecom costs - until recently, a major barrier to off-shoring - have come down substantially. All of the vendors were well-prepared for power outages (which typically occur at least once a day in many Indian cities), with UPS systems and diesel generators.

Review Process

As part of the evaluation process, each team member evaluated and ranked the six vendors competing for the project. While consensus was reached on the top two vendors, the team members agreed that all of the vendors offered impressive capabilities, and that any of the vendors was qualified to address the client's requirements.

Potential Pitfalls

Notwithstanding the clearly impressive capabilities of Indian outsourcers, some cautionary notes should be sounded.

For one thing, client organizations should avoid trying to "buy" process discipline from Indian vendors, without making a corresponding investment in their internal capabilities. An offshore developer can provide a significant process improvement, but won't be able to take an organization any farther than it's ready to go. Process discipline creates work for the client, in terms of documentation, specification, and review. If the client doesn't have a sufficient retained organization to assimilate these sophisticated processes, the vendor will end up ratcheting down their capabilities at client intersection points.

Another key to success is recognizing the types of activities that are well-suited to offshoring, and the ones that aren't.

Basic activities that work well offshore include tightly-bounded development projects with clearly defined requirements, and routine application maintenance work

Conversely, offshoring tends not to be effective for projects with vaguely-defined specifications. Augmenting staff through offshoring - using offshore resources as contractors, in other words - is also a bad idea because of the time and geographic differences that make it difficult, if not impossible, to integrate these resources into on-shore project work. Finally, the concept of "Round the Clock" development, whereby a UK-based team hands off a project at the workday's end to a US team, which then passes off in the evening to an Indian team, has proven impractical in most cases. Experience has shown that the inevitable questions and problems that arise within any development center quickly bring the flow of work to a grinding halt.

Keeping an Eye on Productivity

Clearly, cost savings are the primary benefit of the offshore model. But - as is the case with many on-shore development organizations - customers find it difficult to track other performance measures, such as productivity and quality.

Put differently, customers may know that offshore developers cost, say, half as much, but they don't know if offshore projects take as long, twice as long, or four times as long as traditional projects.

As with most outsourcing relationships, an adequate retained function is essential to ensuring that an offshore sourcing arrangement delivers full value.

From Compass' perspective, the only way to effectively manage any type of development project - whether onshore of offshore - is to focus on the basics of scope, schedule, budget, and quality, and to introduce a methodology of discipline, measurement, and repeatability. Specific measurement criteria that should be applied to offshore projects include the following:

• whether work is done to schedule or not
• a method to track vendor performance regularly
• whether the vendor's effort estimates represent good productivity and low unit costs
• whether the vendor achieves industry quality levels
• what performance targets should be set for the vendor

To address these questions, application development and maintenance must be viewed not as a mysterious black hole that consumes business requirements and spits back applications, but rather as a manageable business process that produces application functionality - and that does so to a measurable quality level.

The bottom line: whether it's done in Bangalore or Boston , application development can be managed. All it takes is facts, a rigorous methodology, and knowledge of the processes and challenges involved.

Frank Mazzucco is a Compass senior consultant based in Dallas , Texas .

Dated: August 30, 2004
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