The outsourcing landscape is changing. US and European economies are still fragile. The pressure is on for IT departments to further cut costs, whilst maintaining existing systems and supporting revenue growth through technological innovations within a global marketplace. Yet larger multinational companies are starting to move away from outsourcing of IT operations and developments and returning to more traditional in-house development models, with home grown resource. Coupled with the news that Indian outsourcers reporting a downturn in revenue and profits figures due to adverse economic conditions in the US and Europe provides a golden opportunity for the agile CIO. Small or medium sized corporations are strongly positioned to leverage the benefits of project based sourcing opportunities, for developments in niche technologies, in a falling outsourced market.
The recent news that GM CIO Randy Mott intends to bring back 90% of his IT organisation in-house over the next three years with an potential cost of over $1billion is seen by many industry observers as a radical and risky approach to the daily challenge that faces every IT Manager and CIO in delivering cost effective, time sensitive and quality driven technologies to achieve real business benefits. Mott believes that the company needs ‘more creative, business-changing ideas from IT, and IT teams need to deliver those innovative projects faster’. Mott believes that GM cannot be creative or fast enough with outsourced IT. To a certain degree Mott is right, intellectual property, business knowledge and strong project management skills are critical skill sets that need to be maintained in-house to protect the integrity of a company’s business and technical infrastructure. But where does that leave the smaller IT Department who doesn’t have unlimited funding, maintains a small internal headcount, is working flat out with limited resource to maintain existing legacy technologies, but still needs to support fast moving technical deployments, to ensure commercial advantage in the digital marketplace? Tactical outsourcing of specific niche skill sets to India, assuming the specifications reflect the business need, that the development is controlled within a workable methodology, ant there is open communications, still fits within a pragmatic and cost effective outsourcing strategy.
Traditionally, large corporations are resilient to change and the risks of the smallest deviation for imbedded processes and procedures, unless managed tightly, are well known. But for the small or medium sized company proactive change is the lifeblood of success. Adopting new technical innovations, using an agile outsourced framework, abet in a risk-controlled environment, and could provide that much needed low cost competitive edge. The ability to respond quickly to new market trends, quickly place product promotions, support open online communications combined with successfully entry and exploitation of new and diverse digital channels is something every CIO and IT manager should aspire to. Even maintaining equilibrium with competitors in the digital arena required migration to newer enabling technologies as some point in time otherwise maintenance costs become disproportional to investment returns. CIO magazine tells us that for over 50% of IT leaders their major challenge today is increasing speed of developments and keeping down costs.
Yet in many cases, the development and maintenance of new innovative technologies, through the creation of an in-house team is not a financially viable business model for the smaller company. With the current scarcity of skilled permanent resource costing upwards of £35,000 per annum, the overheads can soon mount up for a fairly complex deployment. As larger companies are moving away from sourcing through India and looking to recruit new graduates as permanent employers, even recruiting inexperienced resource will cease to be an option for the smaller company. Whilst building up the expertise of in-house staff may be a delivery solution in the longer term, the development of resource and training overheads, coupled with the risks of using inexperienced staff in a small fast moving environment, should not be underestimated. For example a basic two-day introductory training course for a Drupal developer is close to £2000 alone. Coupled with a need for enhanced supervision and guidance of trainees, the risks of successfully building an in-house team from scratch, utilising leading edge or niche technologies, are obvious. So what other delivery options are available?
The cost of developing a professionally created web management system can soon mount up, without taking into account the ongoing maintenance charges on a monthly basis. Resourcing estimates show that a successful, fairly complex Drupal CMS based project would realistically require between 3-4 developers. Nigel Shadbolt provides us with an insight into the development timescales and resource estimates required to create the new pan-European government data proposition, highlighting the benefits of using open source architecture. As a prominent adapter of this framework, data.gov.uk suggests a team of 3 fulltime coders and a designer were required for their initial iteration, subsequently retaining 2 internal Drupal developers for module updates, customization and monitoring of the application. In other cases, a figure of 30 man-hours per month is suggested as a minimum estimate for ongoing maintenance.
The minimum rate for a good Drupal contractor in the UK (working on site) is around £350 a day, with city based consultants achieving between £500-600 and more. For the smaller IT department the business case, to adopt a traditional in-house development framework or out source locally, just does not stack up. With high costs of training for development staff in new technologies and the costs of bringing in expensive contractors on site (if they are available) could leave the business compromised by the IT department’s inability to respond to pressing business needs in the digital arena. So how can an alternative sourcing strategy, which moves specific parts of a delivery to remote developers based in India, work in practice?
As a recent working example, we could consider the design and implementation of a mid-sized content management system in the private sector. A UK publishing company, with limited in-house technical expertise, required a full development of a CMS within a six month period, to meet a major business launch date. Having secured an experienced consultant, with web implementation skills, to help define the business requirements and supporting technical architecture, a variety of delivery options were considered. Realistic estimates indicated the project needed three developers for a 6 month delivery. Consideration was firstly given to hiring two contractors and one permanent employee, who would then stay and maintain the project. With no applicants available with enough Drupal expertise and the least expensive contractor charging £350 a day, the development costs alone were over £136k for the 26 week period. By utilising contacts with an Indian development company, three remote developers were offered, interviewed and accepted at a cost of 30k. The project was a success. After the development the company retained one of the Indian developers to support the application for another 9 months, whilst a UK based fulltime developer was found and trained to the standard required for ongoing maintenance.
Critical to the success of this project were the following criteria:
Open Communications: An understanding of how to manage and communicate with the developers in India was important. Although the common language was English it was easier from the publishing company to adjust their communication style to align with the Indian development team. Key disciplines included ensuring that there was clarity of instruction and common terms were agreed up front. This was the steepest learning curve for the UK Company and therefore they retained the services of the Business Consultant who had previous experience of outsourcing with Indian developers. Skype conferences proved invaluable to maintain constant contact and ongoing management controls.
Management style: Inclusive. The UK management team welcomed input and comments from the developers on an ongoing basis. Feedback on the UK technical design proved invaluable in establishing a common understanding of the requirements.
Agile development: A modular approach to delivery was adopted that allowed for small, version controlled releases.
Service Management: Strong service management disciplines were required supported by a ticketing system, version control and testing software an ITIL approach was taken. A performance management regime was put in place. Feedback on each deliverable was provided to the developers, to foster an environment of continuous improvement.
Elements of the project retained in the UK: Business Analysis, Solution Architecture, Project Management and Quality Assurance roles.
CIO BOTTOM LINE: Tactical project based outsourcing to India should be considered for mid-sized web developments. Opportunities of up to 80% financial savings compared to equivalent UK based developments have been achieved. Recognition that there needs to be strong project management skills in place to control outsourced deliveries is paramount. Mitigation of unsuccessful delivery can be achieved by retaining analysis, design and management disciplines within the client company.