Managing talent in offshore development centres
Managing Director – mCalibre Technologies
Global companies are running software Offshore Development Centres (ODCs) in distant countries. These companies have augmented their software teams in global head offices (HO) with the software teams in the ODCs. ODCs generally have strong capable teams and have the potential to make much more significant contributions than they are currently making. A major reason for this problem is that managers within the ODC, due to many constraints arising because of the unique positioning of ODC within the overall organisation structure, face a unique set of challenges in hiring, retaining, and managing talent. We describe these challenges in detail and suggest approaches to address them, to allow ODC managers to effectively manage talent to fully realise the potential of ODC teams. We present case studies from ODCs of leading global software product majors, like IBM, Novell, QLogic, Atheros, and Cabletron.
A large number of global companies are running software Offshore Development Centres (ODCs) in distant countries. These companies have augmented their software teams in global head offices (HO) with the ODC teams.
ODCs generally have strong and capable teams and have the potential to make much more significant contributions to their global parent companies than they are currently making.
A major reason for this problem is that the managers within the ODC, due to the unique positioning of ODC within the overall organisation structure, face a unique set of challenges in managing talent. These challenges are quite different from challenges being faced by managers in HO. Further, these challenges are also quite different from challenges being faced by managers in independent local companies (that are not a part of any global setup) within the country of ODC. Some of the major challenges are:
- Senior employees and managers within ODC do not get full opportunities to grow to global top positions despite being as deserving as their HO counterparts, solely due to not being within HO location. This stunted growth leads to employee displeasure, demotivation, and attrition.
- Since projects being executed within HO and ODC are closely interlinked, companies create interlocation reporting structures that give HO managers immense control over ODC teams. These reporting structures are sometimes coupled with ill-defined management roles/authorities/responsibilities that result in managers’ displeasure, insecurities, and inter-location contentions. ODC managers end up handling huge project responsibilities without requisite authority and freedom, which significantly constrains their ability to hire/retain/motivate talent to effectively deliver on project deliverables.
- Professionals in the country of ODC may have sensitivities, expectations on roles/designations, and growth aspirations quite different from the professionals in the country of HO. HO management sometimes does not appreciate these nuances and blindly imposes HO country norms on ODC teams, leading to employee displeasure.
- HO mostly offloads simple and peripheral projects to ODC, with the core projects still being executed within HO. Hence, ODCs are unable to hire/retain senior and capable professionals who wish to work on more challenging tasks and bigger projects.
- ODCs are created by companies to save costs. Sometimes companies over-insist on cost reduction, which prevents ODC managers from hiring good talent since they are unable to match their compensation expectations. Hence, ODC managers end up facing the challenge of leading teams of mediocre and inexperienced professionals.
Due to these challenges, ODCs are playing a limited role for their parent companies. The company top management generally consists only of HO executives, who decide company strategies and set directions for the ODC. The product strategies, conception, and product management is controlled totally from within HO. The overall product specifications and architectures are decided by HO senior managers/architects and some modules are offloaded to ODCs for implementation. Hence, ODCs end up handling plain technical implementation functions. Thus, ODC teams have been able to develop their technical talent over the years, but have not been able to contribute beyond that. Such ways of functioning are resulting in gross under-utilisation of ODC capabilities since ODCs have the strength to add much more significant value to their parent organisations.
In this paper, we describe the challenges being faced by ODCs in detail and suggest approaches to address them. The approaches will allow ODC managers to effectively hire/retain/train/manage talent to fully realise the potential of ODC teams. The techniques would allow ODC senior executives to become a part of parent company top management team and decide company strategies, set ODC directions and take up critical responsibilities within the ODC. The ODC teams would also be able to grow beyond plain technical responsibilities and be able to undertake conception and development of complete new independent products from totally within ODC. ODCs will handle product management, specifications, and architecture functions for these products. Further, using these approaches, the technical delivery strengths of ODCs will also improve, leading to higher productivity of ODC teams.
We present case studies from ODCs of global leading software product majors, like IBM, Novell, QLogic, Atheros, and Cabletron.
The experiences in establishing GE Capital's offshore centre are shared in Bhasin (2011), and it has been stressed that there should be significant focus on operational training of employees on products and processes of the parent company to ensure high quality of deliverables.
We are suggesting that, besides the operational training, the company must also impart strategic training related to the global parent organisation to the ODC senior managers. The ODC can then make significant strategic contributions to the global organisation and these professionals can reach global top positions.
The need to have closely integrated inter-location project team structures with the project manager in ODC interacting/reporting to his counterpart overall project head in HO (who is effectively the “client” for projects being executed in ODC) has been stressed in Aron, & Singh (2005); Serrador (2009); Serrador (2008); and Serrador (2010), along with recommendations for skills to be imparted to the project head (Holden, 2005). Further, an important aspect in offshoring projects is the need to create the right balance between freedom and control to be given to ODC project manager (Hunsberger, 2011).
We show how these HO-ODC inter-location organisation structures sometimes fail to deliver due to ill-defined management responsibilities, overlap of authorities, insecurities/contentions between ODC and HO managers, inability to strike a balance between management control from HO versus freedom to be given to ODC management, etc. Hence, even when project heads with the right skills are selected, the outputs still suffer. We suggest the right organisation/reporting structures and processes for the purpose.
It is now a known fact that companies are offshoring projects not purely for cost savings purposes but also due to availability of unique skills in ODCs (Bigelow, 2002; Lewin, Massini, & Peeters, 2009).
We also agree that highly capable talent is available in ODCs. However, experience of numerous ODCs has revealed that due to a number of constraints imposed on the ODCs, the potential of capable professionals is not fully realised. We analyse the reasons for the same, like lack of appropriate training, not being offloaded important responsibilities, not being provided appropriate career growth due to insecurities of HO managers, etc. We suggest appropriate remedies.
The need for HO managers to be sensitised to the work culture of ODC has been stressed in Camper Bull (2004); Bakalov (2004); Carmel & Agarwal, (2001), like the need for HO managers to understand differences in holidays, overtime policies, and religious restrictions on work-hours of the ODCs, and plan the project schedules accordingly.
We believe that besides the above considerations, the HO management needs to be sensitised to a complete gamut of other work culture issues within ODCs —;like differences in HO and ODC employee job expectations, growth aspirations, roles/designations, downsizing impact, etc. We present the right approaches to be adopted.
A number of works (Aron, & Singh, 2005; Serrador, 2009; Serrador, 2008; Serrador, 2010; Holden, 2005; Cusick, & Prasad, 2006) insist that since offshore teams do not have the expertise and experience in handling complex projects, company core projects should not be offshored.
However, we stress that a major reason for employee demotivation and attrition in ODCs is the lack of challenging tasks. Hence, we suggest that organisations invest in training offshore teams on company's complex products/technologies and offload them a mix of core and simple projects.
Concerns of HO
The challenges and constraints being faced by ODC managers are not due to any deliberate design of HO management. These challenges are due to some misgivings and concerns of HO management about ODC functioning and capabilities. HO management makes many assumptions about ODC:
1. They believe that due to large salary differences between the HO country and the ODC country, capable professionals within the ODC country would have relocated to make their careers in the HO country (or to other countries with similar economic status). Hence, they assume that professionals joining their ODC are of mediocre capabilities. Hence, HO management assumes that ODC teams cannot manage large and complex projects/activities. Thus, ODC is offloaded only simple and unchallenging tasks.
2. The major customers of the company mostly reside in HO country, which was the core reason for the company HO to be located in that country. The company products need to cater to these customers. Hence, the product strategy, product management, product specifications, and architecture need to be controlled from the HO country, since it is not reasonable to offload these functions to a distant country that has little visibility to key customers. Hence, by default, all strategic and core product development functions remain within HO. The ODC can then be offloaded only execution of some modules with the overall control still remaining within HO. Hence, the control of projects remains with HO managers, significantly limiting the authority of ODC managers. Concerns about success of products prevent HO management from offering any strategic or major roles to ODC managers and teams.
3. A corollary to the ODC not handling any core and strategic activities is that senior managers and architects within ODC do not get trained in handling complex tasks. Hence, they cannot be promoted to top management roles within the overall company hierarchy due to the fears of HO top management that they will not be able to deliver. Hence, ODC senior executives cannot grow to key roles, like their HO counterparts.
4. The projects being offloaded to ODCs are parts of overall products being developed within HO. Hence, HO management views the ODC teams as extensions to their HO teams and wants to have similar norms across both locations for better integration of teams. This fact results in HO management applying all HO norms to ODC, to the displeasure of ODC teams.
Hence, we suggest the ODC managers understand the above misgivings of HO management and then evolve ways to address them, to create a positive impression upon them about ODC capabilities. The approaches described in this paper will allow ODC managers to address these challenges, convince the HO top management to change their perception about ODC teams’ capabilities, and positively collaborate with HO management to be able to get fair treatment from them. We believe the contents of this paper would also be useful to HO managers to allow them to understand the requirements/expectations of ODC managers, provide them sufficient authority and freedom to execute their activities, and effectively partner with them for success of overall company objectives.
We now describe various talent management challenges faced by ODC managers and suggest approaches to meet these challenges.
1. Employee Parity Across Locations
Companies should realise that highly capable professionals are available across all its locations—;HO and ODCs. Companies must treat all the employees on equal terms other than for salary/perks, which will be as per local environment.
Capable ODC professionals should get the full opportunity to rise to top positions of the global company, even to the global CEO position. Location should not be a constraint for capable employees.
Unfortunately, in many companies, only HO employees get opportunities to rise to global top positions by virtue of their being located within HO, since that gives them proximity to decision-makers (top management), exposure to product management/markets/customers, etc.
A company, for its own good, must ensure that its global top management consists of its most capable employees who can make the right strategic decisions for company's success. A company's own interests are harmed if highly capable professionals in ODC do not reach global top management positions, and these positions are instead filled by less capable HO professionals, purely by virtue of their location.
ODC management should convince the company top management of the need to promote ODC managers to global top management positions, by stressing that these professionals can then take up responsibility of running large and critical projects/activities within ODC, leading to much higher cost savings for the company. ODC management must also stress the fact to HO management that if ODC senior managers/technical architects grow to global top positions, it will significantly enhance the morale of all ODC employees, who will strive to reach similar goals. Hence, overall ODC productivity will increase, adding to the company's revenues/profits.
Hence, there is a strong case of promoting senior ODC professionals to global top positions. However, a company must also realise that senior professionals in HO have been working on company products for many years, and hence are more knowledgeable about the company's products, technologies, markets, key customers, etc.
ODC is generally established late in a company's lifecycle, and hence its employees may have much less experience on the same. The company would be taking a big risk if it promotes ODC senior professionals to global top positions without their getting enough of a hold on the company and its products.
However, if ODC has exceptionally bright professionals, they would have talent to pick up new concepts fast. Hence, the company must take up the responsibility of grooming these professionals for top positions through multiple means:
- Mentoring/training these ODC employees on company technologies, products, markets, etc.
- Offloading them more complex tasks to allow them to hone their skills
- Offering these employees slowly increasing higher responsibilities, including closer interactions with product management teams/customers, to prepare them for the challenges of the top positions.
The highest technical grade in a large global product company was the “Fellow” grade. Only the top 8-10 technical personnel in the whole company reached this grade. The Fellows, as a group, were responsible for deciding the overall technical strategies of the company. Hence they were effectively deciding the future of the company.
The decision on promotions to Fellow grade was made by a selection committee consisting of current Fellows and “Engineering VPs” of various product divisions.
The company had been running an ODC for many years, but no one from ODC had ever been promoted to Fellow grade. The ODC had a very capable Technical Architect. Over the years he had demonstrated that he was technically more capable than his counterpart architects in HO, including some of the current Fellows. His name for promotion to Fellow grade had been put forward to the selection committee repeatedly but the committee invariably rejected his case, year after year.
The ODC had multiple teams each dedicated to individual products, with final reporting to the respective “VP Engineering” for that product in HO. The reason for the rejection of the architect was not his merit but a peculiar situation created by this reporting structure.
The architect belonged to an ODC product team where its HO counterpart team had no Fellow among them. The HO counterpart team for the product also had an architect who was being considered for promotion to Fellow grade for many years.
Each year the ODC architect's case was being considered by the selection committee, the case of that HO architect was also being simultaneously considered. The ODC architect case was to be raised by his product “VP Engineering” since the selection committee had no representative from ODC.
However, the product VP wanted his HO architect to grow to Fellow grade first. Hence, in the selection meetings the product VP would invariably end up raising the case of HO architect first, and more strongly, as compared to the case of ODC architect. The selection committee invariably used to vote out the ODC architect since the proposer himself was not raising the case of the candidate strongly.
These repeated rejections made the ODC architect feel dejected and he was even contemplating leaving the company.
One year the HO architect got the requisite votes from the selection committee and was promoted to Fellow grade.
Interestingly, the very next year the ODC architect got promoted to Fellow grade by winning the maximum votes from the selection committee, based on his credentials.
Interestingly, despite the same credentials his case had been rejected for years!
The reason was simple—; it was the first time that the product VP had sincerely taken up the credentials of the ODC architect in the selection committee meeting, since he did not have to take care of case of any HO architect now.
Hence, even though the ODC architect had the best credentials among all Fellow candidates he could not be promoted for years, purely because of the faulty composition of the selection committee. In fact, an obvious consequence of the faulty selection committee could have been that if the HO architect had never got promoted to the Fellow position, the ODC architect would have also never reached the position since his case would have not been ever raised strongly by the product VP! Hence, the company could have totally missed the services of a deserving Fellow.
The selection committee should have had representation from ODC (say, the Director within ODC to whom the ODC architect was directly reporting). He would have taken up the case of ODC architect strongly even earlier.
This action would have created a level playing field between ODC architect and HO architect, and only the more meritorious among them would have been promoted first.
Faster growth of ODC architect to Fellow position would have allowed ODC to make significant contributions to overall company technology strategy. It would have also motivated other ODC architects to work hard towards reaching such goals.
2. Authority & Freedom to ODC Management
The projects being executed in HO and ODC are usually quite interlinked. Hence, the company needs to decide the optimal inter-location management structures that can deliver the best results.
It should be noted that offloading independent projects to ODC with complete delivery responsibility works the best. Such mechanisms avoid the need to have complex inter-location management reporting structures.
However, the above situation is ideal and not always feasible. There would be a number of activities for which inter-location reporting structures are unavoidable.
Since the product management team and customers of the products are mainly within the HO country, overall product development is generally controlled from within HO. Senior management team and architects within HO usually decide overall product specifications/architecture and offload some modules of the project to ODC, while retaining other modules within HO.
Companies create inter-location management structures that make a project manager (or director) managing the project module within ODC report to the overall project head in HO (say, a senior director).
Unfortunately, companies are not deciding appropriate authority/responsibility division among these roles, resulting in authority over ODC teams being almost totally wielded with HO project head, which prevents the ODC project managers from delivering effectively.
Sometimes HO project head feels insecure about losing his power because of a majority of project modules being offloaded to ODC due to the perceived cost benefits. HO project head may then start over-interfering in tasks of ODC manager, resulting in the latter ending up managing his team with virtually no authority. The relations between these roles can get soured, resulting in ODC manager's displeasure, team demotivation, and severe impact on the deliverables.
We suggest that authority and responsibilities of these roles should be as per the strengths of locations.
HO project head has the advantage of being close to product management/major customers in HO country. Hence, he should play the role of being ‘Project Coordinator" for ODC team—;decide specifications; offload modules to ODC; share requisite project requirement information regularly to ODC manager; manage integration of ODC modules with modules of the project being developed within HO, etc.
ODC manager is close to the team in ODC location and knows their strengths and has the expertise in effectively leading them to deliver. Hence, he should be given full control over his team.
ODC manager should convince the HO senior management to provide him requisite authority to make all local decisions for the team by highlighting instances of problems in hiring/retaining/managing talent in the absence of such mechanisms (refer to the next Case Study).
Hence, ODC manager should be given complete authority and freedom over his team to deliver modules offloaded to ODC, without undue interference of HO project head.
A company had a senior director in HO managing a multi-location project. A large part of the project team was based in ODC and a very small part of the team was in HO. Managers in ODC were directly reporting to the HO senior director for their project modules.
As project grew in size, “VP Engineering” realised that the HO senior director was not able to manage a large multi-location team. The company hired a director in ODC for managing the ODC team of the project, and made local mangers report to him.
Since the HO senior director was now handling a very small team, he felt that his authority had been significantly eroded. He started feeling insecure about his job, suspecting that slowly the complete project would be transferred to ODC. He started resorting to undue means to exercise control on ODC team, to demonstrate to the top management that he was still handling a big responsibility.
He directly started instructing the ODC managers/team members, started interviewing new candidates for ODC hiring, and ignored ODC Director on multiple instances, etc.
Such actions severely impacted the ODC delivery capability. For example, the HO senior director insisted that after the ODC director/team has interviewed and decided to hire candidates, the candidates must be then interviewed by HO management team followed by his final approval. Thus, all hiring decisions needed to wait for a long time to be approved by appropriate authorities within the HO.
Excellent candidates generally have multiple job offers in hand. These candidates need to know the decision of the company fast for them to make their career choice.
These candidates’ interviews needed to be scheduled from HO, and multiple interviews needed to be conducted, which consumed significant time. Further, the salary decision for a selected candidate also used to take a long time to be closed, pending multiple approvals from the HO senior director and various other levels within HO.
These candidates would by then ended up joining other companies in the country of ODC, who made their decisions fast due to the requisite authority residing with their local heads. Hence, ODC lost the opportunity to hire excellent candidates.
Due to such issues, coupled with HO senior director's continuous interference in all actions of the ODC director, contention arose between them. The ODC director got frustrated and left the company within a short duration of his having joined. The situation was back to square one, with the HO senior director again having to manage a large multi-location team, significantly impacting deliverables.
The ODC director should have shared the above specified instances of challenges in hiring and retaining talent to VP Engineering. He should have also stressed to the VP that he is more knowledgeable about strengths, expectations, and aspirations of his local team, and hence can lead them effectively to deliver as compared to their being remotely controlled from HO.
The VP should have then given freedom to ODC Director over ODC project/team decisions to prevent undue interference from the HO senior director.
The VP should have also decided on a well-defined role for HO senior director that would not have made him feel insecure. The HO senior director could have been given some major responsibilities in HO, say project management responsibility of an additional team, along with the responsibility of handling inter-location dependencies of the project as the “Project Coordinator.” The HO senior director would then have not felt insecure with the success and growth of the ODC team, but would have instead helped the ODC director in this respect.
3. No Blind Imposition of HO Norms
HO management sometimes lacks sufficient knowledge about work culture, management practices, processes, career growth aspirations, career ladder/designations, and ways of running an ODC in the chosen country. Hence HO management blindly starts imposing norms being followed within HO on the ODC.
Unfortunately, these norms fail to deliver since these are based on wrong premises.
By the time the companies realise that such mistakes have been made, it is already too late to make amends:
- Significant damage has already been done to company's credibility in ODC country
- ODC is unable to attract capable personnel
- Employee motivation suffers and deliverables are impacted.
Companies should instead give freedom for making such decisions to ODC managers since they know the sensitivities, strengths, requirements, and growth aspirations of employees within their country.
An example of HO norms being different from ODC norms is that employee designations prevalent in two countries can be very different. If HO designations are blindly imposed on the ODC, these designations may not appear attractive to ODC managers/employees as compared to fancy designations their counterparts get in local independent companies within the ODC country. ODC managers and employees would feel that their status and respect in their society is being lowered. In fact, in some ODC countries fancy designations sometimes even decide someone's acceptability with the parents of a to-be-spouse for marriage purposes!
Hence, companies should decide employees’ local designations as per ODC country norms.
Another example of a sensitive issue specific only to ODC employees could be that retrenchment of employees may not be an acceptable norm in their country. In the HO country this phenomenon could be quite common and, hence, may not be a sensitive issue. In the ODC country there could be social stigma attached to someone being fired from his job. Hence, ODC employees could be very sensitive to this issue.
HO management should always demonstrate concern for such local sensitivities. Even simple innocuous statements should be reworded as per local sensitivities. For example, a standard HO presentation on employee lifecycle titled “Hire to Fire” may have to be changed to “Hire to Exit” before being presented to ODC employees.
However, if there are situations where downsizing in ODC is totally unavoidable then it should be conducted in a very sensitive manner. It must be ensured that employees are not emotionally impacted on being retrenched and their future career prospects in their country are also not adversely impacted.
ODC managers should address such challenges of blind imposition of HO norms by forming a local committee that makes all decisions regarding ODC policies, work culture, designations, and other norms as per the sensitivities and expectations of professionals within the ODC country. ODC managers should act as a buffer between HO management and local ODC teams, and any decision being made by HO management for ODC teams must be vetted by them and refined as per ODC norms.
HO norms would then be applied only for project management aspects, like having similar documentation standards and software development processes for project execution across both locations.
4. Look beyond offloading only Peripheral Projects
A number of global companies are of the opinion that ODCs cannot handle large complex projects. Hence, their tendency is to offload only simple projects to ODCs—;like simple features additions to products, maintenance of legacy products, etc.
Capable professionals refuse to join such an ODC since they look for more complex, exciting, and challenging tasks.
Further, it becomes even tougher to attract senior managers and directors, since they are managing large and more complex projects in their current jobs. Hence, ODC can recruit only mediocre performers with low experience levels.
Any company must realise that if the ODC is expected to make any significant contributions then it must have capable managers and engineers.
Companies must realise that their perception of ODCs not being able to handle complex projects is not correct. ODC countries have quite good talent, who are on par with their counterparts in HO. These professionals only need familiarity, mentoring, and training on company products and technologies and can then successfully handle core complex projects.
ODC managers should convince HO “VP Engineering” to offload complex projects by highlighting the expertise of their capable professionals. ODC managers should also work closely with VP and HO product management to get advance information about new products/features being planned. Managers should then train and groom their ODC teams in these projects’ domains and technologies.
Hence, when the company decides to distribute these project activities among HO and ODC, the ODC manager can bid for the same by highlighting the expertise developed by his team in the project domain/technologies. Hence, HO would then be convinced to offload such complex projects also to ODC. Thus, ODC would always have a mix of complex core product development and testing projects, along with some simple projects.
The ODC can then also attract capable/senior technical professionals and managers/directors by highlighting the challenges the company can offer them.
5. There is more to ODCs than plain Cost Reduction
An obvious and important reason for running an ODC is to lower the company costs. However, cost reduction alone should not be the only consideration for running an ODC. There are many other important factors for running an ODC:
- Hiring high quality talent who want to work in their own country rather than relocating to HO country
- Strong management practices and software development processes being followed in the ODC country, leading to high quality of company deliverables
- Proximity to company customers in the region near the ODC country, allowing the customer requirements being satisfied better.
However, some companies make all their decisions driven only by the cost reduction factor. Over insistence on cost reduction leads to multiple problems in ODC:
- Inability to hire good talent due to low salaries
- Attrition of capable employees who leave for other companies who pay them their worth
- Weakening of ODC delivery capability.
A weak ODC imposes restrictions on the type and size of projects that HO can offload to ODC, since there are fears that these may not be successful. Hence, large and complex projects still end up being executed within HO, leading to HO team remaining very large and ODC team always being small.
The irony is that the steps being taken by the company to lower its costs end up forcing the company to increase its costs significantly by hiring more people in HO instead of ODC.
Instead, companies should never try to reduce costs at the expense of compromising the delivery capabilities of ODC. Decisions on hiring and retaining talent should be made by the ODC management, who are well conversant with prevalent compensation norms and expectations of professionals in their country.
Further, to fully utilise the strengths of ODCs beyond plain cost reduction, ODCs must be offloaded major strategic responsibilities beyond plain technical implementation tasks. The key reason for the product management and key product development functions residing within HO is the proximity to major customers within HO country. However, a number of customers of these products could be in the ODC country and neighbouring countries. HO teams are distant from these customers while the ODC has the advantage of being close to them and understand their requirements better. Hence, we suggest that the company can develop new products as per requirements of these customers by offloading complete product strategy and implementation functions to ODC. The ODC should then recruit a product management team to understand these customers’ requirements and strategise new products. The complete product specifications, architecture, and execution would then be performed within ODC. Hence, ODC can then play a key strategic role in the organisation instead of purely being a low cost implementation centre under HO control.
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© 2014, Vimal Kumar Khanna
Originally published as a part of the 2014 PMI Global Congress Proceedings – Dubai, UAE
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