Toolbox.com Live Chat Is Outsourcing an answer for tough times? Transcript of original session on December 10, 2009

Toolbox.com Live Chat - Is Outsourcing an answer for tough times?

About the Live Chat Over the last several months, I've read a number of blogs suggesting that in these difficult economic times outsourcing might be a way to respond effectively. Dangling notions of easy headcount expansion and low hourly rates to cash starved businesses is almost a bit of a cheat. I don't think it's playing fair at any rate. It's a setup for more pain rather than relief from today's stress. Outsourcing is not meant to solve all problems. Given the process of how to go about setting it up, you need to be very clear about what you want to accomplish, and how you will accomplish it. Then you need to be realistic about what you can accomplish. This discussion will explore common questions and problems associated with outsourcing, and what you can do to get value out of your investment. For a sneak preview of my thoughts check out the article I wrote this year on the Toolbox network. About Dennis Stevenson As a software development executive, Dennis has been working with offshore teams for more than 8 years, spanning the United States, Europe, India and Asia. Over this time he has participated in many successful offshore projects. His experience includes captive in-company offshore teams as well as independent 3rd party contractors. In the past, Dennis worked at a large Global, Fortune 100 organization which leveraged offshore development as a means of reducing cost, and accelerating software development cycle times. More recently, he works at a small software ISV where he has started a new offshoring program to supplement the existing software engineering resources for strategic project work. As a blogger on the toolbox.com network, Dennis has published many articles sharing his experience and insights on how to make offshoring work.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Moderator: Good morning everyone, the chat will be starting in approximately five minutes Moderator: Before we get started, please introduce yourself with your name and what you are interested in learning from this chat. Kristin: Morning! I am Kristin interested in understanding how to optimize outsourcing. nanabonnah: nana bonnah effect of outsourcing for the non-employed tonyhelvey: Tony Helvey here.. I'm interested in how one can effectively estimate the risk vs. reward to understand if outsourcing will end up being more or less expensive. Dennis Stevenson: Great questions! This is really helpful to see what kinds of questions you have. ray: Hi this is Ray! I'm here to find out how outsourcing can save me from tough times. reena: Reena Shah - I want to know more about domestic vs. global outsourcing and its impacts Moderator: Thank you for your introductions. Moderator: One last introduction before we get started… I would like to introduce our guest speaker, Dennis Stevenson! Moderator: As a software development executive, Dennis has been working with offshore teams for more than 8 years, spanning the United States, Europe, India and Asia. Over this time he has participated in many successful offshore projects. His experience includes captive in-company offshore teams as well as independent 3rd party contractors. Moderator: Now that we know one another a little better, let’s chat about outsourcing. Dennis Stevenson: I’m glad to see so many people participating. Dennis Stevenson: Today I’m here to chat about Outsourcing. Over the last few months I’ve been looking into a number of different online venues that address this topic, and I’ve found them largely dominated by service providers advertising their offering. That doesn’t appeal to me, so today I want to focus on the other side of the equation… that is the person or company who wants to use Outsourcing as a strategy. Dennis Stevenson: So today I want to look at your questions (and thoughts and ideas too) that center around why to do it, how to get started and how to make it (more) successful. Dennis Stevenson: I don’t guarantee I’ll have all the answers – but I have been doing outsourcing (in my case, often offshore outsourcing) for about 9 years. I hope that today we can get some good information out there that is of benefit to you.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: For the last few days I’ve been blogging answers to some of the questions you’ve already submitted: http://it.toolbox.com/blogs/original-thinking. Over time, Outsourcing has been one of my most prolific topics. You can check out all those posts at: http://it.toolbox.com/blogs/originalthinking/categories/outsourcing/2687. Obviously there are a log of different perspectives and dimensions to the topic, so I’ve only scratched the surface. Dennis Stevenson: Today’s chat is moderated. So I’d like to propose we address questions in the following order. This will bring some order to the questions and answers. Dennis Stevenson: First: Questions around why you might consider outsourcing. Dennis Stevenson: Then: Questions around how to get started. (eg. RFP, RFI, Vendor selection…) Dennis Stevenson: Then: Questions around Managing the ongoing relationship. Dennis Stevenson: Finally: Any questions that didn’t fit the previous 3. Dennis Stevenson: Sound good? It does to me :) So let's start the questions flowing now. Martin Sielaff: Presumably, the larger motivations for outsourcing are money saving, and time (you can get people faster than you can hire them). Many times the pointy haired execs fail to factor in overhead and ramp up time. For a typical software development project (if such a mythical creature exists) of say 100K lines of code, what is the expected ramp up time when working with an offshore team? Dennis Stevenson: Thanks, Martin. Dennis Stevenson: There are really a lot of different reasons why you might choose to do some kind of an outsourcing effort. Dennis Stevenson: "Presumably" cost and time are high on that list. Dennis Stevenson: But sometimes outsourcing is a good way to get access to resources or skills that don't exist in your organization - which you might now want to hire full time. Dennis Stevenson: At the same time, outsourcing may help you handle some sort of project surge in headcount that won't be permanent or long lasting. Dennis Stevenson: But to the specifics of your question, what is the ramp up time? Dennis Stevenson: Hate to say it, but "it depends" Dennis Stevenson: It depends on your team and how effectively you can begin to engage with the vendor Dennis Stevenson: It depends on how good the vendor is

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: It depends on how well prepared you are to begin to ramp up the outsourcing team. Dennis Stevenson: I don't think there is a standard answer for how that will work. Ravi: correct, we should include quality with time / cost. Dennis Stevenson: Personally, I think that there is a lot of pressure (performance wise) on the relationship at the outset. So I don't want to do anything that might suffer failure from "getting organized" Dennis Stevenson: So I like to start with a simple or "throw away" project to work out the kinks. ray: what does it take to ramp up an outsourcing team? That’s the biggest thing that worries me. Dennis Stevenson: If such a luxury is available to you. Often by the time you get all the stars aligned to do outsourcing, the political pressure is on to deliver. So that's a tough putt Dennis Stevenson: Really I think that outsourcing begins long before the vendor is selected and before the contract is written. Dennis Stevenson: It has to come down to getting organized and aligned around what you are trying to achieve with the outsourcing effort Dennis Stevenson: Making sure everyone is on board with it. Dennis Stevenson: Not just "this will save us tons of money, so go real fast." Dennis Stevenson: That's actually a great recipe for disaster Dennis Stevenson: Does anyone have specific questions around this topic? C_Larkin: Recently I had worked for a company that outsourced a portion of both its workforce and its hardware resources. Do you see this becoming a more common practice given the current economic conditions? Dennis Stevenson: this is a really pointed question. Dennis Stevenson: I think that yes, people in this economic condition will do lots of different things to try and save money - in some cases it might be the difference between corporate survival and going under. Dennis Stevenson: However Dennis Stevenson: I think that if it's a knee jerk reaction to "economic conditions" it will be tough to see the expected benefits. Dennis Stevenson: Firstly, there is a need to do some investment (time and money) in the relationship to make it work.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: That goes counter to outsourcing being the savior Dennis Stevenson: Secondly, there is typically a lag that happens between the start of contract and the realization of benefits. Dennis Stevenson: So that has to be accounted for. Dennis Stevenson: If the firm is in a desperate place, outsourcing may not yield benefits fast enough to matter. ray: how long is that lag usually? Dennis Stevenson: If you focus on getting through it, it might be a couple months. Dennis Stevenson: I think you need to get through 2 or 3 "cycles" - whatever you set that up to be Dennis Stevenson: That allows you to do tuning and learning and figure out how to understand each other (culturally, process wise, expectations wise) ray: are you saying that one off outsourcing won't work? Dennis Stevenson: What do you mean by "one off"? ray: you said you need 2-3 cycles to see benefits... if it's a one cycle project will you not have time to get things set up? Dennis Stevenson: If you don't have good adoption efforts/processes, you could struggle over a longer time frame to get to that smooth sailing Dennis Stevenson: Ok. when I talk about cycles, I mean Deliverable Specification-ExecutionAcceptance Dennis Stevenson: Typically you are going to set out what you want them to do, they'll execute some of it and send it back to you to review. ray: what are good adoption preferences? Dennis Stevenson: At that point you see how they are interpreting your instructions, and can work on how to tune them to get what you really want Dennis Stevenson: I recommend "Start Small First" Dennis Stevenson: "Expect and search out failure" Dennis Stevenson: This is really key. What we do is usually pretty complex. So it only makes sense that the process will break down.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: How quickly and how badly it breaks is a really important thing to look at. Dennis Stevenson: I typically want to hit a crisis in the first couple months - how the vendor responds to the crisis tells me a lot about them. Dennis Stevenson: Failing a crisis, I want to get an issue out there that we can work through. Dennis Stevenson: I think this does a lot to level set everyone's expectations and get everyone past the jitters to figure out what is really needed. Dennis Stevenson: "Communicate clearly” Most likely what you think is clear communication isn't. And I'm not talking about language differences. This has to do with how ambiguous your instructions are Dennis Stevenson: How many assumptions do you make but not clarify? Dennis Stevenson: I've found that with vendors, anything less that "brutal honesty" is ambiguous. Dennis Stevenson: There are too many barriers to communication (think of them as communication entropy) that will degrade the message otherwise. Gautam: In these tough economic times, i would assume that the companies that are thinking of outsourcing would not have that much time and resources to invest as their main aim is cost cutting. Dennis Stevenson: That's the real catch 22 Dennis Stevenson: While there are benefits to be had, they don't turn on like a water faucet Dennis Stevenson: It takes time to do this. Again, I'll go back to my earlier point... why are you outsourcing? Dennis Stevenson: Once you are really clear on that, you can start to look at the failure modes or the issues that could cause you to NOT get what you are looking for. Dennis Stevenson: Then you have to put in place mitigation plans to address those. Dennis Stevenson: All this takes time and thought and effort. Gautam: Outsourcing in my opinion has been advertised as a low hanging fruit, benefits without much effort. Dennis Stevenson: I'm not saying that it never works in the desperation method... but I think it's a misnomer that you can easily do it that way Dennis Stevenson: Yes, Gautam... This is how it has been proposed. Then people do it and often have a bad experience because they almost treated it like an entitlement. It's not.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: It's a strategic move of the company. How much work would you put into a new building, or acquiring a new business line? This is (IMO) in that category of strategic thought. tonyhelvey: Are there any estimation models (something like an outsourcing COCOMO) that exist to try to quantify those variables to effectively estimate outsourcing? Aside from that, how would a careful company go about making that decision? Dennis Stevenson: I'm not against outsourcing (far from it). but I do want an "eyes open" approach. Dennis Stevenson: I am not aware of any models. But then I haven't really looked for any either. Dennis Stevenson: One thing you can do is hire an advisor who knows a lot about outsourcing to help you through this transition. Dennis Stevenson: Yes, it will cost you money, but what is money compared to success/failure in your outsourcing venture? Dennis Stevenson: Don't mean to be flippant, but it's a strategic decision. Dennis Stevenson: My current company hired me because I had outsourcing experience. That was one of their ways to mitigate the risks of going into what to them was otherwise unknown waters. Gautam: So in your opinion and experience are there certain processes if outsourced have a very high chance of failure? Dennis Stevenson: Yes. Dennis Stevenson: Any process that you don't understand very well at all, is very difficult to outsource. Dennis Stevenson: Outsourcing is a bad way to dump all your problem processes. Dennis Stevenson: At the end of the day, the process is still yours - just being done by someone else. Dennis Stevenson: If you don't know how to do it well, how do you tell your vendor what you want them to do? Dennis Stevenson: So processes with high degrees of variability are difficult to outsource because its difficult to communicate success and not let the communication overhead create further churn. Dennis Stevenson: Gautam - does this answer your question? I don Gautam: Yes it does thanks. Dennis Stevenson: I don't have a specific list of processes to rattle off... it's mostly a principle based approach to risk management.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? C_Larkin: A VP at a previous employer of mine justified outsourcing with this statement in a company town hall meeting: "I can get 3 developers in India for the same price as 1 in the United States." It struck me that while this was a decision making factor it also unveiled a problem with the decision. Dennis Stevenson: This is hilarious Dennis Stevenson: What a way to motivate everyone to stay and make the outsourcing effort successful. Dennis Stevenson: If cost is the reason, that's legitimate. But you can't threaten people with it. Gautam: That sure makes me feel my job is safe :) Dennis Stevenson: At a previous employer it was announced that certain job roles were going to be outsourced. It was cost driven, but also competency driven. Dennis Stevenson: The company was getting out of the software development role, gravitating more to analysis and project management. Dennis Stevenson: over time, people in solely development roles were given lots of opportunities to change and move into other areas if they wanted. Dennis Stevenson: And it was very clear what was happening, so if they wanted to find other employment, there was certainly time to do so. Dennis Stevenson: I'm surprised if no one got up and walked out of the town hall... A classic way of how not to do it. Alfredo: How do you see the demand of IT personnel in the future? There are enough IT engineers graduating from schools in order to cover the demand? Dennis Stevenson: You know, I haven't really looked into the supply/demand side of it. Dennis Stevenson: For my part, I generally think that in rational businesses, outsourcing isn't really a business model alternative to hiring direct staff. Dennis Stevenson: I think it's a both-and situation. Dennis Stevenson: Where I work now, we have engineers on staff. They do a lot of development, design, architecture, etc. Dennis Stevenson: The outsourcing helps us address the volume issues we couldn’t really handle internally Dennis Stevenson: So all our internal engineers are being leveraged very highly.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: We need both. Dennis Stevenson: In the previous job I spoke about earlier, we got rid of all development resources for outsourcing (offshore). Dennis Stevenson: This ultimately create a problem because at one point we didn't have anyone local who could do development. Some projects just don't do well if outsourced. Or we needed someone to "throw at a problem" in real time. But we didn't have that option. It made being responsive more difficult Gautam: In your company do the offshore and in-house teams of engineers communicate directly? Dennis Stevenson: Yes. Dennis Stevenson: Yes Dennis Stevenson: Yes Dennis Stevenson: Very much so. Dennis Stevenson: We have a shared collaboration space and do frequent skype chats to communicate issues, progress, desires, intentions. Kristin: Do they have regular standing meetings? Dennis Stevenson: It's really important that communication be as simple and direct as possible. If everything has to go through a gate keeper, stuff gets missed or dropped. Dennis Stevenson: Yes, we had one last night at 9:00 PM Dennis Stevenson: Weekly we have meetings, but we also have as needed chats. Dennis Stevenson: The volume of as needed chats dwarfs the schedule meeting time. Dennis Stevenson: Mostly the scheduled meetings are to get everyone back on the same page. Dennis Stevenson: I've even had it where I had multiple outsourcing partners (one working on SAP deployments and the other working on other extension projects) and they communicated directly Dennis Stevenson: It was kind of cool to see them go off and work out integration problems then individually return and status the solutions through their independent reporting chains. Dennis Stevenson: Any other questions out there? We only have a few minutes left. phuongtran: Outsourcing means investment. How do you think about this concept? Dennis Stevenson: I agree.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: Its an investment in relationship. in knowledge, in process, in trust and communication. Dennis Stevenson: Sometimes it even involves money:) Dennis Stevenson: But I think the non financial investments are the most significance. Money, at the end of the day, is mostly about keeping score and tracking the velocity ray: How do you go about finding an outsourcing vendor? Dennis Stevenson: That's tough. I struggled through this last time I did it. Dennis Stevenson: Ask around your network and see who is doing a good job Dennis Stevenson: You could go to Linked In and post a question, and I'm sure you'd be overwhelmed with volunteers. Buyer Beware Dennis Stevenson: Toolbox.com has a nice vendor section and you could do some research there. Dennis Stevenson: I also think that going to conferences and seeing who is there is a good thing. Moderator: There are 5 minutes remaining in this chat. If you have any last questions you would like to submit, please do so now. Dennis Stevenson: But I like to do it where there is some kind of reference on the other end. Someone saying that the vendor is a quality player, and has integrity and does good work. Dennis Stevenson: You could also hire an outsourcing advisor - they might have a qualified list to share with you. Tarquin: What advice would you give to a company who has outsourced to the extent that large portions of their systems knowledge is now with an external vendor? How does a company avoid falling into this trap? Dennis Stevenson: That's fun Dennis Stevenson: Just like getting to this situation was a process, getting out of it will have to be a process. Dennis Stevenson: Nothing overnight here Dennis Stevenson: I'd say it's time to start investing in people locally to be the recipients of that knowledge Dennis Stevenson: Perhaps even targeting some former employees who would bring some knowledge with them.

Toolbox.com Live Chat - Is Outsourcing an answer for tough times? Dennis Stevenson: Then it's a matter of getting these people into a review cycle and starting to do meaningful work themselves. Dennis Stevenson: I'd look at how long it took to get there, and figure at least half as long to pull back and get better balance. Dennis Stevenson: Ok, we're running out of time. This has been a lot of fun Dennis Stevenson: Amazing how quickly 60 minutes goes by! Dennis Stevenson: Before you go, would you please share what you got out of this chat? What information was helpful, or even questions that didn't get answered Dennis Stevenson: The moderators will post this out to everyone to see so we can all get a sense of what has happened from a knowledge transfer perspective. Dennis Stevenson: For my part, thank you all. This has been a really good chat. You have had excellent questions. Kristin: Thank you for your insight. This was helpful. Moderator: We're out of time for today's chat. Thank you all for attending this chat and asking so many great questions. Stay in touch with Dennis Stevenson via his Toolbox.com profile: http://it.toolbox.com/people/dennisstevenson/ Dave Holland: I haven't been participating with questions because I don't have much experience or time dealing with outsourcing, however this was all very good information! Thank you for your time!

Toolbox.com Live Chat - Is Outsourcing an answer for tough times?

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