Training and Investment
Extreme Networks, now happy with its offshore productivity, was careful not to repeat its initial mistakes. CIO Paul Hooper says, one of the reasons why Extreme’s relationship with EDS failed was because of lower productivity, which he attributes to its shared resources. At HCL, the company has dedicated resources. “It costs more but I have my priorities and I know what I want.” Hopper is clear that offshoring is not about labor arbitrage but the value the partner can bring in, and says that upfront investment is important in offshoring.
Although global service providers are known to speak of 40% cost-reduction, savings accrue over a period of time. Service providers must invest in adequate training before offshore workers can become productive. These are hidden costs that can push up initial investments.
Understanding the business context forms an important part of training for which onsite exposure is important. How else can the offshore team design a custom application without understanding the business imperatives?
The Project Management Factor
Norwich Union achieved success in outsourcing, and had formed a dedicated team to manage its service providers. During the transition phase, it maintained very close contact with the service providers — having weekly meetings that were attended by senior managers including board members.
The level of ownership that employees feel towards the project affects productivity. Zinnov Offshore Research and Consulting in one of its researches on offshore productivity says that, “Ownership enables offshore teams to make better decisions as they were party to setting goals, and can align work to those goals, prioritize tasks that impact those goals…reducing the onshore team’s involvement drastically as it enables them to make independent decisions.”
Sometimes, productivity gaps can occur due to cultural differences. For instance, Indian developers are not used to speaking up even if they have more productive ways of doing things. Software development is the most vulnerable area where productivity gaps can occur. There are often serious gaps in experience and training between corporate staff and third-party service providers. In some cases, the providers have higher levels of certification and training, but less business knowledge than the corporate programmers who remain tied to the project. So the best thing is to specify clearly in the SLAs about the experience of the people to be hired for the project.
Also, software-development contracts are usually on a project basis and if customers do not keep a tab on projects, schedules can fall behind as vendors work on several projects at a time and allocate resources to the most demanding project on hand. In fact, sometimes vendors absorb the cost of extra manpower to meet the deadline.
Attrition
Attrition is a major productivity killer. It shoots up training costs as the productivity of individual employees goes through a cycle before it can peak in performance. It is important to check attrition levels of vendors before offshoring work. Zinnov Research points out that creating project ownership is an important tool in curbing attrition and gaining enhanced productivity. Sometimes when key team members leave, the project falls in disarray. Experts recommend making the retention of key team members part of the contract or SLA. Gartner analyst Huntley advises that it is good to have a monthly index of attrition from the vendor and if the index appears to be sliding, you should take action.
There are many who have experienced enhanced productivity because they have managed the execution well. Says a senior director at Norwich Union, “We replaced employees on a one for one basis offshore but increased the workload so productivity has grown.” At the same time, relationships are known to have gone sour because of lower productivity. As customers of global services become more discerning and as the principles of globalization — faster, better, cheaper — prevail such differences will level off sooner than later.
