In-Depth

The call of offshore development

• By Tony Baer
• March 11, 2003

The rise of the global economy has cleared the way for industries to migrate to regions with the right infrastructures, skill bases and costs for their business model. But despite all the political slogans, when all the transportation, communications and institutional links are in place, moving jobs, industry and capital will be hard to resist.

One of the most startling examples of this new global portability is the ease with which some manufacturers are moving from Northern Mexico -- long considered a pretty cheap place to do business -- to China, which is cheaper.

With the explosion of global bandwidth, IT outsourcing has embraced offshore strategies, with India currently in the lead. Despite the recession, Indian offshore firms like Infosys, Wipro and Cognizant have grown by more than 25% in the past year. And the new software development centers aren't just cheaper. In many cases, their quality and disciplines are also superior.

Understandably, offshore outsourcing leaves IT organizations uneasy. Developers and admins are leery about sharing knowledge that might put them out of a job.

Does offshore outsourcing necessarily amount to a zero-sum game for IT professionals? Obviously, the answers vary by organization, but firms embracing offshore strategies simply for cost savings are likely to get what they pay for: short-term savings, long-term brain drain. According to Deb Mukherjee, CTO at Cognizant, professionals skilled in newer technologies such as Java, .NET or XML should remain in demand by employers, primarily to handle high-end architecture and prototyping.

Internal development teams might even learn something about life-cycle management from the newcomers; many offshore players have already been certified at Level 5 of the Capability Maturity Model (CMM), a benchmark for software process discipline.

Outsourcing gained a bad rap during the last recession, as Fortune 500 companies boasted to shareholders of shedding their IT organizations to the IBMs, EDSs and CSCs of the world. Those deals were plagued by rigid, long-term contracts that left little or no incentive to modernize technology or improve service levels, as well as poor productivity due to diminished staff loyalty.

The lessons this time around include better contracts and staff retention, plus all the usual things that accompany a large project: top management support backed by a vision, strategy and specific goals. Start with a pilot, and once it is scaled up, require the offshore firm to permanently station project coordinators on site.

But there are some real challenges. According to Cognizant's Mukherjee, one hurdle is communicating the vision and goals of top management to the middle level. That is crucial, he says, because line managers are not necessarily privy to the big picture, and they are the link to gaining grassroots buy-in.

Change management and training are also vital for managing project scope, knowledge transfer, organizational role changes and internal process changes. Furthermore, retained staff may require new technical or organizational skills, especially if they are to benefit from the offshore firm's process expertise.

Last, but definitely not least, communicate -- in the absence of information, human nature always expects the worst. Start by talking about the impact on jobs. Unless the existing internal staff is highly dysfunctional, organizations are best advised to retain as much internal wisdom as possible. And compared to continuing internal development or hiring a domestic outsourcer, offshore programs could actually save some jobs by stretching IT dollars.

Any strategy has potential pitfalls, and offshore outsourcing is no exception. The biggest is communications. For instance, while global backbones are abundant, phone connections are sometimes flaky. The more serious problems, however, may be cultural. ''The meanings of words may differ sometimes,'' noted  Mukherjee. One example is the sense of urgency someone must convey when they ask if a task can be done by a specific day. Unless it is spelled out, offshore developers might not realize the firmness of the deadline and simply give it only their best efforts.

Like any strategy, offshore outsourcing can backfire. But if it is planned properly, offshore outsourcing does not necessarily have to degenerate into a win/lose proposition for developers.