Everything You Know About Offshore Outsourcing is Wrong

Not so fast, says ABN AMRO, a global bank with 110,000 employees in 60 countries. On the contrary, the bank's North American technical architecture group deliberately sought out offshore providers who were not focused on the traditional development processes.

Instead, the group went looking for a mid-sized firm that wanted to move up the food chain from maintenance into development.

"We use iterative development in two-week intervals. While one iteration is underway, we start on the next one," said Bob Hays, vice president and senior architect. "If our offshore providers follow a waterfall approach there is an impedance mismatch. Producing all that paperwork may be useful for creating a legally defensible audit trail, but it slows everything down."

OK, but how do you manage such tight turnarounds with offshore staff?

"You must have a local liaison, no question," said Matthias Autrata, senior vice president of IT Architecture. "This person participates in one- or two-day design sessions during which 'stories' are written that describe the user interaction with the system."

The liaison is a corporate and cultural conduit who knows the language and people on both sides and keeps everyone in sync by knowing who to call and who makes decisions.

"Of course, the local liaison also has to acclimate to our culture," said Autrata. "Often they must learn to be more aggressive, to go and get what they need."

Process to the Wind?

But doesn't throwing process to the wind increase risk, especially when your developers are continents and time zones removed? It turns out that just because you use short iterations it doesn't mean you have no process.

In fact, one lesson learned was that frequent telephone status reviews during iterations introduced confusion and delay. Discussions had to be limited to the design sessions, so that the two-week iterations were strictly focused on implementation.

Another was that the ABN AMRO team had to get its own requirements agreed to before communicating with the liaison; working through conflicting or inconsistent needs real-time was not efficient.

And even if there are some hiccups associated with this rapid-fire methodology, "So what if you have to throw something away," said Hays, "when our offshore costs are 75-80% less? We work in two-week iterations, so problems are found and fixed quickly."

And contrary to the myth that companies are simply offloading routine maintenance to offshore providers and keeping new development at home, ABN AMRO has divided its local and offshore development based on core and non-core systems.

"We outsource our non-core application development," said Hays. "Core systems create the value that stockholders pay for; non-core is everything else." For example, a system that manages software models would be non-core; processing checks and deposits would be core.

What about emergency issues once the system is in production?

"Quick fixes have to be performed locally," said Autrata. "We use our offshore resources for planned changes, such as database migrations and other mechanical tasks."

Reducing Turnover

Besides, the risks of failure are inherently lower in non-core applications, so true emergencies are less likely to occur.

And while it is undeniable that reduced cost is a major factor, Autrata at ABN AMRO stressed that shifting non-core applications offshore also allows him to keep his best local resources challenged and interested by working with new technologies for core functions.

"Keeping your best people reduces costs by reducing turnover," said Autrata. "The real value of a company is determined by the people that work for it."

And of course the people that work for the offshore firm are also important. Early on, the ABN AMRO team was unfamiliar with some significant cultural differences. For example, in India, family matters are considered very important. If an engineer needs to attend a wedding or other family function, this goes unquestioned.

"We also had to be sure we made time for them, to be sure that just because they are remote that we don't demote their priority," said Hays.

But don't get too comfortable with the idea that just non-core applications are sent offshore. General Motors outsourced development of its new Owner Center, a Web application that allows registered GM vehicle owners to track warranty, recall and service information online.

Similarly, Caterpillar Financial Services Corp. developed a Web-based financial system utilizing offshore developers; during the project they expanded their internal technical skills so that they could take on the maintenance of the system once development was complete. So in this case, the irony is complete: new development is being done offshore and maintenance is performed locally.

A Just when you think you have a handle on offshore outsourcing, you find out differently.

Linda Hayes is CEO of WorkSoft, Inc. She was one of the founders of AutoTester. She can be reached at linda@worksoft.com.