‘Nirvana’ for Application Development?
by Raj Phalpher, P.Eng., CMC
The outsourcing phenomenon shows no signs of losing momentum.
According to Dun and Bradstreet, the global outsourcing market approached
a trillion dollars (US) in year 2000. Almost unanimously, attendees
polled at the GigaWorld US IT Forum in May 2000 believe that, “outsourcing
would play a significant role in the rise of e-business, so we may see an
acceleration rather than drop in outsourcing growth rates in some areas as
organizations struggle with skills shortage and speed-to-market challenges
that e-business presents”. Outsourcing and especially, IT outsourcing,
is not a fad; it is here to stay.
IT outsourcing has grown by more than 25% year-on-year in the 1990’s.
Information Technology (IT) represents 26 percent of this global outsourcing.
IT outsourcing expenditures in year 2000 represent a 25% growth over 1999
levels. This trend has continued since the early 1990’s.
The ‘Guru’ of IT outsourcing: India
India has approximately 80% of the US IT offshore outsourcing market.
Over the last decade, India has become the largest offshore supplier of software
to US organizations. It has 80% of the US market and Israel, Eastern Europe
and Russia collectively account for the remaining 20%. (Giga Information
Group’s Research Digest, August 2000: ‘Offshore Outsourcing: India an
Oasis During Application Development Drought’ by Stephanie Moore.)
Software development in India has grown from US$350 million in 1993 to US$
6 billion in 1999. This is expected to grow to US$9.5 billion in 2001.
India has more than 550 companies engaged in export of software related services
and products. Some of the large India-based software houses trade on
the New York Stock Exchange: Wipro, InfoSys, Satyam.
(Investing in their stock has been quite profitable, but that is a separate
President Clinton’s visit to India boosts offshore software development.
Forty CEO's from the Silicon Valley accompanied President Clinton during his
visit to India in March 2000. They signed $4 billion worth of software
development and maintenance contracts. Some of the largest US based
organizations have established software development labs in India: Microsoft,
Motorola, Texas Instruments, Bell South and Citibank.
Even system integrator, PricewaterhouseCoopers, has a 450 person development
center just outside Calcutta.
Offshore Development Centres – A growing trend.
An Offshore Development Centre (ODC) is akin to having a remote software development
or maintenance team that is fully dedicated to providing customer software
support that complements the customer’s internal standards and procedures.
These are usually established only after the software vendor in India and
the IT organization in North America have already had experience in working
together on offshore projects and both sides are confident that the relationship
will continue to prosper. Mutual trust and professional project management
are the key. Tata Consulting Services (TCS) is a pioneer in this
arena and has set up ODC’s in India for about 20 customers including Nortel
Acceptance of Outsourcing in Canada.
Canada often lags behind the US in adoption of new technology, business trends
and even trends in fashion. This lag ranges from a few weeks to a few
months depending upon the nature of the product or service and its influence
on our lifestyle, etc. IT Outsourcing is no exception. Canada
has been slow to take advantage of the competent and skilled resources available
in India. Indian software development organizations are also partly
responsible for this. Only recently have some of the large software
development houses opened representative offices in Toronto.
Large Canadian banks have outsourced some of their development - Indian
firms contributed significantly to the Y2K effort on both on-site and off-site
basis. Nortel Networks is at it since early 1990’s.
It has its own development lab located in India plus has outsourcing agreements
with several India-based development organizations.
India has the right ‘Masala’ for e-business
(Masala: Indian term for spices used to make curries)
Large pool of highly trained and motivated English speaking professionals.
This phenomenal growth can be attributed to the availability of a large pool
of highly trained and motivated English speaking professionals. Most
of them have degrees in Computer Sciences and experienced with current development
environments: Windows, Unix, Linux, HTML, Java, C, C++, VisualBasic, PowerBuilder,
OO application development methodology, on line transactions processing, etc.
There are 400,000 IT professionals employed in software export endeavours,
with 60,000 to 70,000 new IT professionals entering the workforce each year.
Most of them are graduates of India’s world-class six Indian Institutes of
Technology plus other leading engineering schools. (Graduates of Indian
Institutes of Technology (including the author of this article) usually receive
accreditation from Professional Engineers of Ontario without taking any additional
courses in Canada.)
India has more organizations at SEI CMM Levels 4 & 5 than the US.
As of March 2000, there were 28 organizations in the US and 29 organizations
in India at SEI CMM Levels 4 & 5. (CMM = Capability Maturity
Model; established in 1984 by Software Engineering Institute (SEI) to provide
leadership in advance state of practice of Software Engineering to improve
quality of systems that depend on software. In Canada, Citibank Canada was
the first organization to achieve Level 4 (November 2000) and there is none
at level 5. Citibank Canada sought assistance from their development
lab in India, COSL, which is at Level 5.) In addition, around 150
software development organizations in India are registered to ISO 9000.
These certifications demonstrate Indian organizations’ commitment to quality
and software process discipline. Data published by SEI indicates that organizations
that pursue and achieve higher levels of CMM enjoy productivity gains of up
to 60%, average year-over-year defect reduction of approximately 40%, and
annual reduction in time to market of 20%.
Prime Minister Indira Gandhi’s ‘karma’ pays off.
Like in Canada or anywhere else in the world, government’s policies seldom
have the intended effect. During the 1970’s, in order to encourage domestic
computer industry, Indira Gandhi’s nationalistic policies alienated international
suppliers. IBM and other suppliers left India in 1977 limiting the developers’
access to mainframes. A blessing in disguise, this has helped spur their
experience with Unix, open systems and client / server architecture.
It is harder to get adequate resources for legacy systems, but support
for client/server is much more readily available.
Benefits: Speed of Delivery….Quality…..Costs.
Nortel Networks and other organizations embarked upon offshore outsourcing
in the early 1990’s because of cost advantage and even today cost savings
in the 30 to 70% range are possible. However, today the raison d'être
for offshore outsourcing is not cost but speed of delivery and high quality
of work products. The large Canadian banks outsourced Y2K work to India
because it just had to be done before December 1999 and the quality of output
could not be compromised – there was no time for rework!
7 / 24 concept extended to software development.
India is 10 hours ahead of the Eastern Time zone. This time difference
has been leveraged by many organizations to achieve 24 hours development operation.
One of the major considerations in Nortel Networks’ decision to initiate
offshore outsourcing was the 7 / 24 utilization of the development labs in
Ottawa, the cost of which runs into several tens of millions. When the
programmers in Ottawa finish their day at 11 PM, they can transfer control
of the development beds to their counterparts in Bombay. It is 9 AM
in Bombay and their workday has just begun. They have almost exclusive
use of the equipment till 6 PM (some geeks in Ottawa do work past
the midnight too!) At 6 PM (8 AM Ottawa time), they are ready to
discuss the project status and major issues with their counterparts in Ottawa.
7 / 24 operation does require more stringent application of project management
discipline. However, the benefits of compressed schedule outweigh the
additional project management overhead. A number of project managers
like the idea of ‘bugs being fixed while they are asleep!’
You do not pay for bench time….minimum upfront commitment.
Paying for bench time between projects is a major source of frustration for
a number of organizations. A number of such organizations have invested in
offshore outsourcing in India to take care of their peak demand. This
facilitates better utilization of in-house personnel. They avoid hiring
/ de-hiring for specific projects. Usually, there is no commitment
or contractual obligation to pay for the bench time to the offshore organization.
This ability to turn projects ‘on’ or ‘off’ has led some organizations to
use offshore outsourcing successfully for ‘skunk work’ and prototyping.
Exhibit 1: Cost Advantage of Outsourcing
The ‘Mantra’ for IT offshore outsourcing
Exhibit 1 illustrates that the cost advantage increases with the percentage
of development effort outsourced and the percentage of work performed offshore.
They are maximized when the entire development team is outsourced and all
the work is performed offshore. Obviously, that may not a savvy business
decision because over time the outsource organization controls the product
and you are reduced to nothing more than being a marketing arm of an offshore
How to jump on the offshore outsourcing bandwagon?
There are several ways of jumping on the offshore outsourcing bandwagon, including:
- Bring offshore resources for work on site
- Combination of offshore / on site with high level project managers on
site and detailed work done offshore
- Outsourcing offshore a portion of the development effort
Tips for Canadian IT Organizations
It is very difficult to develop a generalized model for outsourcing that suits
several organizations. It depends on such factors as organization’s
strategies, business priorities, product lines, competitive pressures, management
style and skills available. Here are some tips and considerations:
1. Survey what is available
There is ample choice of organizations ranging from the medium size ones (provide
more cost savings and more control) to the very large ones (have diverse skills
availability) mentioned earlier.
2. Select the vendor with a proven track record
Client references for both the offshore developing organizations and their
local representative in Canada are easily available and should be checked
for their ability to meet your specific needs in terms of ability to communicate,
turn around time, meeting project schedule, etc.
3. Appoint an executive for all aspects of outsourcing
Offshore outsourcing requires relationship with the vendor – the level of
trust increasers if there is a single point of contact within the IT organization.
4. Test waters - ramp up slowly
Start with a small project or a thin slice of a large project. Ramp-up
outsourcing only after being satisfied with the vendor’s performance and the
‘shaking down’ of the process.
5. Start with web services instead of legacy systems
Skilled support for client/server environment, net-centric systems is much
more readily available than COBOL programmers for legacy systems.
6. On-site resources or local representative a must
Research by Giga indicates that use of some senior resources on-site or an
intermediary is a must for the success of a project.
One model that works.
Exhibit 2 illustrates an outsourcing model that has been used successfully
by a Markham firm. It has outsourced enhancements for a specific customer
or market to a software developer in India. It may or may not work for
Exhibit 2: Outsourcing Model
Critical success factors for any application development project (based
on survey of 8380 projects conducted in the US by the Standing Group)
- Clear statement of requirements
- Availability of competent resources
- User involvement
- Executive Support
- Proper planning
These factors become even more important for projects outsourced offshore.
Canadian IT organizations that are pursuing offshore outsourcing of Applications
Development and Maintenance are cognizant of these factors. Offshore
outsourcing has led them to become more organized internally to deal effectively
with the developing organizations in India, which have a lot more process
discipline and are usually at a higher level of CMM model. These Canadian
IT organizations are enjoying shorter time to market, have steady workforce
levels and are delivering quality software products to their customers.
This is accompanied by cost savings in the 30 to 70% range!
About the Author
Raj Phalpher is a Certified Management Consultant (CMC). At present,
as Chief Results Officer, Resultel Technologies Inc, he is responsible for
marketing and delivering, business performance improvement and change management
related consulting services. He has provided training, counseling, and
support to some of the world's largest and most prestigious organizations
in both the public and private sectors.
He is a member of the Management Board of QUASAR, an ISO Registrar.
He is founder and chair-Emeritus of Toronto SPIN (Software Process Improvement
Network) Steering Committee, and an active member of ASQ (American Society
Mr. Phalpher has helped IT organizations in Canada and the US pursue and
manage offshore software development. He can be reached at email@example.com
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