Tech Outsourcing: Few Considerations Before You Proceed

Tech Outsourcing: Few Considerations Before You Proceed

One Engineering VP from North America wanted to outsource lot of work to India.

And why not? He heard enough success stories. He had urgent need. He gave some details about the need and asked for proposal. Within few weeks, he got impressive proposal which explained the problem understanding, solution approach, execution phases and of course basic commercials. It also had good set of case studies. Quite comprehensive. He decides to award the contract.

Choosing Indian IT

As an experienced manager, he also knew it is risky to start new engagements. He wanted to be cautious and proposed to transfer the risk to the vendor. So he proposed to award a deal, if is fixed price. The vendor readily agreed.

Great start indeed.

But, too bad. Soon things start going downhill. The team just could not deliver anything. There was high attrition in the team. The managers did not seem to care. He felt cheated. It must be a cultural misfit. Eventually he gave up. Sinking lot of money in outsourcing and not achieving results have their repercussion.

What happened?

Contracting and contract administration needs lot of effort. Any outsourcing in tech is complex. This should not surprise anyone because managing any tech project with all in-house team also is quite tough. Outsourcing while helps a lot, also adds to the project dynamics.

The skill of outsourcing and succeeding can go a long way in career growth for business leaders.

Do you want to understand some dynamics and intricacies? Read on.

Working with Indian software and R&D service organizations is both rewarding and challenging. They can setup large teams with ‘manageable’ quality in relatively short time. As relationship matures, it is possible to build a sustainable cooperation that keeps moving up the value chain. But making this work needs understanding of how things work at ground-level.

The service organizations aggressively try to grow. So they get into too many domains, too quickly. They hire many and grow in numbers quickly (and hence in revenue as well). Most do not stay focussed. When there is business in any direction, they go for it. There is very less attempt to actively manage and control the skill and direction. They run into span of control issues. Then everyday firefighting becomes the norm.

Let us look at the typical dynamics outsourcing vendors…

  • Case studies in proposal: Most of these companies are extremely good at power point presentations. Many people get involved in putting together a great presentation. You have very less levers to understand what they can actually deliver.
  • Since the project award is not guaranteed, the sales team keeps shooting in all directions – many domains, many technologies, all kinds of projects. So, the technical team is pulled in all directions all the time. Without focus, the teams do not ramp up their skills to the level of their potential.
  • There are times two projects get awarded at same time, stretching the team. Also the management has to quickly put together teams. Most of the times, they are not transparent. They think they somehow will make it and over-promise.
  • Managers have very high scope of work while working with many accounts, domains and technologies. They remain operational leads only. During execution, if there is critical escalation, they will find extremely difficult to get into the context and form independent opinion. The internal management reviews are not effective.
  • Very high attrition at developer until technical lead level. Even with good management, the market opportunities and talent wars will lead to good pay hike. So, 5% attrition is minimum. With hot skills, it could be 15%. If it is going higher, then something is wrong, in the way teams are managed.
  • Hence, for the stability of the organization, it needs to have alternate options. At least, there should be track record of dealing with such situations.
  • Due to these dynamics, the experience client has during proposal and during execution could vary a great deal.
  • Domain and product knowledge: In spite of having domain knowledge, the vendor less likely know the specialized sub-domain and the specific products. Even if a senior person effectively talks about it when you meet the vendor team, the ground-level folks may not be in the same mindset. It, most likely, need to be built over time.

Now that you know so much, what you could do better?

Proposal Stage:

  • First, at the proposal level. Consider the project proposal. Look for the combination of technical, domain and on-the-ground execution abilities.
  • Do not go by CMM level 5 and other certifications at the org level. The actual maturity on the ground has nothing with the level5 brand. In fact, some of them became incompetent only due to that.  Here is my suggestion to these CMMI Level 5 companies.
  • Start with a small well bounded time and material project. Specify that you want to interview at least the lead developer. Do not insist for fixed price for the first engagement. It does not transfer risk to the supplier. If you insist on fixed price, lot of energy goes in putting the clauses. In the end, it does not work. After the initial period, the relationship could move to outcome based models.
  • Put pressure on management for right team from beginning. From your side, have 2 months of ramp up time in mind. However, you do not need to indicate your buffers to the vendor company.  Management at vendor organization keeps moving from crisis to crisis (from different projects). Giving long time will only lead to getting judged (as easy customer who can be given lower priority).

Team Ramp-up : For the initial technical members, do thorough interview.

  • If it is T&M engagement, you can insist on it. If it is fixed price project, the vendor insists on not having interview.The discussion stretches and you will lose time.  During interviewing of the technical members, of course you would check the technical and domain aspects.
  • Check the social skills of the initial member and the ability to say NO. The developers or the managers, do not willingly cheat. But they are overly optimistic. May not be thorough in estimating initially. Even if they want to give realistic numbers, the sales team and management would want to over-promise to win the deal. If you go totally by the words, then you would feel cheated.
  • Usually best first step to get someone travel for the first few days or weeks: That member who travels will become your person in the vendor company. He will fight for your interests after that initial hand shake. Make sure the member has mix of technical hands-on and at least average communication skills. Only after that interview, you should approve that travel.
  • If there is a strong technical team which actually works on the project, then it is usually safe. If there are multiple people at different levels of experience, then it is a safe place to start with.

Execution Phase

  • During execution, this lead person, could be both a boon and bane. As a conduit, he could greatly reduce your headache. At the same, he could start playing politics and become a bottleneck. Being the face, he also could take unfair amount of credit. This could lead to team issues. Also to remain the most critical employee, he could even avoid hiring the best guys. You won’t know for long time if your half blood brother is a friend or enemy.  friend or foeAs per the contract, this is not your problem. But eventually it becomes your problem. To avoid, you need to have 2 other regular calls: First, a periodic calls with his manager. Second, overall call on status or knowledge sharing session (over skype) with entire team as well. This would reduce single-point of failure.
  • Send appreciation and escalation communication as appropriate. Both are taken very seriously, since managers may not have enough insights to judge by themselves. Also, remember that there could be other clients like yours. If your team does not have any feedback, they would lose out. Eventually team would prefer to work for other accounts. The members will play any game, some times “willingly fail” in the client interviews.

Now the Question of Captive Off-shore Development Centers in India

The captive centers are technically the extension of parent organization. In some ways, these are better. They are captive. There is better focus. And they(you) can afford to pay higher salaries, for the same cost. The service organizations need to make decent profit margin which takes away their ability to pay. The margin for captive center is nominal (mandated by the legal norms).

At the same time, they are also similar to outsourcing companies in some ways. They draw from same talent pool. They also have to manage finances by effort rate. Some of the working styles get mixed up. But the captive centers can be controlled much better and there is better chance to define the culture. As expected, it needs more energy from the parent company.

In spite of all the dynamics, it is still worth doing business with them. Due to large pool of people, no one takes their role for granted. If he fails, many others will take the job.

Do you have any success stories or lessons learnt to share, in tech outsourcing? Chime in. 








First checks for any proposal:


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