Well-defined and accepted internal software development
and maintenance processes are also key to making
an offshore situation work. "If you’re
an organization that develops and maintains by the
seat of your pants, or it’s a case where Mary
Jo and Fred have been here for 30 years and they
know how to do everything, you are in trouble," says
Raspallo, who currently sends 65,000 man-hours of
work to India.
Raspallo spent five months and $80,000
in consulting fees to get ISO certified in
1998, which puts his company at about Level
3 in terms of his employees’ "capability
maturity" in developing software. He
also invested in an automated Web-based system
to support the new software development and
labor management practices. Most of the Indian
offshore companies are ISO certified and
at Capability Maturity Model (CMM) Level
3 or 5. "If your own staff can’t
get used to working at that level, you’re
going to have a major disconnect," Raspallo
If a company doesn’t create solid
in-house processes, "the vendor will
have to put more people onsite to compensate
for your inadequacies, and they’ll
spend all of your savings," says Meta
DHL America’s IT department spent
a full year to get to CMM Level 2 in 2002.
Kifer is aiming to be at Level 3 in the United
States this year, with the ultimate goal
of achieving Level 3 across the entire global
IS team. "It’s a big project,
and it entails a significant level of training
and education," he says. "But if
you’re going to take full advantage
of offshore outsourcing, you have to raise
your own maturity level." Not everyone
was gung ho about the new level of discipline
required, but Kifer lit a fire under them
with annual bonuses tied to certification.
The ability to write clear specifications is also
critical to achieving offshore savings.
"When you’re doing this stuff internally,
you tend to be much more cavalier," says Hergenroether. "When
you have to package specs to go outside the company,
that has to be done exceptionally well." Creating
a great spec package is costly and time-consuming.
On a 1,000 man-hour project for example, Hergenroether’s
staff will spend 100 hours to create a spec package.
At the other end of the process is quality assurance
(QA) testing, an area which must become more robust
in an offshore arrangement. "We essentially
picked up two shifts of people in India working while
we slept. The work we sent out at 4 p.m. came back
to us at 10 a.m., and we didn’t have a QA funnel
big enough to handle that," says Radio Shack
CIO Evelyn Follitt, who now hires more temporary
QA staffers during development time.
Bottom line: Expect to spend an extra 1 percent
to 10 percent on improving software development processes.
The Cost of Managing an Offshore Contract
Managing the actual offshore relationship
is also a major additional cost. "There’s
a significant amount of work in invoicing,
in auditing, in ensuring cost centers are charged
correctly, in making sure time is properly
recorded," explains DHL’s Kifer. "We
have as many as 100 projects a year, all with
an offshore component, so you can imagine the
number of invoices and time sheets that have
to be audited on any given day."
At DHL, each project manager oversees the
effort. He audits the time sheets from the
vendor and rolls the figure into an invoice,
which then has to be audited against the overall
project, which is then funneled to finance
for payment. Kifer’s staff has been a
bit overwhelmed. "We knew there would
be invoicing and auditing," he says. "But
we didn’t fully appreciate the due diligence
and time it would require."
At GE Real Estate, managing the offshore vendor
is such a big task that Zupnick assigned someone
to handle it on a half-time basis at a $50,000 salary.
The individual makes sure projects move forward,
and develops and analyzes vendor proposals against
the RFPs when it comes time to bid out new work.
"It’s a critical job," Zupnick
says. "That’s the price you have to
pay to make this work."
Bottom line: Expect to pay an additional 6 percent
to 10 percent on managing your offshore contract.
© 2010 CXO Media Inc. By Stephanie Overby cio.com