Multinational/multicultural teams in offshore IT projects

Abstract

The rising trend of outsourcing IT projects to countries with more economical workforce and considerable time differential, has given rise to a host of problems relating teamwork. Co-location, which was once considered an effective teamwork tool is now getting lost in the crowd of telecommuters and offshore distributed teams. The reliance on electronic media has even replaced the need for face-to-face communication and even help desks are now located offshore. This paper focuses on the multinational and multicultural issues faced by outsourcing companies and their offshore partners, especially in IT projects. How to bridge the wide communication gap and make offshore IT Project a sure success is the theme of this paper. Case studies from India, Pakistan and other potential offshore partners are discussed to extract best practices. Asia is considered to be the offshore heaven for IT projects being outsourced from USA, Canada and even UK. Where cheaper workforce is one major consideration, the time zone difference of 8-10 hours contributes positively towards outsourcing medical/legal transcription and call center businesses. English being the second spoken language in Asia, the accent of people from Asia is very adaptable to the native accents of USA, Canada and UK. The problems rise when the cultural and national abnormalities and habits cause differences and such projects face disaster. Only if both the nations can understand each other better psychologically and culturally, this gap can easily be bridged, thus assuring success to such IT Projects.

Introduction

The outsourcing of IT projects was at peak around year 2000 after which the trend started to decline a bit, due to the fact, that many developed countries started giving more value to onshore operations or insourcing. Still a major portion of IT projects are being outsourced to Asian countries like India and Pakistan due to the obvious advantage of economical workforce and considerable time differential. Considering the fact that in several parts of Asia the per capita income is still less than US$10 per day, the IT resources are at least 10 times cheaper than in the developed countries. The countries (e.g., India) which have demonstrated remarkable cost reduction, quality, delivery and reliability improvement (Mette, et al., 2005), are obviously the outsourcing leaders and have since raised their rates. Conversely, the countries (e.g., Pakistan, Bangladesh etc.) which have yet to be tested in the field of offshore IT projects are still offering the services at a much cheaper rate (Iqbal, et al., 2005a). Where outsourcing offers definite advantages, it has also given rise to certain problems, which were never experienced before. Co-location, which was once considered an effective teamwork tool is now getting lost in the crowd of telecommuters and offshore distributed teams. The reliance on electronic media has even replaced the need for face-to-face communication and even help desks are now located offshore. The multinational and multicultural issues like language barrier, communication, security, conflict and information redundancy, have caused the hesitance to continue, on the part of outsourcing companies and their offshore partners. A number of studies have so far been carried out and a lot of research is underway to facilitate outsourcing or to find an alternative. For the purpose of this paper a primary survey was carried out based on software houses in Pakistan and various propositions were tested to authenticate proposed model for virtual project management (Iqbal, et al., 2005a). The findings will highlight the best practices which can facilitate outsourcing IT projects to less developed countries like Pakistan.

Outsourcing

Outsourcing can be defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources” (Griffiths, 1999). Sometimes known also as “facilities management”, outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who become valued business partners. According to the research by Mette et al., (2005), Zhu (2003) defines outsourcing as “the process of transferring the responsibility for a specific business function from an employee group to a non-employee group”. Similarly, Elram (2003) states “outsourcing is defined as the transfer of the production of goods or services that had been performed internally to an external party”, and Munsch (2004): “Many companies have outsourced various activities once performed within their organizations”. Other authors define outsourcing in line with the make/buy decision (Nellore, 2001) or as a sourcing decision like Shya and Stenbacka (2002): “Thus, the choice to buy chips from Intel can be viewed as the choice to outsource the production of a (key) component”.

Variety of Sourcing Concepts

The growing interest in the purchasing and supply chain management literature has generated a variety of organizational concepts describing firms’ acquisition of materials. The terms buying, purchasing, procurement and sourcing are usually used interchangeably, but in the academic literature these terms are often used in number different contexts (Leenders and Fearon, 1993). Buying refers generally to the actual buying of materials and the associated decision process within a firm. Purchasing is described more broadly in the literature to also include some activities related to the buying process, and procurement is normally used to describe the purchasing process in public organizations like hospitals, universities, etc. We use the term sourcing in the broadest sense to include all of the above concepts, but also outsourcing, insourcing etc. Domestic sourcing thus can be defined as when the firm and the suppliers are located in the same country, whereas international sourcing involves the acquisition of material from foreign sources i.e. the suppliers is located in other countries than the acquiring firm itself (Mette, et al., 2005). Thus domestic sourcing is an onshore operation where international sourcing is an offshore operation.

  • Sourcing: the overarching process of purchasing, procurement, outsourcing, insourcing etc.
  • Purchasing: the process of buying components in the market; these have not previously been produced within the legal boundaries of the buying firm
  • Outsourcing: has occurred when an activity that a firm previously preformed internally has been transferred to an external party
  • In-sourcing: activity that a firm previously outsourced to an external party, but has now been transferred back into the firm

Virtual Project Management

Virtual project management is the system by which virtual teams collaborate for a finite period of time towards a specific goal to be achieved within time, within budget and according to specifications (Iqbal et al., 2005a). Virtual teams are defined here as groups of geographically and organizationally dispersed knowledge workers brought together across time and space through information and communication technologies in response to specific customer needs or to complete unique projects (DeSanctis, 1997). Technology helps create the “virtual workspace” that the team uses to communicate and collaborate. Cantu (1997) proposes that an appropriate approach is to view virtual projects and teams as simply projects and teams with a virtual overlay.

Virtual Project Management (VPM) is supplanting the traditional concept of project management because of persistent pressures to reduce costs and headcount, the need to quickly address customer problems, develop products, deliver services, and tap a more diverse pool of employees across the organization (Duarte, 2001). Several studies suggest that Global Virtual Teams (GVTs) face significant challenges in four major areas: communication, culture, technology, and project management (Kayworth, 2000). Current research suggests that virtual team failure is directly related to the difficulties of building trust, positive relationships across the three boundaries of geographical distance, time zones, and cultural differences (Kimble, 2000). Dube and Pare (2001) outline several of the problems and challenges faced by GVTs.

Advantages of Offshore IT projects

Reasons for Outsourcing

Griffith (1999) outlines a number of reasons for outsourcing which obviously lead to the advantages of offshore IT projects. Here are some common reasons:

  • Reduce and control operating costs
  • Improve host company focus
  • Gain access to world-class capabilities
  • Free internal resources for other purposes
  • A function is time-consuming to manage or is out of control
  • Insufficient resources are available internally
  • Share risks with a partner company

Types of International Outsourcing

It will further facilitate for us to come up with advantages, if we take the reference from Mette, et al., (2005) of the Types of International Outsourcing and how does degree of control and involvement can be exercised in various types. Most of the projects being sublet to Asia are of the type “Offshore subcontracting” in which degree of control is high and degree of involvement, low.

    HIGH Offshore subcotracting Controlled offshore  
  Degree of control     manufacturing  
      Offshore purchasing Joint venture offshore  
    LOW   manufacturing  
    LOW HIGH  
    Degree of in volvement  

Table 1 – Types of International Outsourcing (Mette, et al., 2005)

Types of Outsourcing Costs

Three types of costs are relevant in making the decision between internal production and outsourcing: production costs, bargaining costs, and opportunism costs, with the latter two being governance costs. (Mette, et al., 2005)

  • Production costs are either the costs of internal production or the price of direct purchase.
  • Bargaining costs include the following kinds of costs;
    • costs arising from negotiating contract details per se;
    • costs of negotiating changes to the contract in the post-contract stage, when unforeseen circumstances arise;
    • costs of monitoring whether performance is being adhered to by the other party, and
    • costs of disputes, which arise if neither party wishes to utilize pre-agreed-to resolution mechanisms, especially ‘contract breaking’ mechanisms.
  • Opportunism costs are governance costs arising due to the opportunity.

Only the first type of bargaining cost is experienced at the time of contracting, all remaining types are experienced subsequent to the outsourcing decision. Virtually all of these bargaining costs can be anticipated and dealt with at the time of contracting, however, cost alone cannot explain the outsourcing decision.

Benefits of Outsourcing

Now a days virtual team projects are becoming more common in the software industry. The power of distributed development can increase an organization's opportunities to win new work by opening up a broader skill and product knowledge base, coupled with a deeper pool of potential employees (McMahon, 2001). Many organizations in Pakistan are creating virtual project teams, using a mix of offshore, outsourced and key internal resources in an attempt to provide a cost effective approach for meeting business needs. Pakistan is a low wage country thus it is a source of attraction for low cost software development industry (Iqbal, et al., 2005a). The obvious benefits of outsourcing as already mentioned in introduction are cost reduction, quality, delivery and reliability improvement. These benefits can be listed as follows:-

  • A technical and functional edge on the competition, without capital investment.
  • Faster development and start up
  • Lower cost or Cost Reduction
  • Enhanced performance
  • A better-managed e-business infrastructure
  • Quality Improvement
  • Delivery Improvement
  • Reliability Improvement
  • Security (can also be construed as a disadvantage or a limitation when using internet).
  • Maximizes uptime
  • A more effective operating environment at the backend.

Teamwork Issues caused by multinational/multicultural environment

Project Infrastructure

A project infrastructure can be best defined as the software, hardware, network, data, and content comprising the working environment of the project team. An integrated project infrastructure can significantly reduce the risks commonly associated with the virtual project team approach. This integrated project infrastructure is the reason for success of Data Warehouses surveyed in Pakistan.

Communication

The success of any project relies on crisp, moment-to-moment communication of task assignments, responsibilities, milestones, issues and problems. The timeliness of corrective actions relies on the speed of communication among team members. Dispersed teams have less opportunity for face-to-face communication and hence lose non-verbal aspects of communications that make up 65% to 93 % of a message's meaning (Harris, 1993). Differences in culture and language may further impede communication. When co-workers are not located in the same location, camaraderie and socializing -- important informal aspects of teamwork coordination-- are significantly reduced, and cohesiveness and team unity, and the means of socializing with new members of the global team, are harder to cultivate (Alexander, 2000, Benett, 2001). Teams operating in the virtual environment face greater obstacles to orderly and efficiently information exchange because they rely heavily on information technology to communicate.

Language Barriers

One of the main problems in virtual teams is the difference in languages that are spoken. When the team members speak different languages they have trouble communicating. English being the second largely spoken language in Asia and in most of the countries like Pakistan and India, official language, serves a major advantage to offshore IT projects. The only problems that remains is accent which can otherwise me mastered for call centers or online help desks.

Face-to-Face communication

Physical separation, whether in different buildings in the same city or in different countries leads to a lack of collaboration. Research has shown that people will not collaborate very often if they are more than 50 feet apart. The natural tendency of distant participants not to collaborate with each other can cause disengagement from the project and its objectives (Allen, 1997). The lack of face-to-face interaction in virtual teams may create obstacles to effective coordination and communication more salient and thus further impair team effectiveness (Jarvenpaa, et al., 2004). Some researchers explicitly advocate periodic face-to-face meetings for teams involved in intensive communication tasks (e.g. project planning) to build and maintain interpersonal relationships (DeMeyer, 1991, Gelegher, et al., 1997).

Information Redundancy

Information Redundancy implies the replication of information that occurs due to the usage of multiple channels of communication, excess documentation, lack of effective communication and as a result of effective security measures e.g., organizations would like to replicate important information on various servers as a backup.

Time

Time can be an advantage or a disadvantage depending upon the type of work and where the customer is located. Time becomes a problem when people who are not in the same place need some of their activities to be synchronized. Gorton and Motwani (1996) argue that if virtual teams are used in the requirements definition stage, the teams can exploit overnight gain effect due to the time difference between the locations.

Proper Security

Use of internet as the backbone to collaborate on a project presents new risks to the team which is used to working in the confines of the corporate intranet. It's the project manager's responsibility to ensure that the project environment, documents and data are not accessible to the competitors, or to hackers on the internet.

Motivation

Motivation is a critical element for a high performing project team, regardless of whether the team is collocated or is operating in a virtual environment. On a virtual project team, team members need to overcome the sense of isolation. It is easy for a virtual team member to have an “out-of-sight”, “out-of mind” reaction.

Cultural Differences

Members of different organizational cultures may often have different norms, values and policies, that may lead to misunderstandings, hidden agendas, uncertainty and conflict (Evaristo, 2001). In the case of multinational projects, national cultural differences also come into play, e.g. related to management behavior (Dube, et al., 2001). In heterogeneous cultural situations the misunderstandings and potential lack of trust are likely to be higher, thus hampering further satisfactory project management (Evaristo, 2000).

Conflict Resolution

Conflict is common in projects. Without the ability to interact face to face and learn from one another, conflict is more likely to occur in such virtual environment. Cultural differences between software team members may cause conflicts and affect performance. When a culturally diverse team initially takes shape, its members will need time to be able to adjust to the cultural differences among them. However, as team members learn to interact with each other, despite their different backgrounds, performance differences should disappear (Watson, et al., 1993).

Trust

Trust on a virtual environment is critical for the success of a project (Javenpaa, et al., 1998). Studies on the sustainability of virtual collaboration suggest that trust is critical to ensuring the optimal use of Information and Communication Technologies (ICT) to support the exchange among business partners (Bandow, 1998). It is also evident from the previous studies on ICT, trust and collaboration that understanding of social systems in which individuals, groups or organizations operate is a powerful mechanism for the development and sustainability of trust in an on-line or virtual environment (Hossain, et al., 2002). One of the best ways to create this trust is a face-to-face encounter, although other alternatives also exist.

Project Team Knowledge And Cross-Team Collaboration

The most valuable asset of any IT organization is the collective knowledge of its staff. One of the greatest risks of using a virtual project team is loss of this collective knowledge. Since most virtual teams use contractors and/or offshore outsourcing, a knowledge-based approach must be implemented as a way of effectively capturing their applications and technical knowledge. A project infrastructure providing knowledge-base capability will allow team members to collaborate on and share source code, articles, lessons learned, tips & tricks, procedures, sample deliverables and other project artifacts. If coupled with a powerful search and retrieval engine, this capability will provide great payback on future projects.

Best Practices

Factor Reinforcing Model for VPM (Iqbal, et al., 2005)

Figure 1 & 2 – Factor Reinforcing Model for VPM (Iqbal, et al., 2005)

After having analyzed the survey data from a number of software houses in Pakistan, the seven propositions outlined to authenticate factor reinforcing model for virtual project management was confirmed. Each proposition did come up with a number of observations but this paper is focused on the net result and therefore only the extracted best practices are listed below:-

 

  • Members in a distributed project management environments often have expertise in a specific area, so there is a great need for knowledge sharing via effective communication and knowledge management techniques.
  • Initial face-to-face communication is an essential prerequisite in establishing higher levels of trust and motivation among mangers working from geographically dispersed locations.
  • Managers or team leaders must play as a communication bridge between the two developers of virtual teams in order to minimize conflict.
  • A single communication point is a must to avoid redundancy and conflict.
  • For effective communication, the appropriate use of telephones, video-conferencing and face-to-face meetings should be considered essential.
  • Clear ownership, roles and responsibilities are essential. Leaders should play an effective role to implement these processes.

Conclusion

This paper provides a deeper understanding of the significant teamwork issues of global virtual teams in offshore IT projects. The model proposed through our research findings was validated and it concludes that various elements of virtual project management reinforce one another to produce effective or non-effective virtual project management. The study yields interesting best practices that can help organizations to manage their global virtual team projects more effectively in the context of developing countries. Different forms of virtual projects have become more widespread, as a result of the increasing focus on globalization and organizational flexibility. Therefore, a framework for working virtually in offshore IT projects is essential. Many of the processes, which exist informally in a physical environment, need to be formalized in a virtual one, as the potential for tasks to get done by chance is significantly reduced. It is expected that this paper will invoke interest in outsourcing to less developed countries in Asia like Pakistan, India and Bangladesh.

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2005, Suhail Iqbal, PE, PMP
Originally published as a part of 2005 PMI Global Congress Proceedings – Panama City, Panama

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