Successful Offshore Software Development - Outshore

ICGSE 2007

Successful Offshore Software Development Martin Wiener August 27, 2007

This report is solely for the use of client personnel. No part of it may be distributed, quoted, or reproduced outside the client organization without the prior written approval of Theron Business Consulting GmbH. This material was prepared by Theron Business Consulting GmbH for use during an oral presentation; it is not a complete record of the discussion

Agenda Successful Offshore Software Development

▪ Motivation ▪ Goal & Process ▪ Successful Offshore Software Development - Causes and weaknesses - Success factors

▪ Conclusion

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Successful Offshore Software Development

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In theory, offshore software development promises cost advantages of up to 40 % Motivation ▪ Economies of scale ▪ Wage structures -10%

▪ Labor costs

ILLU STR EXA ATIVE M PL E

-40%

25% 20%

= Analysis

35%

30%

7% 8%

7% 8%

8% 12% 7% 8%

25%

25%

25%

Internessourcing Soucing Internal

Nationales Outsourcing National outsourcing

Offshore outsourcing Outsourcing Offshore

= Design

= Project management

= Coding

= Testing

Sources: Beeler (2004), Lamberti (2004), Moczadlo (2002), Wiener (2006a) ICGSE 2007

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However, higher coordination efforts, change requests and lower productivity often undo the aimed cost advantages in practice Motivation

▪ Add. project coordination ▪ Add. change requests ▪ Lower productivity

▪ Project coordination ▪ Change requests ±0%

+5% +5%

±0% +20% +10% +10%

100%

Additional costs

90% 60%

Internessourcing Soucing Internal = Cost base

ILLU STR EXA ATIVE M PL E

= Costs for change requests

Nationales Outsourcing National outsourcing = Costs for project coordination

Planned costs

Offshore outsourcing Outsourcing Offshore = Costs for lower productivity

Sources: Schaaf and Weber (2005), Overby (2003), Wiener (2006b) ICGSE 2007

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The goal is to establish a better understanding of how to manage offshore software development projects successfully Goal & Process

1. Identification

2. Analysis

ICGSE 2007

What are success factors for offshore software development projects? ▪ Analysis of relevant literature (182 publications in the field of IT outsourcing) ▪ Conduction of more than 20 expert interviews

Which success factors are particularly relevant? ▪ Conduction of an online survey with more than 100 participants ▪ Analysis of survey results

3. Management

How can the identified success factors be influenced? ▪ Implementation of a case study with a Swiss large-scale enterprise (insurance) ▪ Implementation of a case study with a German medium-sized enterprise (chemicals)

4. Comparison

What are similarities / differences between national and offshore outsourcing projects? ▪ Evaluation of project documentations ▪ Conduction of numerous expert interviews

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Geographical, cultural and linguistical differences enforce classical weaknesses of software as well as outsourcing projects Causes and weaknesses Causes

▪ Rising complexity of software projects

General outsourcing-related causes: ▪ Insufficient experience with IT outsourcing ▪ Following mainstream without more detailed analyses

Offshore-outsourcing-specific causes: ▪ Geographical distance ▪ Cultural difference ▪ Language barrier

Weaknesses

1▪

Insufficient project readiness

2▪

Insufficient project selection

3▪

Insufficient project preparation

4▪

Insufficient project management

Sources: Adelakun and Jennex (2003), Wiener (2006a), Wiener (2006b) ICGSE 2007

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Standardized processes and tools are preconditions for successful offshore software development Success factors – Project readiness Organization

Preconditions for successful national outsourcing

Additional preconditions for successful offshore outsourcing

Management

Employee

Process

IT

▪ Multi-site

▪ Defined core

▪ Sustained top

▪ „Managing“

▪ Defined and

competences ▪ Efficient internal organization structure ▪ Expertise in legal affairs etc.

management support ▪ Defined sourcing strategy ▪ Strategic partner(s) etc.

+

+

competence ▪ Technical know-how ▪ Experience with distributed development projects etc. +

standardized processes ▪ Programming guidelines ▪ Specification/ documentation templates etc. +

▪ International

▪ Experience with

▪ Experience with

▪ Conformity with

▪ Use of standard

corporate culture ▪ Expertise in international legal affairs etc.

international projects ▪ Strategic offshore partner(s) etc.

foreign cultures ▪ Good language skills in English etc.

CMM standard ▪ Process documentation in English etc.

tools and platforms ▪ Use of tools in English etc.

capable tools

▪ Comprehensive security infrastructure ▪ Video conferencing equipment etc. +

Source: Wiener (2006a) ICGSE 2007

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The selection of the suitable sourcing form depends on project-specific characteristics Success factors – Project selection IT function

▪ High complexity ▪ Low personnel intensity

▪ High rate of change ▪ Low modularity ▪ High strategic importance

Offshore

Extern

System component

National

National outsourcing

Offshore outsourcing

Intern

▪ Low rate of change ▪ High modularity ▪ Low strategic importance

▪ Low complexity ▪ High personnel intensity

Insoursing

Captive offshoring

Sources: Wiener (2006a), Wiener (2006b), THERON ICGSE 2007

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Early and pro-active internal change management is critical to success of an offshore software development project Success factors – Project preparation Relevance for … Success factor

… national outsourcing

… offshore outsourcing

▪ Define clear project goals and establish a common understanding of these goals ▪ Develop a comprehensive business case, including project benefits and risks ▪ Select a suitable provider based on well-defined criteria ▪ Compile a detailed project specification with support of the (selected) provider ▪ Define project standards – templates, processes, project management and language ▪ Manage internal change pro-active and early ▪ Create a sensibility among internal employees for the (foreign) culture = not important

= quite important

= important

= very important

= critical

Sources: Wiener (2006a), THERON ICGSE 2007

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Well-defined controlling and communication processes are key to success of an offshore software development project Success factors – Project implementation Relevance for … Success factor

… national outsourcing

… offshore outsourcing

▪ Define a project-specific and detailed contract with well-defined deliverables ▪ Compose a diverse project team with a multi-cultural project manager ▪ Establish a suitable IT infrastructure, particularly a common development environment

▪ Ensure a bilateral know-how transfer ▪ Control the project progress and quality continuously and standardized ▪ Ensure a continuous communication flow by defining single points-of-contact ▪ Develop a partnership-like relationship (e. g., through framework contracts and risk sharing)

= not important

= quite important

= important

= very important

= critical


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An offshore software development project requires a considerably higher management effort than a national software outsourcing project (1) Conclusion Planning and analysis Definition of the sourcing strategy ▪ Analysis of the client readiness ▪ Identification and prioritization of project candidates ▪ Definition of the goals, the scope and the baseline of the project candidates ▪ Development of a business case for each project candidate + Analysis of potential offshore locations

= Increased effort in offshore projects

Decision and negotiation

▪ Selection of the sourcing form (and the sourcing model) + Selection of the offshore location Preparation of the project specification Development of the Request for Proposals (RFP) Evaluation of the RFP answers ▪ Compilation of a provider short list ▪ Performance of a due diligence Selection of the provider Negotiation and formulation of the contract

Implementation Internal change management Transition management Definition of project standards Composition of the project ream Contract management - Change request management - Escalation management Controlling and management of the project results Management of inbound and outbound communication Creation of a cultural sensibility Relationship management

+ = Additional effort in offshore projects


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An offshore software development project requires a considerably higher management effort than a national software outsourcing project (2) Conclusion Strengths

▪1

Maturity and internationality of the client organization as well as transparency and standardization of the IT

▪2

Selection of suitable software components and IT functions

▪3

Scheduling and performance of a considerably higher preparation and coordination effort

▪4

Adjustment of internal controlling, communication and development processes

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References

▪ Adelakun, O. and Jennex, M. E. (2003). Success Factors for Offshore System Development. In: Journal of Information Technology Cases and Applications, 5(3), 12-31.

▪ Beeler, F. (2004). Wussten Sie nicht, dass Ihre Wettbewerber bereits die Vorteile des Offshore Software-Outsourcing nutzen. Retrieved April 28, 2004, from .

▪ Lamberti, H.-J. (2004). Outsourcing als Erfolgsfaktor. Presentation, Outsourcing conference, Wiesbaden, September 8th, 2004. ▪ Moczadlo, R. (2002). Chancen und Risiken des Offshore Development. Empirische Analyse der Erfahrungen deutscher Unternehmen. Retrieved April 15, 2004, from .

▪ Overby, S. (2003). The Hidden Costs of Offshore Outsourcing. Retrieved March 19, 2004, from .

▪ Schaaf, J. and Weber, M. (2005). Offshoring-Report 2005. Ready for Take-off. Retrieved February 22, 2006, from .

▪ Wiener, M. (2006a). Critical Success Factors of Offshore Software Development Projects. The Perspective of German-Speaking Companies. Wiesbaden: Deutscher Universitäts-Verlag (DUV).

▪ Wiener, M. (2006b). IT-Offshoring. Management internationaler IT-Outsourcing-Projekte. Heidelberg: Physica-Verlag.

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