Offshore OutsourcingResearch Project

Executive Summary

BySivarama Putcha

Student, CS632, Summer 2009Boston University

Introduction

1. What is outsourcing ?2. Advantages

a. Reduce and control OPEXb. Improve company focusc. Gain access to world-class servicesd. Free internal resourcese. Resources not available internallyf. Accelerate Engg benefitsg. Function difficult to manage/out-of-controlh. Make funds available i. Share risksj. Cash infusion

3. Different Methodsa. Outsourcingb. Offshore Outsourcingc. Offshoring

4. Project Management Role a. Dependence on Project and Organization Structureb. Monitoring and control in all phases of outsourcing 2 of 13

Phases of Outsourcing

1. Phasesa. Pre-contractb. In-contractc. Post-contract

2. Process

Decision to Renew/

Terminate

Decision to outsource

Evaluation

Operations/Relationship/Monitoring/

Control

Implementation

Outsourcingcontract

Vendor selection

OutsourcingProcess

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Why do we need project Management in outsourcing ?

Because quadruple constraints are still applicable and offshore outsourcing has its own issues to address.

Issues in offshore Outsourcing:1. Instability due to geo-politics2. Mismatch in cultures, values and norms3. Protection of Intellectual capital4. Imperfect info on offshore vendors5. Unrealistic expectations on cost savings6. Time zone differences7. Location of client and vendor team members8. Knowledge transfer difficulties in both directions9. Layoff and loss of human capital10.Disruption of work practices for employees11.Lack of diligence resulting from offshore bandwagon mindset12.Awareness of local laws on outsourcing – Obama govt restriction on

outsourcing

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Best Practices

1. Type of Relationship – tends toward mature relationships. Mature Relationships havea. Relationship Managementb. performance Monitoring

2. Type of Contract – Time and Materials based to Fixed contract3. Communication methods – F2F contact to formal documentation4. Vendor staff location – on-site offshore5. Trust Building Methods6. Work Condition Methods – SLAs7. Information flow – client to vendor to reverse8. Communication challenges Experienced – due to cultural diff, time zones,

geographic location9. Value delivered – Mature relationships, technology integrationa nd

standardization expertise, knowledge transfer back to client.

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Risk management in Outsourcing

Risk factors identification:1. Pre-contract period

a. Lack of Market informationb. Inadequate outsourcing plan of lack of outsourcing strategyc. Lack of vendor information

2. Contract Perioda. Lack of project management knowledge and toolsb. Lack of Quality control processc. Cost related risks

i. Unexpected transition and management costii. Switching costiii. Costly contractual amendmentsiv. disputes and litigationv. Service debasementvi. Cost escalationvii. Loss of organizational competencyviii. Hidden service cost

3. Post-contract perioda. Lack of asses measurement, metrics and toolsb. Lack of certification and quality model

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Risk Mitigation

1. Risk mitigation Example – Composite persona (CP), CP talks to geographically separated developers, single contact source, 24-hr Knowledge factory (KF) concept.

2. Translators and interpreters3. Multimind – Its an expert system that incorporates

a. Automate everything that is possibleb. Store everything that is possiblec. Provide human operator the key information only

4. Participating teams should be of equal size – else, largest team tends to dominate.

5. Selection of vendors who have the required certification of standards in practice

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IT Governance and Standards, certifications

1. IT Governance Institute (ITGI)a. Non-profit orgb. Providence guidance in

i. Strategic alignmentii. Delivering new valueiii. Using IT to manage business riskiv. Risk managementv. Performance measurement

2. ISO 31000 is a risk management guidance standard ina. Communicating and consultingb. Identifying, Analyzing, Evaluating, Treating and Monitoring riskc. Reporting the results

3. Federation of European Risk Management Association (FERMA)

4. Capability Maturity Model Integration (CMMI) certification

PM should be aware of the applicable standards 8 of 13

Types of activity outsourced

1. The Project Management Concepts and techniques apply to all outsourced projects

2. Some tools and templates change for different outsourced activities as belowa. Full IT outsourcingb. User Supportc. Network and Securityd. Data center Operationse. Database Managementf. Application Development and Maintenanceg. Business processes (HR, ACC, Logistics, SCM etc….)h. E-commerce

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Interview

Q1. From your experience, what are the additional project management related activities that you had to do with Outsourcing compared to the activity being done in-house.

 Q2: In late 90's when outsourcing was in the boom it made an excellent

option for companies to outsource. In the given economic situation, is Outsourcing posing any new PM challenges?

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Summary

1. Larger companies tend to benefit more than small players2. Long term contracts seem to have better edge than short term3. The identified success factors in outsourcing are (all are PM activities)

a. Use of best practicesb. Clearly understand the quadruple constraintsc. Identify outsourcing strategies – degree of integration, allocation

control, performance monitoring4. Select reputable vendor and communicate well on the outsourcing plan5. Realize legal issues in contract negotiating and signing6. Communicate with employees and stakeholders the outsourcing plan –

reduce severity of resistance

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References

References are from various journal articles and interview

• Creating Better Governance of Offshore Services. By Judith C. Simon, Robin S. Poston, and Bill Kettinger, University of Memphis, Memphis, TN, USA http://web.ebscohost.com.ezproxy.bu.edu/ehost/pdf?vid=5&hid=105&sid=bd9aabfa-34f3-4563-ae7a-c72853ffa9cc%40sessionmgr4

• The value impact of strategic intent on firms engaged in information systems outsourcing by Beasley, Mark, Bradford, Marianne and Dehning, Bruce. Source: International Journal of Accounting Information Systems; Jun2009, Vol. 10 Issue 2, p79-96, 18p

• Information systems outsourcing life cycle and risks analysis. By: Chou, David C.; Chou, Amy Y.. Computer Standards & Interfaces, Sep2009, Vol. 31 Issue 5, p1036-1043, 8p; DOI: 10.1016/j.csi.2008.09.032;

• Deriving Mutual Benefits from Offshore Outsourcing by Gupta, Amar. Source: Communications of the ACM; Jun2009, Vol. 52 Issue 6, p122-126.

• Challenges of A Small Enterprise in the Sourcing Life Cycle: Evidence from Offshoring to India by Shailendra C Jain Palvia. Source: Journal of Information Technology Case and Application Research; 2008

• Interview with Director, Sustenance Engg of fortune 500 company.

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Thank YOU

Thank you for listening to my research presentation.

Any questions or comments, mail to sputcha@bu.edu

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