creating a business advantage with offshore resources

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Creating A Business Advantage With Offshore Resources

White Paper



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Table of Contents Offshore Development In Fortune 500 Enterprises ......................................................................................................... 3

Global Offshore Market Scenarios ....................................................................................................................................................... 3

The Offshore Technology Center Concept ........................................................................................................................ 5 Offshore Technology Centers .............................................................................................................................................................. 5 Advantages Of The Offshore Technology Center ............................................................................................................................... 6

Quality: The Knowledge To Do Nearly Any Job Well .......................................................................................................................................................... 6 Cost: Savings Of Over 50% Are Typical .................................................................................................................................................................................... 7 Start-Up Time .................................................................................................................................................................................................................................... 8 Communications ............................................................................................................................................................................................................................. 8 Security – Data and Intellectual Property Rights ................................................................................................................................................................. 9 On-Time Delivery ............................................................................................................................................................................................................................. 9

Return-On-Investment Through Offshore ...................................................................................................................... 10 Indian Offshore ROI: Risk Adjusted .................................................................................................................................................. 10

Discovery .......................................................................................................................................................................................................................................... 10 Development Model .................................................................................................................................................................................................................... 11 Metrics ............................................................................................................................................................................................................................................... 11 Phasing .............................................................................................................................................................................................................................................. 11 Overhead .......................................................................................................................................................................................................................................... 11 Assumptions ................................................................................................................................................................................................................................... 12 Risk ...................................................................................................................................................................................................................................................... 12

Candidates For Offshore ................................................................................................................................................... 13

Key Success Factors ........................................................................................................................................................... 14

Appendix I: Engaging The KPI Offshore Technology Center ........................................................................................ 16 Step 1: Team Identification ........................................................................................................................................................................................................ 16 Step 2: Acclimatization of Client’s Processes ....................................................................................................................................................................... 16 Step 3: Process Definition ........................................................................................................................................................................................................... 16 Step 4: Offshore Environment .................................................................................................................................................................................................. 16 Step 5: Project Execution ............................................................................................................................................................................................................ 17

Typical Offshore Development Cycle ................................................................................................................................................ 17 Monitoring Offshore Technology Center Activities ......................................................................................................................... 18 Organizational Model ......................................................................................................................................................................... 18

Offshore Component ................................................................................................................................................................................................................... 19 On-Site Component For Blended-Shore Models ............................................................................................................................................................... 19

Security Policy ..................................................................................................................................................................................... 19 Access Rights .................................................................................................................................................................................................................................. 19 User Login and Firewalls ............................................................................................................................................................................................................. 20 Physical Security ............................................................................................................................................................................................................................ 20

Offshore Technology Center Experience .......................................................................................................................................... 20 Knowledge Retention .................................................................................................................................................................................................................. 20 Work Structuring and Workflow Management .................................................................................................................................................................. 20 Ownership of Delivery ................................................................................................................................................................................................................. 20 Configuration Management ...................................................................................................................................................................................................... 21

About KPI Partners ............................................................................................................................................................ 22



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This white paper discusses how KPI Partners leverages the offshore and blended-shore model for higher market growth and business advantage.

Offshore Development In Fortune 500 Enterprises Offshore outsourcing is now a mainstream practice for Fortune 500 Enterprises as more and more companies are going offshore to develop and maintain software. Microsoft, GE, Bank of America, American Express, and Oracle are examples of such enterprises. Surveys by the Indian National Association of Software & Services Companies (NASSCOM) and Gartner Group found that 40% of Fortune 500 companies are outsourcing some aspect of their software development. The reason is simple: outsourcing saves time and money. The development of customized software requires a detailed understanding of business processes and the way IT supports those business processes. Building an effective offshore partnership requires much effort and delicate handling by senior managers.

Global Offshore Market Scenarios Although Indian vendors dominate today’s offshore market with an estimated 80% to 95% of offshore revenue, countries like Ireland and Israel are building their own successful capabilities and many foreign companies are planning to compete for the American market. The level of the projects and processes moved offshore is becoming more sophisticated. Five years ago, U.S. companies primarily sent cost-sensitive, trailing-edge projects offshore (e.g., legacy maintenance, conversions and migrations). As the offshore firms proved themselves successful, their customers began to send higher-level IT work offshore (e.g., applications and web development, enterprise integration, ERP work, and e-business development). Processes to enable global software development efforts or offshore application management have been tweaked and streamlined throughout the years. Although Indian companies may not use any special coding tools or techniques beyond what U.S. enterprises use, their meticulous approach toward these processes — preparing documentation, planning for alpha and beta releases, establishing user acceptance procedures, regression testing procedures and collecting metrics during development activities — has aided in the industry’s success. The offshore industry is highly dependent on first-class communications to sustain current and future growth. Voice and data communications from Indian data centers to the United States or Europe are excellent.



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Cultural issues are better understood. Cultural issues play a significant role. The use of offshore contractors has in some cases provoked substantial resistance from programmers fearing for their jobs. Simply importing foreign personnel to customer sites opens the door to many abuses--and potential liability. For these reasons, the Indian market is de-emphasizing customer-based engagements in favor of performing the preponderance of work at the offshore site. Typically, however, some on-site presence is required as is depicted in KPI’s offshore development process in Appendix I. The advantages have become clear. Cost savings was the primary reason US clients began to adopt the offshore model in the early 1990s. The major drivers in the past few years have gone way beyond cost — although current economic conditions have caused cost to once again become the No. 1 reason customers are exploring offshore outsourcing today. Other drivers include:

• Time to market • Available and flexible talent pool • Quality • Higher productivity • A 24-hour workday for support activities • Quick ramp-up

The cost dynamics and workforce mix are changing. Many countries, such as India, derive their competitive cost advantage from performing high-margin activities offshore. The general goal is to perform 70% to 80% of programming activities offsite (which increases margins, while lowering the overall cost to enterprises) and achieve approximately 50% of export revenue offsite (equal split with onsite revenue).



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The Offshore Technology Center Concept Business demands for IT solutions have never been greater or more complex. They include client-server, data warehousing, ERP implementation (both back office and front office), sales force automation, knowledge management, and Internet (Intranet, extranet, e-commerce). IT managers know that there is a tremendous shortage of key qualified IT resources that is growing significantly each passing year. Given the demand and the skills shortage, offshore outsourcing is the perfect solution. In India, the largest supplier of IT outsourcing services, IT exports have grown from US $30 million in 1989 to over US $2.7 billion in 1998. The growth has been continually compounding at a rate over 50% per year for the past several years. There are several factors that clients cite for offshore outsourcing. At the heart of all these is the inability to find qualified IT resources. Clients also mention accelerated delivery / time-to-market factors, higher productivity and quality (often significantly better then they can deliver themselves), fixed price contracts, and significantly lower costs. Keeping in view these critical factors, the Offshore Technology Center concept was designed. Under this concept, KPI provides the entire infrastructure and a full-time development team to the client at a dedicated KPI Partners Offshore Technology Center (OTC). The processes, methodologies, and standards of the OTC are designed to keep the client’s concerns on offshore development and development requirements into view. Depending on the client’s requirement the team at the OTC can be expanded and scaled to quickly meet the growing needs of the client. In a blended-shore model, a part of the development team may be located on-site at the customer's facility.

Offshore Technology Centers KPI Partners provides all the infrastructure requirements and a specified number of full-time IT personnel within the Offshore Technology Center. Part of our team may be located on site at the customer's facility in a blended-shore model. The client typically only furnishes unique hardware and software to the OTC team. The processes, methodologies, and standards of the Offshore Technology Center may be those of either KPI’s or the client.



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Advantages Of The Offshore Technology Center The following table presents some of the advantages of an Offshore Technology Center versus in-house development.

Quality & Technical Expertise Some of the best talent is made available. All the latest development tools and training are available.

Cost Reduced investment in hiring and training skilled resources. Reduces costs and risks.

Start-Up Time Often much faster than trying to staff an in-house project. Small projects can be started in a few days and large projects in a few weeks.

Communications Satellite, Internet, voice, and video conferencing technology are available and can be used to reduce project failure risks.

Security Excellent security, both physical and intellectual. The methodologies typically include internationally enforceable non-disclosure agreements as well as physical/IPR security.

On-Time Delivery Improves delivery schedules, thereby, increasing competitive edge. Delivery guarantees are often provided.

Scalability

Teams can be ramped up or down sized quickly. Physical resources like space, equipment, etc. can be mobilized quickly. Alleviates the problem of resource mobilization, especially, in critical situations, enabling internal

Quality: The Knowledge To Do Nearly Any Job Well Many of the world's major software programs are developed in whole or in part offshore. Nearly all of the Fortune 500 enterprises use offshore development services or have their own branches set up offshore. Training on the latest technologies and modern hardware are easily available. A large number of centers are ISO 9000 certified and / or SEI CMM compliant. In short, the ability to do nearly any software project is available offshore. KPI’s offshore quality processes are SEI CMM Level 3 compliant.



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Cost: Savings Of Over 50% Are Typical KPI can save companies over 50% of the costs of hiring personnel and even more if the solution was to use contractors. Clients wind up with all the normal outsourcing benefits of no continuing personnel cost obligation and have a much lower cost as well. In general, here are ballpark costs that can be presented to the potential clients:

Developers

Generally, $35 to $55/hour, depending on the type of work. Some work can be done for less, while specialties can cost more. There is usually an overhead cost for project management but negligible for long term projects.

Data, Voice, and Video Minimal if requirements are not excessive and the Internet can be used. Dedicated Satellite links with highly secure connections are readily available at KPI now.

Travel & Lodging

Nearly all the large projects necessitate some members of KPI team to be at the client site for spec gathering in the beginning. Large projects may mean KPI personnel at client site throughout the project.

Equipment Costs

KPI has a fully equipped developmental lab, with state-of-the-art desktop systems and a dedicated 128 KBPS communication link. Additional local government sops / incentives are also available for IT exports.



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Start-Up Time The actual time it takes to get clients project started at a KPI Offshore Technology Center depends on several factors:

Project Size

KPI does not have a huge numbers of developers simply sitting around waiting for offshore work. However, KPI can free a few developers to start small projects or to get started on a portion of larger projects. Project managers are another key element. KPI can get started on a client project rapidly and far quicker than staffing a project internally

Project Type

If a project requires special training, it will take extra learning time. KPI usually sends personnel to client site for knowledge transfer sessions where a team leader will go through the training phase before returning and to train the rest of the offshore personnel.

Specifications

In nearly every project, some time must be devoted to gathering and submitting specifications. If a project does not have proper requirements and design documentation, more time must be allocated.

Communication

With any team-oriented working environment, you can expect a period of time to establish good rapport and communication between client’s key people and KPI’s offshore personnel.

Communications KPI has setup dedicated communication links to optimize the interaction with the team at the client site. It is now easy and inexpensive too to exchange data, voice, and video over these secure links. Phone is fairly inexpensive, as we have implemented voice over IP within our KPI Offshore Technology Centers.



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Security – Data and Intellectual Property Rights Security is an issue, but projects sent offshore are generally no more at risk than anything outsourced domestically. KPI offers security that is on par with US corporations. Extensive background checks and identification is required for anyone entering areas that have customer code. India has made Intellectual Property violations a non-bailable offence. KPI is a US Corporation, which means any contracts the client signs are governed by US law, and disputes would be handled in US courts.

On-Time Delivery Huge cost savings are of no value if there are delivery delays. Experienced project managers that know how to properly set schedules, create realistic expectations, and maintain communication with clients are essential. KPI works closely with clients to develop realistic schedules, goals, and investment projections.



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Return-On-Investment Through Offshore A recent industry study by Giga Group, considering the use of Indian offshore companies for application development and / or support, showed upward of a140% return-on Investment (ROI) with a very conservative model and fully burdened with risk. Figure 1 shows expected ROI, risk adjusted, with volume of activity sent offshore. What is interesting to note is the "knee" in the graph, indicating the critical mass point in terms of volume. At this point, fixed and overhead expenses have been maximally amortized and variable costs begin to dominate the ROI.

Indian Offshore ROI: Risk Adjusted

The model assumes an initiation period where the transition to outsource would take place. During this time, KPI prepares by performing the following tasks to the potential client: Discovery



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Conduct a comprehensive discovery of all software development and identify those projects most viable for immediate outsourcing, along with those that may be outsourced after some experience and those that should most likely not be outsourced. An additional discovery point to be addressed during this task is the identification of overlapping or duplicate functionality across applications, or the opportunity to combine one or more applications and eliminate support costs. Development Model Develop a full life-cycle development model for outsourced software development. This would include the documentation needed with examples or instructions, the decision points along the way, and program management if necessary. Metrics Create an effectiveness measurement system and create a baseline for measurement. This will be used to ensure expected cost benefits are being received as well as consistency in quality and cycle times. Phasing Begin outsourcing in a phased approach, moving more and more offshore over time, starting with some initial pilot projects. Overhead In addition to including costs at typical fully burdened US labor rates for the task list stated above, the model also considers the following overhead items:

• Dedicated communications links for the duration of outsourcing • Dedicated program management for both companies in both countries • One time "hit" for contract termination, after initial period of performance, to bring work back

in house (worst case scenario) • Travel and expenses (T&E)



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Assumptions Other assumptions factored in by the ROI model above include:

• Constant presence by KPI personnel at the client site for 25 percent of the time with the rest at the offshore center.

• Cost escalation of 10 percent per year, applied to all costs. • Discount rate of 30 percent for all net present value calculations. • Three-year period of performance.

Apart from the cost savings, the KPI ROI model does not consider potential value benefits delivered through faster cycle times and better software quality. Risk Risk is also applied to the model using triangular distribution approach, which requires a low, most likely and high estimate as bounds of potential costs and savings. Risks to cost savings are modeled as ranging from yielding 50% of the expected cost savings to yielding 100%. That is, potential savings are conservatively modeled as being bounded, on the high side, by the estimate. The estimate is calculated using a rate ratio (KPI’s offshore labor rate in a 25%/75% on/offshore mix divided by typical US labor rate) and multiplying that rate ratio by the volume of work to be done offshore. Risks to cost savings are primarily attributable to the potential for poor requirements definition, resulting in lengthened, iterative cycles. Risks to cost are modeled as ranging from 90% of the estimate to 200%, the latter of which would represent a two times cost overrun. Risks to costs are primarily attributable to overcoming organizational inertia.



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Candidates For Offshore Companies with a fairly large IT setup – over 50 in-house employees focusing on software development or maintenance should consider an offshore technology center, since time and substantial resources are required to setup and monitor the offshore development. To reap the benefits of offshore centers, care should be taken to look at and address the needs of the company as a whole. This is best strategized and driven by a senior IT leader – such as Chief Information Officer. Client projects in the following technology areas, suit well for offshore development, as they are in the top priority* of any CIO:

• Business Intelligence Applications • Packaged Application Transitions • E-Commerce Infrastructure Security • Data Mining / Warehousing • Middleware/Messaging • Distributed Process Management • Mobile / Remote Access / PDA

Considering the management issues* that concern CIOs of today, the following issues lend well for offshore implementations:

• Business/IT Fusion • Demonstrating Bus. Value • IT Skills (Recruit, Retain, Reskill) • Process / Project Management • Knowledge Management

* Based on Giga Information Group, 2002



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Key Success Factors The success factors for utilizing an Offshore Technology Center depend of a number of factors, the most important ones are listed below:

1. Process Methodology: a fully documented software development methodology 2. On-site Project Manager: a clear-cut conduit between client and on-site / offshore teams 3. Common Terminology: a dictionary of agreed terminology 4. Version Control: a documented version control / configuration management process 5. Clear Contracts: high quality outsourcing makes it essential for client companies to have

expertise in writing contracts and in managing vendor relationships. In software, as in other partnerships, a successful offshore partnership requires a high degree of due diligence and commitment from both sides.

6. Site visits: information about capabilities, tools and expertise of vendors is sketchy, so on-site visits, as well as research / references, are essential.

7. Service level agreements: once the decision is made, it is critical that the service levels are well defined for resources, performance incentives, and quality.

8. Pilots: in order to test out the waters in offshore development, it is suggested that the less critical projects are moved offshore first to gain a level of comfort. Support projects lend themselves well to building confidence. After less critical projects are tried out, development work can be fully trusted to an offshore partner. This way the rapport and the process improvisation happen on the way and rough edges can be smoothed out.

For outsourcing to give the best results, the vendor must: • Provide trained staff • Have operational excellence • Offer knowledge transfer through well-planned training schedules • Consider factors like: Internal dynamics, timing, changes in internal or business

circumstances during the project definition and planning stages All of which are fully demonstrable and available at KPI Offshore Technology Center. The client on the other hand, must:

• Ensure that the vendor’s business model and skills match their requirement • Provide complete support to the vendor • Quantify the crucial measures, service levels and expectations • Not have expectations for unrealistic levels of performance • Not set cost structures that prevents the vendor from making a profit • Not put constraints on the outsourcing vendor’s methodology • Not undercut staff to a point where the technology transition turns difficult



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It is increasingly becoming important for companies to outsource their software needs to an offshore development center. Any company that is considering establishment of offshore or blended-shore model should have a thorough understanding of their benefits and limitations along with a strong management plan. A disciplined approach in establishing offshore development, moving less critical projects first and then gradually moving more complex / critical projects later can save lots of heart-burn and revenue.



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Appendix I: Engaging The KPI Offshore Technology Center The following are the typical onboarding steps for engaging a KPI Offshore Technology Center as a seamless extension of your software development facilities. Step 1: Team Identification The setup activity begins with the hand picking of technical/domain experts and programmers with the required skills. Step 2: Acclimatization of Client’s Processes After this core team is in place, application and systems knowledge are transferred with the coordination of client experts. This activity typically takes place at the client site. Step 3: Process Definition A process methodology is defined and customized to meet client requirements. This is a key step in the whole process; as teams separated by time and space need to follow agreed procedures and processes to ensure high quality of deliverables. This methodology also includes checkpoints and protocols and review mechanisms, to remove ambiguities in communications. Use of standards and tools is identified and incorporated. Step 4: Offshore Environment Simulation The defined methodologies and processes are tested and fine-tuned, often with the core team working from the client facilities for a brief period in a simulated offshore environment. The initial results and prototyped deliveries are checked against the agreed norms for compliance. If there are any deviations, the services level agreements are further refined. This cycle is continued until the requirements are met, confirmed and signed off. Infrastructure As a sub-step to this activity, a seamless IT environment is created offshore with communications links to client facilities. Depending on the requirement the Offshore Technology Center team is inducted at the offshore site. Some of the core team members return and train the offshore team on specific systems and applications, thus completing the offshore setup of resources.



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Step 5: Project Execution The Offshore Technology Center team is now ready to execute projects for the said client. This will ensure on time, on budget deliveries using the quality process and methodologies.

Typical Offshore Development Cycle The figure below depicts a typical offshore development cycle, where, a 24-hr work cycle can be achieved.

Fig. 1: Typical Offshore Development Cycle



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Monitoring Offshore Technology Center Activities With the advent of Internet and point-to-point leased networks, it is possible to monitor the offshore projects / developments at micro / macro level. The following are the typical methods of monitoring remote offshore development:

• Online document reviews • Weekly status reporting – telephone & video conferences • Monthly management reviews • Milestone based management review visits • E-mail & fax • Performance based dashboards

Organizational Model



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Offshore Component The key roles involved in offshore project management are:

• Project Manager • Project Leader • Team Members (Software Engineers) • Quality Manager

A Quality Management System clearly defines roles and responsibilities for all positions (Project Manager, Team Leader and Software Engineer).

On-Site Component For Blended-Shore Models The key roles involved in an on-site presence are:

• On-site Project Manager • Team Members: All reporting to On-site Project Manager • On-site Coordinator • DBAs • Business Analysts • 24 X 365 Support Personnel • Application Developers • System Testers

Security Policy A documented and reliable security system is followed, which provides protection from unauthorized access to, or disclosure of, information. The security system covers all three-core components of IT security:

1. Confidentiality, or the prevention of unauthorized disclosure of information. 2. Integrity, or the prevention of unauthorized modification of information. 3. Authorization, technology tools for controlled information flow

Access Rights Project specific access rights are given to the developers facility group regularly which verifies authorization and also controls and monitors out-bound mail attachments.



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User Login and Firewalls The logging into network by any user is unique and workstation dependent. Changing of passwords is automatically prompted to users after every fortnight. The employees also need to sign a non-disclosure undertaking. Physical Security All employees need access cards to enter into the office. The access system tracks the entry / exit of all employees. Media movements are allowed only if they are duly checked, registered and authorized.

Offshore Technology Center Experience Based on the rich experience of our core team in building and managing Offshore Technology Centers, we have identified the following issues in setting up of OTC team and have evolved a set of strategies to mitigate these risks. Knowledge Retention Retention of knowledge is crucial to the OTC concept in the software industry due to high attrition rates. We have taken several measures to address this:

• Structured project execution/management processes to reduce dependence on individuals. • Incentive schemes to motivate people. • Planned job rotations to provide growth opportunities.

Work Structuring and Workflow Management “Look forward” planning is undertaken to ensure adequate availability of resources as needed. Aggressive hiring and continuous internal training contribute to build staffing level and mix to match workflow requirements. Ownership of Delivery For each OTC team, we identify unique “relationship owners” who are responsible for all customer interaction. These managers are fully empowered to take all decisions required to meet client needs.



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Configuration Management As an OTC team works as an extension of client organization, close control over common items is important. Our configuration management procedures cover the collaborative approach to common work items.



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About KPI Partners KPI Partners is an experienced Oracle Business Intelligence (BI) and Hyperion Enterprise Performance Management (EPM) systems implementation partner. Service offerings include consulting services, training, and exclusive pre-built analytical applications. As a Platinum level member of Oracle PartnerNetwork, the experts at KPI Partners have successfully completed many complex implementations of Oracle BI and EPM. Along the way, KPI has been honored with the Oracle Titan Award, the Oracle Excellence Award, and as Oracle Specialized Partner of the Year. Find them at kpipartners.com.

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