Outsourcing and Offshoring Sandra Senti University of Chicago

Outsourcing and Offshoring Sandra Senti University of Chicago May 5, 2005 1

The Stages: From Bystander to Fully Committed Stage characteristics Bystanders Experimenters None to initial investigation of offshore's potential Small 10 - to 20 person projects for conversion of older apps or isolated new development Level of program management skills None Uncoordinated project-by-project management Percentage of IT services budget going offshore 0% 1% to 5% Size of segment today 50% to 60% of Fortune 1, 000 companies 25% to 30% of Fortune 1, 000 companies Focus of efforts Committed Full exploiters 30 - to 50 -person mission critical development and maintenance programs Large scale apps development and management, remote monitoring and administration, implementation and upgrades of packaged apps, and BPO Centralized and dedicated program management Global sourcing is a core competence with documented best practices 10% to 30% 5% to 10% of Fortune 1, 000 companies 40% to 50% 3% to 5% of Fortune 1, 000 companies 2

Which IT Functions Are Going Offshore? 3

Where will the growth be? n Application-related services n Business processes, including help desk, email, transaction processing n Infrastructure will be the next big wave, particularly around the data center Gartner’s Global Offshore Sourcing Predictions, June 2004. 4

Risks that Require Mitigation n Security and privacy n Cultural issues and/or clash n Language barriers n Communication challenges n Distance to vendor n Time zone differences (can be a plus as well as a minus) n Political instability n General infrastructure of the country n Management challenges 5

Critical Success Factors n Governance n Senior executive sponsorship n Internal and external communications n Vendor selection process n Project selection process n Disciplined requirements definitions n Active relationship management 6

Critical Success Factors (cont. ) n Contingency planning n Significant onshore presence in early stages n Understand focus on cultural issues n Measure performance, success n Focus on the value rather than just the cost savings n Know the market 7

What Did Stanford Stakeholders Say? The Concerns n Stanford will lose control by giving away its institutional knowledge. Core competency vs. Commodity n Maintenance is much different than development projects. Has Stanford established a process or considered the differences? n Stanford needs to improve skills (esp. writing specifications and documenting requirements) n Stanford staff will resist required behavior change to make this successful (for instance, responding to vendor in timely manner) 8

What Did Stanford Stakeholders Say? The Positives n Wipro staff is excellent, Stanford will be able to learn from them to improve service and quality levels n Specification writing and requirements communication is not a problem when business analysts are skilled and trained n Wipro has been able to accommodate Stanford feedback to improve the specification writing and business requirements development process n Outsourcing will be worth it if we can do IT better, faster and cheaper 9

What did Stanford staff say? The positives n Excellent client service n Refined system development methodology n Rigor and discipline in interactions n Excellent communication mechanism n Professional n Effort to partner is clear n Use of metrics key to operation 10

What did Stanford staff say? The concerns n Challenging contract negotiations n Decentralized business processes make requirements and spec writing difficult n Fast turnaround requirements for docs and sign-off n Unfamiliar with Stanford business processes n Business analysis not as thorough because they don’t have the big picture 11

Best Bets: What to Outsource/Off. Shore n Projects with well defined requirements n Development projects with complete specifications n Be sure to bound scope of work and manage scope creep n Stable applications n Back-room applications, those with insignificant end -user interaction n Applications that do not require real-time collaboration with offshore team 12

Governance Roles and Relationships Steering Committee § Define overall strategy § Establish IT, business, HR, legal, audit, and compliance support Charter program office § Program office § § § Vendor management Reporting/metrics Best practices database IT staff competency plan Communications Stages in offshore life cycle § § Due diligence Negotiations Transition Project management 13

Human Resources and Communication Considerations n Keep internal staff informed through one clear and consistent message n Work with HR on strategies to retain and/or develop staff for new roles, as needed n Communication plans for end-users and for staff members are essential n Biggest risk is loss of critical knowledge and mismatched roles and competencies rather than job loss 14

Due Diligence n Assess vendor’s overall capabilities n Security, business philosophy and practices, working conditions, capacity, HR policies n Examine specific capabilities n Assess quality of delivery team and project managers n Determine fit as long term strategic partner n Assess physical and technical infrastructure n Consider an offshore advisory management firm to help 15

Final Words n Do not be an absentee landlord! Outsourcing does n n not mean abdicating responsibility Do not lose control: knowledge is the key Establish communication processes and communicate You’re never going to master the offshore game unless you realize that mastering it means continuous adjustment and learning Manage expectations, both costs and results 16