First Steps In Offshoring: Setting Up An Offshore Project

First Steps In Offshoring: Setting Up An Offshore Project Dana D. Frost, PMP November 2010 For the sake of simplicity this talk centers primarily on engineering in India; most discussion points can be applied to other business initiatives in other locations.

Agenda – • Initiating • Define success before you start • Planning • Selecting projects • Identifying all the costs • Choose a workforce-management strategy • Open communication channels • Mitigate risks • Executing • Selecting a vendor • Creating a contract • Getting the project started • Reviewing your goals • Controlling • Managing hands-on • Eliminating “Yes / No” questions • Resolving risks and conflicts • Adding up the total costs • Closing • Noting lessons learned • Evaluating costs and benefits End Goal: Successfully offshore a project

Initiating Defining Success – don’t fight the decision • By the time mid and lower level management hear that they are offshoring it is presented as a “done deal”, as a mandate • Decisions to offshore are normally made behind closed doors, once you hear about it all of the rationale and arguments for and against have been made It’s part of our new strategic direction Times are tough – this will save money The Board of Directors will be pleased Our competitors (or Joe in Accounting)already do it • Budgets for the next year may already reflect proposed savings including closing locations and reducing the local work force • By the time you are part of this project you can help to make it successful; but you can not change the offshore decision

Initiating Understand Motivation & Constraints • Why are you offshoring? • Are you looking for an easily resized workforce • Are you looking for skill sets you can’t find locally • Are you looking for less expensive workers • Are you expanding into a foreign market • What will make this project a success? • Money saved • Projects delivered on time • Increase in the stock price • Someone gets a bonus • What is your time frame? • Has a decision been made on the offshore company • Is a contract already in place • Has a team already been hired or assigned • What is the initial project and when is it due

Planning Picking projects to offshore • Pick your projects, then decide who will do the implementation • Whether you are staffing a call center, a finance or development center or a manufacturing plant, narrow down the requirements then select someone to help • Consulting firms in India, for example, may have as many as 50,000 or more employees but most are happy to talk to someone who may want as few as 30 workers believing that their needs will increase over time • Most firms specialize in specific areas (e.g., software engineering or pharmaceutical manufacturing) • Keep in mind your longer term goals • Most companies will be able to support your initial startup projects (for example, as a first project you might want teams that do system test) • However, if you hope to build a sophisticated development team that uses Agile and Java you’ll want to identify future projects now so you can plan for them as well • You should be able to talk about staffing needs for at least one year out • If there are multiple goals (e.g., software development and in-country sales or setting up an HR organization or call center) be sure you get input (especially needs and time frames) from all teams that are expecting to benefit from the new relationship

Planning Estimating your real costs • Headcount expense isn’t the ONLY offshoring expense • Standard rates for employees are based on their level of experience • Usually, the headcount rate includes a computer, a desk, and basic software. • Overhead such as Facilities, HR, and Upper Management is included too. • Salaries may increase by as much as 15% a year • Telecom and internet costs will be in addition to the headcount costs • Travel within the foreign country and in the US will be in addition • Many firms charge a significantly higher rate (e.g., $12,000/ month) when their employees are visiting outside their home country • Your firm will be expected to pick up Visa costs as well as flight costs • Your company’s internal expenses will include • Someone dedicated to oversee the whole operation • Company travel to and from the country, often on a fairly regular basis • There will be passport and visa costs • If the team is located in a third-world country there will also be a series of medical injections • Additional telecom expenses in the US • There are also hidden costs • The costs of knowledge transfer as the new team is brought up to speed should include possible delayed profit from releases currently under plan as teams are diverted • Employees may find they now have early morning or late evening calls • When companies offshore, the home teams are exposed to different cultures and sometimes struggle to adjust • Morale may suffer if it is clear that state-side jobs will be lost

Planning Choosing a management strategy • If you have the opportunity to have your own dedicated employees overseas (sometimes referred to as “captive”) you will have more direct input into processes, hiring, training, and workforce stability • Setting up your own shop is not trivial; you will need in-country resources such as legal, HR, and customs experts. • If you are working with a company, how will you manage your teams? • Many offshore companies are hierarchical in nature • They will take full responsibility for hiring and managing their workers • Contracts can arrange to cover most contingencies or change in workers so that the offshore team will provide training to bring new employees up to speed • Where projects can easily be self-contained and passed onto a different team and no interaction is required until the completed project is accepted, the hierarchical model works well • When projects are joint and deliverables are dependent on each other most US firms want some say in how the projects are staffed, especially if the US firm is doing training or working closely with the far end team on a daily basis • Your workforce-management strategy may eliminate some projects or may help you decide to divide projects so that they will have consistent management practices in place

Planning Opening Communication Channels • Before you can open communication channels offshore you should understand cultural differences between your company and the offshore center • The skills required to work well with your company’s current locations or internal departments will serve as a starting point when you are working with someone offshore • Common Offshore Differences • English language • Similar but some words will have different meanings and there will be accents; not everyone will be fluent in English. In person this might not be significant, but across a telephone line at 5:00 am it can become challenging • Expected responses • May be lacking; for example, in some cultures you may never hear a negative response to a question. This is often true with captive workforces but even more so when working with offshore development companies • Saving face and relying on the hierarchical network • Important considerations when establishing your communication network • As part of your planning process you will want to devise a communication training program for managers and employees dealing with offshore teams

Planning Mitigating Risks • Let’s review • You are initiating one or more projects with a team that has yet to be formed with a company that may not yet be named • The actual cost of the project (which might have been estimated based on someone saying that you could get four offshore headcount for the cost of one in the US) will surely be at least one and half times the initial estimates and the hidden costs might be an additional one to one and half times those same initial estimates • The project can take months to staff up a team; if the size of the project is greater than 20 headcount it can take even longer as companies often have a “bench” that allows them to pull some small number of workers immediately but then they are constrained by the process of hiring offshore • The complications of getting communication tools up and running (telecom and internet) can also take months before all of the bugs are worked out • Your own workforce will need cultural training and clearly defined processes • How can you make this project a success? • You need support at the highest level of the company • Clearly stated goals and objectives • Well defined expectations of behavior across the company • A clear understanding of deliverables and their prioritization when there are multiple teams involved • Periodic (monthly perhaps) reviews of the progress being made

Executing Selecting a vendor - 1 • Once you know what you will offshore: what projects, how large a team, long-term goals, you are ready to interview • If you are creating a call center you will look for call center vendors • If you are in telecom and doing software you will look for a software vendor that has a telecom presence • Talk to associates in your business that already have work overseas. Ask questions such as: • Who does your work • How long have you used them • How big is your workforce • How pleased are your managers with their performance • What were the most problematic issues when you first started offshoring • If you they had to do it over what would you do differently • Look at industry publications for mention of other firms that your industry is using • The intent is NOT to train a new company • You want to find well run organizations that have significant experience • Put together a small team (maybe 6 or less) that will be involved in the interviews and selections of firms to be evaluated • Be sure that all the major stakeholders are included

Executing Selecting a vendor - 2 • Offshoring is big business; offshore firms make 100’s of millions of dollars a year • Each company should sign a Non-Disclosure Agreement (NDA) with your company • Most firms have a US presence • Differentiate between sales and the final team • Money details are discussed later (when they can size your investment) • When you have narrowed the field to only a few candidate companies it is wise to schedule a visit to their home offices in their native country • This can be more complicated than it sounds – travel to third world countries require shots and visas which require advanced planning • The offshore companies will facilitate your arrangements – they will get better prices on hotels and may provide you with transportation while in their city • Expect to be taken to dinner and to meet Vice Presidents from the areas related to your needs • While you are a guest you will be shown their brightest and best people, their fanciest, newest facilities, their best projects and labs. To get a sense of the life of the workers • Ask how their teams come to work (e.g., do they have buses) • Eat in the cafeteria or at least ask to walk thru at lunch time • Ask how your teams would be structured, where they would be located, who would be the leader of the team; generally that person is attending all of your meetings

Executing Creating your contract • You’ve narrowed your field of candidates to just one and now you are ready to start the contract negotiations • Contract can be drawn up in two months or may take over a year • Involve your legal department right away • The offshore development company will present you with their version of the contract • Share that immediately with your legal department • Most firms prefer to use their own standard agreement and modify it to include items from the offshoring company. • Contracts should include areas such as: • Mutual benefit • Intellectual property • Items related to the workforce that will be hired • Pricing • Quality of deliveries • Metrics • Sign-off is normally at the Vice Presidential level with both Finance and Legal involved

Executing Getting your first project started • Review your project priorities internally before starting • Study your planned budget implications and your time frames • If there is more than one project that you want to start right away, get input from the offshore company to help you decide which project(s) starts first • If there will be knowledge transfer followed by the release of those same employees, weigh that heavily in your priorities and schedule. • Don’t be too anxious to let your current work force go until you are sure the new company can handle the projects • Make sure that all major stakeholders (those planning to have a project developed offshore and those that will be dependent on the delivery of the selected project) are included in the decision process • This is the most important time for getting it right • Once the new project is underway and related activity is put into motion, if everything not be as expected, a great deal of time and effort can be lost

Executing Final Steps Before Starting • Review your goals with the offshore company • The offshore company will provide a project plan and timeline for staffing your projects • Remember that culturally, companies will generally not tell you “no” so don’t insist something has to be done by a certain date. • Don’t ask “yes/ no” questions such as “will the project be done by a specific date?” • Instead, ask the company to present their best plan and review it in detail. • In the process of doing this work the company will begin to staff the project. • Review the final plan with your stakeholders so they can have realistic expectations from the beginning of the project • This is the jumping off point to a successful project and if constraints put the project in danger it is still early enough to rethink the goals and directions

Controlling Managing Hands-on • When your first project is underway exercise a Hands-On management style • This is a new project and a new relationship; it is a good time to be sure that everyone understands everything • If you are using Agile you’ll have daily scrums • Otherwise be sure you at least have weekly meetings with the offshore team • This is a good time to get to know the team and how they work together • If possible, bring some of the team to your home offices for a month or two to ensure they come up to speed quickly • If this is a joint development project or you are ISO certified you will want to be sure to use the same processes used in your other locations • Have one or more of your team participate in a daily “catch-up” call that helps to eliminate the time zone problem • An issue discovered in one part of the world may not be addressed until after the offshore team is gone for the day • Something simple can turn into a two-day delay as emails bounce back and forth • This IS NOT a trust issue – this is a communication issue

Controlling Eliminating “Yes / No” questions • We talked before about eliminating yes / no questions • About the offshore teams culturally not wanting to tell the customer no. • But there is something else that I believe plays a part in not wanting to give a negative reply; I sometimes refer to this as believing in miracles • At the Avaya office in Pune, India, many of our 700 engineers traveled by corporate bus • Pune is a town of 6-7 million with large traffic jams, many poor roads and few traffic lights. The commute to work could be an hour or more depending on traffic • The work day starts when the buses arrive; employees have no control over the road conditions or arrival times • People who drive have similar experiences • I think this contributes to a lot of cultural differences around possibility – in this case the possibility of arriving at work on time after getting caught in one of the ever present traffic jams… • I call it the miracle opportunity • It is always possible that at the last minute the roads clear up and you get to where you are going on time (or you deliver the project on time) – the possibility is there • Learn to ask questions to gauge how far along the path people are; not if it is possible that they will reach their goal on time

Controlling Resolving risks and conflicts • At the beginning of a new relationship it may benefit the project if risks are reviewed on a daily basis, especially in those areas where the project as a whole is affected: • Risks that include network and telephony access • Risks that involve hardware ordering and lab configurations • Never ship hardware to an offshore company without first confirming the process to be followed • Risks that make teams unproductive such as requested but missing training materials and Subject Matter Experts to assist with knowledge transfer and lab setups • Do not leave to faith statements that imply someone is collecting data or placing orders – ask to be copied on all such materials. • Your participation should not be confrontational – your role is as a facilitator: • What expert can you bring in • Which of your IT guys can help problem-solve the connection • How can you get the Purchase Order approved • Be proactive and persistent

Controlling Adding up the total costs • With the monthly bills from the offshore company you will be able to see your actual HC and far-end travel costs • You should also agree on a hiring plan that will allow you to forecast future headcount expenses • Costs of travel, hardware, communication, all internal expenses except the hidden costs should be easy to track and to forecast • If part of the overall offshore project budget includes savings from the closing of facilities and laying off of company employees, you will want to set expectations on time frames for when those employees are no longer needed as soon as possible • Let me repeat that you should plan on holding onto current employees until the new offshore team is up to speed • This can be a real expense. I have seen disconnects between planned expenses and actual expenses create a $500k over run in a 6-month period • Develop a good relationship with your finance team so they will be able to forecast accurately; as soon as you know that a cost will continue beyond plan or that the new team will be slow in hiring let your finance team know. • Include all direct and indirect costs in your monthly report to upper management, clearly separated into categories • If you are “saving money” due to slow hiring, ensure that management realizes there will be hidden costs due to delays; don’t let this delay be packaged as offshore savings.

Closing Noting lessons learned • One of my most satisfying activities with new projects is a quarterly surveythat can include: • Customer satisfaction ratings • Vendor satisfaction ratings • Evaluation of the offshore team • Lessons learned • Suggestions from the offshore team – generally these are activities observed in other customers that would make the relationship better • Lessons learnedthat relate to starting new projects often include: • Need for better workarounds until network issues are resolved • More documentation of projects being transferred • More time with project SMEs • Better understanding of the test environment • Clearer definition of roles and deliverables • More time spent in the US offices; more travel by US managers to the offshore location • Results of lessons learned should be shared with both domestic and offshore management teams and addressed when ever possible

Closing Evaluating costs and benefits • Now that the initial offshoring project is complete you can pull out your original long term goals and estimated costs • Your project expenses have been carefully tracked and you should be able to give a good accounting of actual direct and indirect expenses • If there are hidden costs you should estimate those as well • What goals have you accomplished? • Are all of the original goals still relevant? • Is offshoring still an important priority? • Is the next phase ready to go? • Do you have a good handle on the finances for the upcoming projects? • Is the offshoring team continuing to grow or have projects been delayed? • Rates are generally reviewed and adjusted on a yearly basis • Even when increases in the US are only 2-3% you may find increases in 3rd world countries to be 10% or more • Evaluate if there should be more travel between locations • It is common to want to cut back on travel to reduce costs but sometimes that increases costs over time as projects are not as successful

In Review • Initiate • Define success • Plan • Select your projects • Understand costs • Choose a workforce-management strategy • Learn to Communicate • Mitigate risks • Execute • Select your vendor • Create a contract • Get started • Review your goals • Control • Manage hands-on • Eliminate “Yes / No” questions • Resolve risks and conflicts • Add up the total costs • Close • Note lessons learned • Evaluate costs and benefits Network Communicate Enjoy

Q&A

About the author • Dana D. Frost, PMP • Working in the telecom industry since 1987, Dana holds an MS in Computer Engineering from The Ohio State University. During her time in the industry she developed Artificial Intelligence projects for AT&T, worked closely with customers developing new voice response products for Lucent, was a SW development and system test manager, ran a PMO, and directed teams of Systems Engineers and Architects. She was responsible for engineering budgets in excess of $100M / year with up to 700 staff members • Dana first became involved in offshoring in the mid-1990’s, She has managed both captive and offshore development vendor teams; she lived half-time in India from January 2008 thru June 2010. • Dana was a Director for Avaya and then for Openwave Systems before retiring in July, 2010. She is now a full time student at Columbus College of Art and Design majoring in Fine Arts. • Contact Info: • danafrost@columbus.rr.com • (614) 235.6875 • For other pictures of India see: http://www.flickr.com/photos/dana-photos/collections/72157623096813947/ or go to collections and browse 2008-2010

First Steps In Offshoring: Setting Up An Offshore Project