Offshoring for the project manager: globalization is here. Are you ready to take advantage of it?

Abstract

Offshoring to India, China, and other countries is a trend that has steadily gained momentum over the past 15 years. Though offshoring is sometimes seen as a threat to employment, it may also be an opportunity. This paper will outline a practical approach to managing offshored projects. The first section examines some of the most recent trends in the offshoring industry, focusing on IT project offshoring. The second section outlines pitfalls in managing offshored engagements. The final section outlines methods a project manager can use to maximize opportunities for successfully managing an offshored project.

Introduction

IT offshoring is major business around the world. India is the largest player in this market, followed by China. This is already big business and few of us are unaware of a company that is not trying offshoring. With a trend this large, we as project managers should be ready to participate in it. After all, you could find yourself with the opportunity to run an offshored project.

This paper will first outline the offshoring industry. Next, some of the challenges and pitfalls of running offshored projects with be discussed. Finally, techniques will be discussed that can be used to successfully manage offshored projects.

Background on Offshoring

The Offshoring Industry

  • Example IT industry:

• Indian IT exports expected to be close to $20 billion this year

• Chinese IT exports are estimated to be close to $2 billion

• The total global IT offshoring market (including between developed economies) is estimated to be $50 billion

  • Offshoring is also occurring in other industries:

• Business process outsourcing (BPO)

• Call centers, accounting, insurance

Of course, though IT was one of the first industries to try offshoring, it is now being applied to a wide range of non-IT industries. This list is growing every day.

India

India is one of the major players in international offshoring. Here are some relevant facts:

  • Population: 1.29 billion people
  • More than 200,000 technical graduates are produced by Indian universities each year
  • That is similar to the number of tech graduates produced in the entire U.S.
  • Many Indian universities teach all courses in English
  • Starting salary = under $10,000 per year

China

China is also a major player in offshoring. Here is a similar list of facts about China:

  • Population: 1.32 billion people
  • More than 600,000 technical graduates are produced by Chinese universities each year
  • Three times the number of tech graduates as produced in the entire U.S.
  • Graduates usually have taken English courses
  • Starting salary = under $6,000 per year

According to the numbers, China produces many more technical graduates than India. However, these figures may include two-year and technical degrees such as mechanics and technicians. The number of technical graduates in China is of course still large.

Other Countries

The following regions also have an active offshoring industry:

  • Eastern Europe (Romania, Russia)
  • Southeast Asia (Philippines)
  • South America (Brazil)

There are numerous other countries that have or want to have an offshoring industry. Romanian programmers are available for less than what Indian programmers are currently earning.

At one time, Russia appeared to be ready to dominate this market with its large pool of highly trained technical people. This may have been slowed by the relative strength of the Russian economy and the value of the ruble. Other countries such as Brazil have large populations with their share of technically savvy people available for work.

A key challenge is that though many countries offer outsourcing services, not all of the companies offering those services are experienced in the industry. The big players have likely done engagements similar to a customer’s needs before, but it may be new territory for smaller companies.

With the best and the brightest of these educational systems available, do outsourcing projects always go smoothly? Often, they do not.

This sounds like a way for companies to get large teams for a fraction of what it would cost “onshore.” However, managing large projects with team members on the other side of the world is not easy and there are many things that can go wrong. There are numerous examples of companies that have tried offshoring only to abandon it when faced with the difficulties.

Potential Problems in Offshored Projects

Of course, running a project with much of the team halfway around the world and who may not speak the same language can have potential problems. Below are some typical problems a project manager on the ground may run into:

  • Language
  • Time zones
  • Communication
  • Team experience
  • Culture
  • Infrastructure

Time Zones

Here are some of the typical time-related issues:

  • Little is gained from a 24-hour work cycle
  • Can they work during your business hours?

• They will most likely work their regular hours.

• Teams need to be ready for early and late meetings!

Most offshored projects are completed with the offshore team in a time zone that is close to 12 hours different from the timezones in the West. Therefore, the team’s working hours will probably not overlap. For example, if an offshored team is in Bangalore, India and the home office is located in New York, the time zones will be about 10.5 hours apart. Therefore, a 9 a.m. meeting in New York time would be at 7:30 p.m. Bangalore time. When one project I worked on came to a critical point, management meetings had to be scheduled at 8 a.m. and 10 p.m. Eastern time each day in order to ensure that issues were communicated promptly.

It is sometimes stated that offshoring will allow the offshore team to work while you sleep, therefore resulting in the team working more efficiently. This 24-hour team concept is sometimes used as part of the sales process. In fact, the time difference often results in the the offshore team waiting for answers while the local team sleeps.

Staff offshore may also be resistant to working late hours, even more so than in North America. You need to remember that the infrastructure offshore is not like that in Western countries. There may not be transit available late at night or restaurants open late. Though their management can mandate it, in the hot offshore job market, you may be faced with team members leaving for other jobs if they don’t like working off hours.

What usually happens is that the offshore team works their regular hours while the local team works its regular hours. This will inevitably result in important questions coming up while those who can answer them are asleep. Some delays are inevitably caused by this. Of course, this will often have the most impact in key project phases.

Language

  • What will be the common language for most offshored project?

• Broken English

  • Their English is usually less fluent than the local team’s.
  • The team needs to make sure communications are understood.

Regardless of the number of language courses the offshore team has taken, there will be some misunderstanding and language difficulties. English will not be their native language. They may not be familiar with all the technical and business terms you are used to. In addition, though English is spoken in India in particular, they will use terms that are not familiar to Western ears.

Don’t assume they fully understood your question or request. It is easy for information to be lost over phone lines and with time zone differences; communications will have a limited time window. Language will even impact e-mail communication. As English is not their first language, it will take longer for them to write long e-mail messages and therefore they may tend to send short e-mail messages when what is really needed is lots of detailed information to understand issues. They may also not fully understand everything in the e-mail messages sent to them. It never hurts to confirm their understanding.

Communication

Some suggestions to improve intra-team communication:

  • Get good phones
  • Use instant messaging
  • Recap what was discussed
  • Issue meeting minutes

It is import to get good conference phones with multiple microphones. Communication will be difficult enough as it is.

Teams should make good use of instant messaging. It can allow back and forth communication between team members without the delays of e-mail. It’s also an easy way to find out if the offshore team members are still in the office before calls are made. Some people like to use it to send asides to others during phone conferences.

Recapping what was agreed to in meetings and issuing meeting minutes is good general project management practice. It is critical to offshored projects. Sometimes, they didn’t hear correctly or didn’t understand the request. Culturally, they may be hesitant to disagree with the customer, client, or project manager publicly in a meeting. Ensure they agree with requests and then create and distribute minutes of the discussions.

Team Experience

Here are some of the typical challenges with team experience:

  • Lower level of general experience
  • Younger, less experienced management
  • High turnover! Key skill sets are in high demand.
  • Shortage of senior staff in many areas

In general, offshored teams have a lower level of experience than internal teams. Offshoring vendors have a much shorter track record than North American or European companies. The first of these companies emerged in the 1990s. Most large organizations in North America or Europe have a much longer track record and a greater level of experience.

This should color expectations when engaging and planning for offshored engagements. Some organizations expect offshoring companies to be able to succeed in technical areas where local staff have failed or assign them the most challenging projects. Often this has not worked out as well as intended.

Expect less experienced management offshore. Most older managers are not used to Western management style and techniques. Younger managers may have modern management training but have less experience than their onshore equivalents. This is likely to impact your project.

Some offshore vendors are accredited up to CMM 5 or adhere to other quality methodologies. However, this may not compensate for a less experienced team.

Offshoring is booming, there is high demand for experienced staff, and wages are rising. Taken together, these conditions are a recipe for high turnover. It is necessary to ensure that the offshore team, especially the senior positions, have backups in place. It’s not unusual to loose several senior team members during the course of a single project.

Culture

Managers need to be aware of cultural issues. Here are some of the key areas:

  • Differences in cultures
  • Deferring to authority versus questioning decisions
  • Saving face may be important.
  • Level of customer focus

Cultural issues may also have an impact on a project. An example is that the team may be hesitant to highlight problems on the project and may not want to bring forward bad news.

They may also defer to authority, whether it is a customer project manager or their own project managers, when perhaps they should be questioning assumptions.

The offshore team may be hesitant to say “No.” Instead they may say “Perhaps,” “Maybe,” or not say anything when the answer is really “No.”

There may also be a strong respect for authority. However, that may not extend through the organization. The project director or vice president may get their requests addressed immediately, while the project manager may get frustrated by the lack of response to requests. I worked on a project where the offshore project manager responded to an offhanded request for a presentation from a client vice president and spent more than a week putting it together. Meanwhile, the project action items languished untouched and a team of 20 was lacking direction.

Infrastructure

Infrastructure can also be a risk area and can cause delays, particularly at the start of the project. Here are some of the areas that can cause issues:

  • Infrastructure vendors overseas may take time to deliver.
  • Latency issues
  • Overnight access
  • 24-hour system support
  • Infrastructure should be running before the project is to start.

Project teams cannot underestimate the difficulty in getting the infrastructure set up between the main office and offshore. The team will have to set up a remote office and the access to all of the main office systems from the offshore office. The technology for this has come a long way in the last few years, but it is still not necessarily easy, and teams should expect some problems.

For example, latency can cause unexpected problems. The few seconds a signal takes to get to India or China can cause certain systems to fail or not function as they would at the home office. This can apply to internal systems or even to some off-the-shelf applications the team may be using. Until systems are up and running, the project manager cannot be certain that everything will work seamlessly.

There are very likely to be problems and delays.

Making an Offshored Project Successful

There are some steps that can be taken to help ensure an offshored project is successful.

Define Project and Goals

The following questions should be asked right at the beginning of planning for an offshored project:

  • In-depth business knowledge required?
  • Experience with your existing systems or technology required?
  • Complex requirements?
  • These might not be good candidates!

What a company chooses to offshore is as important or more important than how the team manages the outsourcing engagement. For a successful offshored project, it may be best to select a project that is:

  • Self contained
  • Not overly complex
  • Not requiring too much communication with the onshore organization

Often the project manager will not have the final say in what project is offshored, but the suitability of the project should be an input into the risk analysis.

The Onshore team

Offshored projects require local support to be successful. Some or all of the following people will be required onshore to support the project:

  • Program manager
  • Project managers
  • Solution architects
  • Business specialists
  • Leads
  • Subject matter experts (SMEs)

With all of those senior roles required, offshoring does not necessarily mean a large loss of jobs. Sometimes, the more desirable senior jobs stay onshore while the more junior roles go offshore.

Exchanges

Exchanges are also important tools to improve the likelihood of project success:

  • An offshore representative on-site is critical.
  • Send local team members overseas during critical periods.

With all the potential problems of communications, having team exchanges is critical. This can facilitate communication and issue resolution. Nothing can substitute for face-to-face communication.

Members of the offshore team will often want to spend time in the West, and sometimes it is considered a perk of their positions. During critical periods, such as the project initiation, start of testing and other key milestones, having an experience person working offshore can resolve issues immediately and speed progress substantially. Let’s take an example:

The offshore team is setting up a complex system and there are 10 critical points where they run into problems and need questions answered. Worst case, these could take 10 full days to work through if you consider a one-day wait for response from onshore. If the right person was on-site, perhaps you could get through all the problems in one or two days.

Planning

Planning for an offshored project involves taking into account issues that may not impact an onshore project:

  • Assume lower level of experience
  • Somewhat lower productivity
  • Learning curve
  • Schedule very frequent deliverables
  • Schedule demos of their progress
  • Involve your experienced internal staff
  • Use peer reviews

A mistake that some organizations make is to assume the offshore team will be as productive or more productive than the onshore team. The offshore vendor may be CMM level 5 after all. In fact, though there will be some very proficient team members offshore, there will also be some quite junior team members. Assuming a steep learning curve and lower productivity than onshore staff is safest.

Because of the distance issues, communications issues, and newness of the offshore team to the client environment, the project manager needs to see what progress the offshore team is making to ensure that the final deliverable is what is being paid for. Companies don’t want to come to the end of the project and find out that what was built is completely unsuited to the requirements. To avoid this, the project manager should build demos, iterations, or phases into the project plan from the outset.

The team should ensure that internal staff is involved. Their knowledge and experience will be invaluable to making the project a success.

There are many good reasons to use peer reviews in projects. For an offshored project, these become even more important. Unless onshore team reviews deliverables in detail, they will never be certain the deliverables meet an organization’s quality needs.

Governance

Governance processes need to keep the following issues in mind:

  • Some companies offshore are CMM 5
  • Processes may not translate
  • Use your own successful processes
  • Have escalation paths in place

The project manager will need to ensure there are good project governance processes in place.

Many companies offshore are certified up to CMM 5. However their processes may not translate into documents that fit into the client’s internal company standards.

So, whose processes will be used, the client’s or the vendor’s? It is recommended that the client try to use their own successful processes and use the vendor’s processes where there is a gap.

It is important that a project have escalation paths in place. If things are not going well with the vendor, the project manager needs to know who to escalate to.

The onshore client will probably want documentation at the end of the day that can be transitioned to the company to become part of the base of documentation. The project manager should therefore plan the type of documentation that needs to come out of the project and ensure that the quality of these documents meets the internal standards.

Tracking

Tracking an offshore project is important to ensure that it is progressing as planned. Here are some key points:

  • Difficult to monitor progress due to distances
  • Schedule early deliverables
  • Schedule demos
  • Iterative approaches

Distance means it is more difficult to truly monitor progress offshore. For offshored projects, the project manager can’t walk around to see how things are going. The project manager needs to put in place formal tracking and monitoring.

The team should use deliverables scheduled early. They should schedule concrete deliverables throughout the project. Demos can also be invaluable to confirm progress and see exactly what work is being done offshore.

Project managers should consider using iterative or phased approaches. These break the project up into small pieces so that the team can see the results earlier and make any necessary adjustments for future phases. The biggest risk is that at the end of the day, the deliverable from the project has serious flaws. The project manager will want to know about these problems while there is still an opportunity to fix them.

Good Points

There are good points to offshore projects, including:

  • Work ethic
  • Motivation
  • Fill roles you can’t
  • Cost

Offshored jobs are often some of the best available in the host countries and pay the best wages. The offshore team will therefore usually be highly motivated. They may work long hours and weekends to meet deadlines.

I had an offshore project manager who would send me e-mail messages at 2 a.m. his time on a regular basis. One of the key reasons that companies use offshoring is that it is easier to fill roles and build a large team quickly through an offshoring vendor.

Can It Work?

  • The offshore industry didn’t grow to where it is without successes.
  • Failures do happen.
  • If your project succeeds under your leadership where others fail, then it will be a success for the project manager.

Of course, the offshore industry didn’t grow to where it is without successes. Offshore projects may involve budgets of many millions of dollars. If a large project fails, no one involved will look good.

However, an offshore project that is successfully managed, with all the challenges involved, is a feather in the cap of any project manager.

References

Agrawal, V., Farrell, D., & Remes, J. K. (2003). Offshoring and beyond. The McKinsey Quarterly, (Special Issue No. 4, 70-79).

Aspray W., Mayadas, F., & Vardi, M. Y. (2006). Globalization and offshoring of software. Available at http://www.acm.org/globalizationreport/

Balasubramaniyan, M., & Guyer, L. (2004). Face off: Do offshoring’s benefits outweigh its drawbacks? Network World, (July 5), 42.

Bardhan, A. D., & Kroll, C. (2003). The new wave of outsourcing. Research Report 1103, Fisher Center for Real Estate & Urban Economics, University of California, Berkeley. Available at http://repositories.cdlib.org/iber/fcreue/reports/1103

Bardhan, A. D., Jaffee, D., & Kroll, C. (2004). Globalization and a high-tech economy: California, the United States and beyond. New York: Springer.

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Friedman, T. (2005). The world is flat. New York: Farrar, Strauss, Giroux.

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Hagel, J. III. (2004). Offshoring goes on the offensive. The McKinsey Quarterly (2).

Hira, R. (2003). Utilizing immigration regulations as a competitive advantage: An additional explanation for India’s success in exporting information technology services. Center for Science, Policy, and Outcomes, Columbia University (March).

Huws, U., Dahlmann, S., & Flecker, J. (2004). Outsourcing of ICT and related services in the EU. European Foundation for the Improvement of Living and Working Conditions. Dublin, Ireland. www.eurofound.eu.int.

Kletzer, L. (2004). Trade-related job loss and wage insurance: A synthetic review. Review of International Economics 12(5) 724-748.

Mann, C. (2004). What global sourcing means for U.S. IT workers and for the U.S. economy. Virtual Machines 2(5).

Moore, S. (2004). For newcomers to offshore: Leveraging what’s out there. Forrester Research, Inc., www.forrester.com

Wessel, D. (2004). The barbell effect. Wall Street Journal (April 2), A1.

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.

© 2009, Pedro Serrador
Originally published as a part of 2009 PMI Global Congress Proceedings – Amsterdam, Netherlands

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