By Hans Lohmann Jayatissa During the last decade, outsourcing of IT services has been one of the fastest growing businesses in the world. Offshore outsourcing is an increasingly large subset, presenting unique opportunities and complex issues, ranging from the logistical to the cultural. Because offshoring usually involves the transfer of activities — not people and IT assets — it is particularly suitable for software development, which does not depend on physical assets and can be performed from a distance.

Offshore outsourcing of software development can provide a number of benefits, but an organization must first be clear on its true mission. Then, it must ensure that objectives, strategy and tactics are aligned with that mission to maximize benefits and mitigate potential issues. When a business selects a delivery model that aligns all four elements, offshore outsourcing of software can be very successful.

Identify mission, issues upfront

The organization must be very clear on its strategy and mission before embarking on an offshore program. Offshoring is mainly carried out as part of a long-term business strategy, but sometimes for purely operational provisioning of skills or resources. Either way, offshoring of software development should be initiated to obtain a cost, competence and/or capacity advantage. The main reason companies offshore software development is to improve operational efficiency by cutting production costs. However, in many cases capacity problems are the real driver behind the cost focus. In these cases, the low cost of offshoring enables the company to realize its actual mission, for example, improved access to skilled resources and competencies.

Identifying a mission allows an organization to better identify issues that must be mitigated — and in offshoring there are many. For management, the key issue is reduced control, which is exacerbated by geographical and cultural distances. Managing an offshore engagement is complex and time-consuming, with upfront process costs and potential hidden costs down the road. Also problematic are employee concerns, communication challenges and legal issues such as confidentiality.

While most issues can be mitigated, it is important for the organization to decide if the issues outweigh potential benefits. Depending on the mission, some issues are more serious than others. For example, when seeking cost efficiency, one must consider whether the costs of added complexities and additional management are less than the cost savings generated by the lower offshore wages. If not, the company may want to consider alternatives to offshore outsourcing.

Delivery Models on knowledge transfer

Because work is transferred, not people, knowl¬edge transfer is the key process in offshore outsourcing of software development. Four main delivery models (the “tactics”) are recommended, each model differing in its approach to knowledge transfer both initially and during the engagement.

Offshore Only: All work takes place offshore. The transition takes place at the offshore location and key in-house resources travel offshore to train the off¬shore team during the transition. After the transition, several in-house resources stay offshore to work as mentors and business advisors. This model is ideal for large, self-contained, well-specified projects because there is very limited interaction with in-house resources. It provides the full benefit of the lower wages of offshore resources. However,
it involves expenses for travel and accommodation.

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