Redefining offshore outsourcing

WHEN SHELLEY MCINTYRE, vice president of technology services at New York-based Guardian Life Insurance Company of America, needed to outsource her company's application development and maintenance projects, she began with a March 2001 pilot program with overseas outsourcers in India and Singapore to handle the projects. Cautious at first, McIntyre later expanded her use of outsourcers and contracted to a third offshore company.

McIntyre says using offshore vendors has been successful. "[The outsourcers] have enabled us to manage up and to manage down. They added to our skill set. And they saved us a lot of money."

These benefits have IT leaders such as McIntyre duly impressed with the results of offshore outsourcing. But the practices of the offshore outsourcer are changing, often sparked by demands of U.S. CTOs, who are increasingly requiring their offshore outsourcers to maintain a strong stateside presence in an effort to improve project management. This, combined with spreading contracts among more than one offshore developer, serves to mitigate risk -- both fiscal and geopolitical.

Close ties

Management practices related to outsourcing have changed, says Richard Jones, CTO of Calibas, Calif.-based mortgage lender Countrywide Financial. Jones first started working with offshore outsourcers, like many of his colleagues, to meet Y2K deadlines. "We quickly learned that if you do everything right, there are still lots of ways to do it wrong," he adds.

The CTO says that poor communication is the most common reason work sent offshore fails to meet project specifications. "To make communications tight, you need to have an onshore element [of the outsourcer]," he says. For much of his outsourced application development, Jones turns to Boston-based Keane, which has offices offshore and near Countrywide's main office.

The stateside relationships with an offshore vendor allow the vendor and Countrywide IT managers to communicate project requirements "very accurately to the offshore element. You need to have precise functional specifications and design specifications of exactly what you want [the outsourcer] to do. Otherwise they will deliver to inaccurate specifications and deliver inaccurate software. The vendor will be blamed, when the real issue is [lack of] clear communication on exactly what is needed," Jones says.

To that end, the CTO has established an internal central project office at Countrywide that evaluates proposals, delivers detailed statements of work, and manages offshore projects. Overall, Jones says his company's blended (combination of offshore and internal) average application development per hour rate is less than $55.

Communication and collaboration are key to success, says Jeff Campbell, vice president of technology services and CIO at Fort Worth, Texas-based Burlington Northern Santa Fe Railway (BNSF). In 2001, BNSF began contracting with Infosys Technologies in Bangalore, India, one of the largest offshore outsourcing companies.

"Infosys was world class in change control and methods of delivery," Campbell says. "They have a program office at our headquarters. They have full-time people here that manage the flow through methodology and communications."

Infosys' work for BNSF includes as much as 40 percent of BNSF's application development initiatives; however, Campbell says only about 25 percent of Infosys workload is actually done in the United States.