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The results of the pilot were favorable for the provider and for the offshore
decision. After the pilot was complete, Sogeti assessed that 50% of the total
work could be done offshore, resulting in a cost reduction for the client of 26%.
60 The fundamentals


The quality in India was comparable with the quality of the work done in
Holland. The functionality and the deployment were good in both cases.
Finally, while the Dutch project team met all pilot project deadlines, the Indian
project team was ahead of schedule most of the time.




Phase 2: Identifying the providers

The second and third phases of the offshore journey deal with identifying and selecting
the offshore provider. This is a complex issue for most new clients, since they are not
familiar with the global bazaar of providers. As we noted before, some clients select an
offshore partner haphazardly without even going through an RFP stage. Since this
increases the risk that you end up with a less appropriate partner, it makes business sense
to spend suf¬cient time on these phases of the offshore journey.7 There are several speci¬c
tasks that form Phases 2 and 3, and these require a plan, with a timeline and deliverables.


Locating providers
The supply of offshore providers is growing fast. In India alone, there are thousands of
companies offering IT services. The largest companies are represented in the major
markets and can be easily contacted for information. Clients in a small country, such
as The Netherlands, can already choose from almost 100 locally represented offshore
¬rms or their agents. Most of the IT associations in offshore countries have web-based
resources with member company lists.
Local IT organizations can be helpful as well. An example in the UK is Intellect, the
Information Technology Telecommunications and Electronics Association, with 1000
member companies. It has formed an offshore group that provides information about off-
shoring, provider selection guidelines, provider lists, and a nice list of “do™s and don™ts.”
The provider market is also becoming heterogeneous: you might be able to request
offshore services from your domestic IT provider. For smaller projects, consider the
specialized online programming marketplaces that provide vendor lists or direct place-
ment of projects for bid.8


Country selection
If the engagement is short (e.g. for one project, or a series of smaller projects), then
choosing by provider is probably best. However, for any longer engagement, country
selection should come ¬rst.
Fifteen years ago, the selection of a country was relatively easy, since there were
only a handful to choose from. This is different today, with software producing nations
61 Beginning the offshore journey


in Central and Eastern Europe, the Middle East, Asia, and Latin America. The next
chapter will describe the major location selection issues and presents 11 countries in
more detailed sketches.
If general software skills are required, then the work can be done almost every-
where in the world. However, the supply in specialized skills (e.g. mainframe experi-
ence, or speci¬c domain knowledge) is more limited. Factors to consider in country
selection are: language issues, time differences, intellectual property rights protection,
travel time, stability, and cultural differences. In case foreign personnel will have to
work onsite for some time, arranging visa and work permits may be an issue (e.g. it is
easier for Central Europeans to travel and work in Western Europe than for Indians). If
you are seeking the lowest, rock-bottom price, it might be useful to leave the “beaten
path” and explore alternative destinations: nations, such as China, Vietnam, or even
North Korea.
Metatude, the Dutch company mentioned at the beginning of this chapter, examined
three countries, including a nearshore option, before making the offshore decision. In
many cases, however, the country choice is not the result of serious investigation, but
personal contacts are the decisive factors. This is a desirable criterion for country
selection. A survey on a group of American companies that outsourced to countries
other than India showed that in most cases, the expertise of foreign staff working in the
client company (e.g. from Pakistan, Indonesia, or Vietnam) was used in locating and
selecting the offshore country.9 We have also seen examples where a country was cho-
sen because a manager was married to a local woman (from Romania, the Philippines,
Thailand, and India), or because the director visited a country as a tourist (Nepal), or
has religious or spiritual interests (Israel and India). In any case, it makes no sense to
select an offshore location if your key people will dislike traveling to this country.
Foreign embassies often have information available on the local IT sector, and
some countries have specialized trade promotion of¬ces. Business tours are organized
regularly by many nations eager to facilitate trade. These short trips, although designed
for a general business audience, provide a broad perspective on opportunities in a
certain country.

A visit is useful to gauge country ¬t. At the beginning of the offshore journey,
one Dutch software company sent two managers to India for 1 week to meet
several competent providers. Upon their return, they decided that the choice for
India was wrong. One of these managers, who was designated to spend a long
period abroad to lead the project, did not like India as a place to live.
Eventually, the choice was made for Malaysia.

Once the country is selected, a list of potential providers must be created. It is rela-
tively easy to create a list of 10“20 companies for large countries, such as India, China,
or Russia. This list might be smaller for other countries.
62 The fundamentals



General criteria for selecting a provider:
— Company (size, growth rate, ¬nancial strength and stability, subsidiaries, and

alliances).
— Human Resources (numbers, specialization, experience levels, education and

training, and morale).
— Management (background and experience).

— Technical experience and vision.

— Functional expertise (business domain knowledge).

— Track record and clients (company reputation, references, and repeat clients).

— Processes (delivery processes, change management processes, and support processes).

— Methodologies (development methodology, project management, and knowledge

management).
— Costs (offshore and onsite rates and additional costs).

— Quality initiatives and certi¬cations (e.g. ISO 9001, CMM (Capability Maturity

Model), P-CMM (People-CMM), Six Sigma).
— Ability to scale up operations.


Criteria that require extra care when offshoring:
— Infrastructure (telecommunications, IT infrastructure, and power supply).

— Software production environment (hardware, software, tools, and licenses).

— International experience.

— Language skills.

— Employee retention and turnover.

— Company culture (¬‚exibility, hierarchy, responsiveness, hiring policies, and soft

skills training).
— Cultural aspects and cultural awareness training.

— Global presence (local of¬ces or a local representative).

— Legal issues (intellectual property protection, terms and conditions, and contract

¬‚exibility).
— Business continuity planning (backup systems, disaster recovery, and availability

of alternative centers).
— Security (premises, physical access, and data privacy).

— 24-hour support and availability.




Exhibit 3.1 Key provider evaluation criteria.


Developing criteria for provider selection
Before any providers are evaluated, an organization needs to consider its key criteria
for such an evaluation (see Exhibit 3.1). In the previous phase a suitable offshore project
was selected and described in the “scope de¬nition document”. Based on this docu-
ment, the criteria for provider selection and evaluation can be gathered and ranked.
There are various hard (measurable) criteria, such as technical competence, experi-
ence, and costs. There are also soft elements (e.g. organizational culture and language)
which are crucial but easily overlooked.
Naturally, the relevance of these criteria is different for every client organization. In
most cases, the number of important criteria can be reduced to a smaller number, and
63 Beginning the offshore journey


six to eight criteria will often be suf¬cient. It might be useful to assign weights to these
criteria, for example, by using a numerical value or a quali¬cation (e.g. very relevant,
relevant, or reasonable). Then a matrix can be created to assign scores for each of the
candidate providers.
Some criteria are surprisingly unimportant to clients. Research among offshore users
showed that factors such as process certi¬cation, or the size of provider, are of lesser
importance.10 Nevertheless, a small company should be careful about outsourcing to a
very large provider. The small client will not get the attention that larger customers
receive. In fact, the large Indian providers are known to turn away small clients and if they
do accept contracts from smaller ¬rms, they are less likely to assign their best devel-
opers to these projects. Conversely, a large client might not feel comfortable working
with a small provider. A large Dutch company, which works with Indian Tier-1 ¬rms,
investigated nearshore opportunities in Central Europe. It decided to reject this option
because the prospective providers were too small in size and would not be able to
assign suf¬cient numbers of staff.
A survey among offshore users in Silicon Valley revealed interesting differences
between IT end-user ¬rms and software product producers regarding their provider
preferences.11 For the end-user ¬rms, earlier experience in successfully carrying out
large international projects was the number one factor, followed by cost. In the case of
software product producers, the number one factor was prior technology experience.
This was followed by the capability to provide services on an on-going basis, with the
number three factor being cost.



The RFI and the RFP
While much information on offshore providers is available via websites or company
brochures, this information is mostly of a very general nature and is not suf¬cient to
assess if the provider can do the work according to your criteria.
To narrow down the provider list, solicit initial information, based on your speci¬c
questions, and send out requests for information (RFIs) to a number of companies. An
RFI contains the following main sections:
— Introduction to your company.

— Basic project information (but without too many details).

— Questions about the provider (e.g. geographical locations, history, management,

number of employees, turnover rate, processes, infrastructure, security).
— Questions on services offered (e.g. domain expertise, platforms, skills, number of

experts, training level, customers, indication of tariffs, the use of subcontractors).
— Questions on strategy (e.g. vision, market share, partnerships, and alliances).

Use standard questionnaires with only your most pertinent questions; asking hundreds
of questions is useless. Sending out RFIs to a very large number of companies is also
a waste of time.
64 The fundamentals


Experienced clients can bypass the RFI stage and expedite the provider selection
process by narrowing down the ¬eld of candidates and selecting the best two or three;
these will be approached with a request for proposal (RFP). Alternatively, limit the
number of RFIs when personal recommendations are available.
After receipt of the RFIs, the responses will be evaluated using your ¬rm™s key cri-
teria as taken from Exhibit 3.1. Only the most promising ¬rms will be scrutinized in
more detail, and they will be issued RFPs. The ones you did not select should receive
information as to why they were not chosen. In general, the shortlist will consist of a
small number of companies (e.g. two or three if a company needs one provider).
The RFP contains several sections:
— Guidelines for responding to the RFP. contact details, number of pages, format

preferences, requirements to be addressed, and a deadline date.
— Project-speci¬c information. This is based on your “scope de¬nition document”,

and it must be suf¬ciently detailed for the provider to understand both the business
issues and the technical issues of the project. It includes speci¬cations, performance
criteria, hardware and software requirements, communications requirements, skill
requirements, training requirements, and documentation requirements.
— Special questions. You can ask the provider for creative solutions by using speci¬c

questions, which will bring out the provider™s creativity, domain, or technical
knowledge.
— References. A request for details of the provider™s most closely related projects.

A sample contract may be included along with the RFP that includes issues regarding
licenses, warranties, penalties, and incentives. You may also request a format for the
¬nancial proposal. One of the key ¬nancial parameters is T&M (time and materials)
versus Fixed Price. T&M contracts are appropriate for projects that contain a great deal
of uncertainty, are likely to change, or are complex. If the provider is asked to make a
Fixed Price proposal the project should be stable and well de¬ned. If this is not the
case, then any provider bid will be useless (we have seen proposals from India where
the highest bid was 30 times higher than the lowest!). However, even if the speci¬ca-
tions are clear, there can be big differences.
The RFP process should not be made too complex. The RFPs are often lengthy doc-
uments asking too many questions that are not really useful. This is a waste of time and
money for everyone involved.




Phase 3: Assessing and selecting the provider

The ¬nal phase of the offshore journey begins when the providers™ RFP responses are
received. The launch team will evaluate the responses and relate them to the selection
criteria.
65 Beginning the offshore journey


You must be aware of false promises and not rely solely on the RFP responses. Some
providers, eager to get new clients, claim to possess skills and expertise which they do not
have. Culture can complicate business discussions as well: some Asian salespeople are
reluctant to answer “No” to questions of a foreigner, since this is considered to be rude.
Due diligence is critical in order to clarify and validate provider capabilities. Without
such validation, weaknesses will not be discovered until at a later stage. Therefore, con-
struct a due diligence plan to validate the information, with your company™s selection
criteria in mind. The following activities are advised to gain additional insight:
— Call up references. Contact the provider references and set up visits. Have people

from the same level engage in these discussions. Ask the references about
unforeseen costs they encountered in their offshore engagements and use the
discussion to learn how to make the relationship work. Ask the provider to speak
with clients that outsourced projects that had not gone totally smoothly.
— Set up local meetings with providers to discuss their abilities and to address your

criteria. These meetings should be structured around a con¬rmed agenda and
should include an overview of your operations and your offshore objectives.
— Pay attention to the soft elements. These are criteria that we emphasized

previously: personal ¬t, and overall cultural compatibility, such as similarity of
values, “feeling comfortable”, “trust”, and, in the ¬gurative sense, “speaking the
same language”. Some companies will be easier to work with than others.
Some clients are bargain shoppers and are obsessed with the lowest possible rates. We
stress that price should not be the dominant criterion; if it is, then most of the recom-
mendations in this chapter (and this whole book) will have been ignored. One high-
tech manufacturing company spent more than a million dollars evaluating and
selecting an offshore service provider. Eight months into the implementation, issues
emerged that escalated the program management costs. New providers (not considered
in the initial evaluation process) had higher unit rates but were able to reduce the extra
costs signi¬cantly.12
Figure 3.4 presents another spiderweb chart “ this time for assessing offshore
providers. Values are given on a scale from 1 to 5, for eight selection criteria: technical
capability and experience, functional capability and experience, stability, infrastructure,
historical relationships, ¬‚exibility, reputation (including track record), and productivity.
This chart shows an area of concern: the provider™s functional capabilities are somewhat
limited. This might not be a problem if the provider is being assessed for a small main-
tenance project, but it will be risky if the project is a ¬rst release. In that case, knowledge
transfer from the client to the provider will require speci¬c attention and investment.


The offshore visit
The initial offshore visit has become a rite of passage on the offshore journey and has
filled up many hotel rooms in India. Managers embark on a foreign trip to assess potential
66 The fundamentals


Technical experience
(1: none; 5: very good)
5
4.5
Productivity (work/cost) Functional capability and experience
4
(1: very low; 5: very high) (1: none; 5: very good)
3.5
3
2.5
2
1.5
1
0.5
Reputation Stability (1: poor; 5: very solid)
0

(1: very bad; 5: very good)



Flexibility Infrastructure
(1: none; 5: very good) (1: very bad; 5: very good)

Historical relationships
(1: none; 5: very intense)

Figure 3.4 Applying the spiderweb chart at ABN Amro Bank to assess providers.




providers in detail and to get a feel for the country. Site visits abroad are recommended
in case of large or complex projects, if long-term cooperation is required, or if the goal
is that the provider build a great deal of specialized knowledge, which makes it expen-
sive to switch providers.
Decision-makers have different preferences for the timing of the offshore visit. Some
have taken the trip very early in the journey preparation, in order to educate themselves
about offshoring and to get a feel for the offshore landscape. Others time their visit at a
later point, after receiving the providers™ RFI responses, in order to meet a group of
promising companies. Still others wait until they have received concrete proposals from
the most promising offshore providers. Usually, the offshore visit is conducted by the
launch team members, who are at least somewhat supportive of offshoring, but we also
know of delegations that took along managers that were reluctant to offshore in order to
win them over. The reluctant managers can often be convinced when they see the off-
shore facilities with their own eyes and when they meet foreign staff in person.
Large providers will receive visitors at their headquarters, but this is not always the
location where the actual work will be done; remote centers might have to be visited as
well. Take the opportunity to “get a feel” for the country: visit the national software
association; visit your embassy; talk to other users on similar trips; and get out of the
of¬ces and hotels, and do some sight-seeing.
Site trips can be exhausting and involve a great deal of time, effort and money, and
will be disappointing if not properly planned. The objectives of the visit should be
67 Beginning the offshore journey


carefully de¬ned upfront and not during the airplane ¬‚ight. Some clients make the mis-
take of being overeager, and visit too many ¬rms in too many places, of which most are
not of any use. And if the actual visit consists merely of listening to sales pitches, then
all providers will look the same.
The providers™ standard onsite brie¬ng consists of strategy presentations, an overview
of capabilities, case studies (including demonstrations of software and life-cycle docu-
mentation), team meetings and a tour of the premises. You can request to speak to a
project manager in order to get a detailed review of a past project. Also, seek out some-
one from quality assurance. Ask to review a project that did not go well, and ask why
and what corrections were made. In addition to meeting with the provider™s sales team,
you should also meet with the technical staff and the support units, such as HR and
training. A checklist should be used to tailor the meetings.
While the offshore visit can be very important at the beginning of the journey, it is
not always necessary. Companies have offshored successfully without any of their
employees having to make use of a passport. Generally these cases are in very small
¬rms with small budgets, or for a small project, or if a local representative is available
to act as a liaison.


Making the recommendation and contract negotiations
Many providers are good, but which one will be the best? Based on all available infor-
mation, the ¬nal evaluation and selection can take place. Phase 3 ends with the ¬nal
selection and the recommendation to senior management. The recommendation includes
the project objective, the scope of functionality to be outsourced, the selection method-
ology, a candidate list, candidate functional and fee comparisons, and, of course, the
nomination. The recommendation will include a ¬nancial justi¬cation. There is also a
possibility that the launch team determines that offshore outsourcing is not a correct busi-

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