Outsourcing - The Benefits InvolvedAs globalization and technology continue to bridge people closer together and create new business

opportunities, companies decide which operations are fundamental to the business and which can be

outsourced in order to gain efficiency or save money. All business processes are open for the outsourcing

consideration, from information technology to human resource management, from manufacturing,

distribution, to customer service. Lee, Huynh, Kwok, and Pi (2003) state that identifying and

concentrating on the core function of the company is the new trend in business nowadays. This paper

analyzes costs and benefits of outsourcing as well presents a real life example of the failed outsourcing of

software development work in order to reduce time to market.

There are two types of outsourcing – strategic

and tactical. Tactical outsourcing is

straightforward and cost-driven and can be

evaluated annually to ensure best value.

Strategic outsourcing is more complicated

and requires careful consideration since it

involves complete business function, such as

customer service, not just a project.

Businesses have an objective to lower total

cost while at the same maximizing beneficial

value of outsourcing. Axelrod (2004) defines two groups for costs and benefits – tangible and intangible,

each with two sub categories and two types. Using these categories, an analyst for the organization can

measure whether the outsourcing initiative was successful.

Assessing costs and benefits of outsourcing presents unique sets of challenges as some costs are hard to

measure and probability of other costs are very remote to be accurately accounted for. Nevertheless,

assessing costs and benefits of outsourcing relationship is a necessary step in measuring the success.

A Michigan-based company started working on the enterprise-level software development project in

1999 with official project launch date of January 2000. The team consisted of seven people in United

States, five people in United Kingdom and three teams of five people in various parts of India.

Management wanted to leverage spatial and temporal separation by having teams work around the clock

in order to minimize time to market. According to Gupta (2009), product design is a semi-structured task

that can be addressed with “24-hour Knowledge Factory” paradigm.

However, currently, this project is being entirely managed and developed in Michigan. Below is the

analysis of what has transpired. The goal of the project was to develop a global asset management

application with multi-currency, localization, and non-logographic language support. System architecture

of the project was created in Michigan and was communicated to teams in England and India.

During this period, frequent conference calls were required, and because of time difference, someone

was always inconvenienced. During one conference call, someone fell asleep and snored loudly, because

it was 1am in that country. In addition, time difference caused some software to malfunction. When code

was checked-in to Microsoft Source Safe, a source-code repository, in England, and then checkout in

Michigan, the program thought that code was written in the future and caused problem with versioning

and code merging. As a result, some source code was corrupted. As a work-around, teams in five places

had installed local versions of MSS and program source code was shared via e-mail and then synchronized

in a local source code repository. Microsoft has since addressed this problem by replacing the client-side

date stamp with the server-side.

Language differences presented some challenges as well. Though everyone spoke and wrote in English,

teams from around the world used their own spelling – for example, in US, word “organization” is spelled

with “Z,” whereas in England it is spelled with “S.” Same items also have different names in these

countries. For example, in US, a vehicle’s unique ID is called “VIN” and in UK and India is it called “Chassis

Number.” Sometimes teams experienced spoken language barrier so strong that written communication

was necessary to clarify what the person meant to convey.

Cultural differences presented their own set of problems. Team had hard time bonding because if

someone shared a joke, people in other countries did not understand them and it created awkward

situation. Because of labor laws in Britain, team members had vacations that lasted up to six weeks. In

addition, it was permitted in England to have beer at lunch, so after lunch conference calls were not

productive. India’s growing outsourcing demand created attrition problem for the project and team

members would often be switched on a weekly basis.

Due to the size of the group and the fact that it was scattered around the globe, there was little

accountability. Individual team members practiced finger pointing and would not complete assigned tasks

on time. Because of that, some of the conference calls were degraded to a project manager trying to

control the situation and question each member of their task assignment and status. To remedy this issue,

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a “go to person” was established at every location in order to communicate project progress and to

resolve any questions that may arise within teams.

Team members also had very different skill levels. Members in United States had broad expertise and

were highly skilled in Microsoft environment and software architecture. Developers in United Kingdom

contained great expertise in Unix and IBM as well as software architecture in general. India team

members had varied level of narrow specialization and people with good, broad knowledge were hard to

keep because of the high demand for highly skilled labor in India.

Ten months and many conference calls later, the team produced the core database structure.

Management noticed that they were not able to reach the expected economies by working the “24-hour

Knowledge Factory” (Gupta, 2009) and pulled the software development under a single roof. Currently,

the team functions within scrum framework with daily short stand-up motivational meetings; sprint

meetings, usually every 2-4 weeks, during which tasks are defined and developers choose the tasks that

they will work on; and face-to-face interaction whenever questions arise. As a result, the team of seven

developers was able to complete the core of the application within ten months and start the work on

various additional modules.

The example above presented a failed outsourcing project because of many issues that were not

accounted for in the beginning. Perhaps because of the relatively small size of the development team, it

was easier handled locally. There are plenty of successful outsourced teams, including large IT teams at

Chrysler, Toyota, and Nissan.

References

Axelrod, W. C. (2004). Outsourcing Information Security. Norwood, MA: Artech House, Inc.

Gupta, A. (2009). Deriving Mutual Benefits from Offshore Outsourcing. Communications of ACM , 52 (6),

122-126.

Lee, J. N., Huynh, M. Q., Kwok, R. C., & Pi, S. M. (2003). IT Outsourcing Evolution – Past, Present, and

Future. Communications of the ACM , 46 (5), 84-89.

Mintz, S. M. (2004, August 4). The ethical problems of outsourcing. Retrieved June 19, 2010, from The San

Diego Union-Tribute: www.signonsandiego.com/uniontrib/20040806/news_lz1e6mintz.html