In times of recession there is always scrutiny of costs, and one popular way to try and achieve savings is by outsourcing IT functions.

We are all familiar with the call centres that so many companies use, but what about software development and support? On the face of it there are significant savings to be made: despite wage inflation over recent years, as of today, the fully overheaded cost of an experienced software developer in Bangalore is around one third of the cost of the same person in the UK. But is that the whole story and, if you are to go down this route, what pitfalls are there?

I had a fascinating conversation recently with the head of software development at a software company. A few years ago this company decided to cut costs by moving significant product maintenance and testing functions offshore, and initially went the fully outsourced route with a well-respected Indian company. The outsourcer sent a small team across to the US to work with the software company for several months in order to do knowledge transfer, and initially things seemed fine: the individuals the Indian company provided were very impressive, the contract was duly signed and a team put in place in India to take over the work.

However, it quickly became apparent that there were problems. The maintenance and testing work that was outsourced was fairly mundane and so attrition in the Indian team was high. Worse, the outsourcing company swiftly moved the initial team of star performers off to win new contracts elsewhere, so quality of work plunged. Service level agreements were in place, but in reality proved meaningless. There were targets for the number of defects fixed per developer per week, but in practice the quality level was so low that in many cases each apparent defect fixed caused knock-on problems elsewhere. After some months it became clear that the situation was, to use the words of the development manager, “a train wreck”.

The software company then changed tack. It recruited a senior development manager already living in Bangalore and gave him the task of establishing a full company subsidiary there, with staff that would be hired directly. As those who have ever filled in an Indian visa form will be aware, the level of bureaucracy in India can be daunting, but as a local person the new manager was able to navigate the system, incorporate the subsidiary and find local office space.

What was interesting was that the software company, which is known for its rigorous interview processes, was determined not to repeat its earlier mistake. The parent company sent its head of development over to Bangalore for an extended period which included him interviewing every candidate personally: this was a lengthy process, as the company actually hired just one person for every 25 interviewed. However, this investment in time proved completely worthwhile as the standard of staff proved to be much higher than had been the case with the outsourcer.

This new operating model has been in place for a couple of years and is working so well that the company is looking to transfer even more functions across to their Indian subsidiary. What about those cost savings? The company has found that developers in Bangalore are essentially as productive as those in their main development centre, so there is a genuine 3:1 cost saving (minus some travel costs and management time). In the case of support, which requires deep product knowledge, it found that the Indian team are about half as productive as experienced support staff in their main group, though with a 3:1 cost difference this is still cost-positive, and as the Indian team’s product knowledge grows this productivity gap is closing.

There are cultural differences which need to be taken into account. In India there can be a reluctance to admit that something cannot be done or that something has not been fully understood. This can cause problems, and means that communication is particularly important.

This company’s experience resonates with other stories I’ve heard. It is critical to treat the offshore group as an integral part of the parent company and to instil your culture into the offshore team. Just as with any team, if the only work allocated is routine drudgery then morale will plummet and attrition will occur, so a balance of work needs to be considered.

Above all, it is not good enough just to sign a carefully worded contract with an outsourcer and hope it guarantees quality. This would apply if you were outsourcing to a local company, so it is hardly going to be any easier dealing with a firm several time zones away.

Invest the same effort as you would do if you were recruiting a local team. If you are prepared to put in the effort, then you can achieve a successful outcome.

Source:http://features.techworld.com/sme/3218484/outsourcing-is-not-the-answer-to-every-question/

Government agencies have begun a drive to encourage small and medium sized enterprises (SMEs) throughout Thailand to adopt information technology to improve their businesses processes, lift productivity and expand their trade both locally and overseas.

The campaign lends simultaneous support to the local software industry, with trade missions seeking overseas business and local opportunities to develop software as a service to SMEs.

The Office of Small and Medium Enterprise Promotion (Osmep) aims to create a new business ecosystem for SMEs this year that will boost their capacity to support the government’s Thai Khemkhaeng project. At the same time, it is promoting the local IT industry in domestic and international markets.

The director of Osmep’s SME Promotional Scheme Development Department, Wachira Kaewkor, said the state agency had created a strategy for helping SMEs to enter international markets. It was called SME Capacity Building: Win for International Markets.

Moreover, Osmep has joined Software Park Thailand in promoting local IT and software companies in Korea and Japan over the past few months, and an IT-industry business delegation to those countries has found outsourcing orders and business matches with which to expand.

“I think the cooperative effort that took local IT and software companies to Korea and Japan was very successful for business, because the companies have been able to create potential opportunities in these markets through business matching and finding business partners and outsourcing work,” Wachira said.

Software Park Thailand’s director Suwipa Wanasathop confirmed the success of the business development delegation to Korea and Japan. The 16 Thai IT and software companies and three universities that joined the delegation have been able to negotiate partnerships among themselves as well as finding international business partners. They have been able to make 58 business matches, creating potential revenue of about Bt29.6 million and adding value during negotiation of about Bt64 million.

Jirapas Daomanop, marketing manager of Jasumedia, one of the companies taking part in the delegation to Korea and Japan, said support from government agencies had been very useful to local software and IT companies in looking for business partners and business matches in international markets. The company is negotiating with international business partners to distribute its software in Korea, Japan, China and Vietnam. It expects to conclude a global distribution deal before the end of this year.

The director of the Industry Ministry’s Industrial Promotion Department, Vatee Phiravaranuphong, said his department was working through the existing Enhancing SMEs Competitiveness through IT (ECIT) project to create business opportunities and raise the productivity of SMEs. The project emphasizes the use of IT to improve performance, develop new products and services and create opportunities.

“The ECIT project will encourage SMEs to use local software and information technology to manage their business processes through Web-based applications accessed via the Internet at affordable costs,” Vatee said.

The department is also developing an e-marketplace so that SMEs are able to market their products via an online channel. It expected that 1,000 SMEs will be selling their products via this website before the end of this year.

Meanwhile, the department is urging local software companies to develop enterprise resource planning (ERP) software to support SMEs by offering software as a service or cloud-computing applications so that SMEs will be able to access management and business process software over the Internet and pay for these services according to demand. The department is also offering to help pay for SMEs using software and IT services to support and manage their business processes.

Vatee said there were now nine software companies in Thailand developing ERP software to support SMEs. Last year, more than 90 per cent of SMEs were using IT to manage their business processes and reduce costs. The department believes that the three-year ECIT project will lead 400 SMEs to use IT and software services via cloud computing and individual software packages, encouraging them to use local software and boost the software industry as a whole, he said.

Osmep said recently that Thailand had 2.85 million SMEs, up from 2.79 million last year. They were expected to generate revenue of Bt6.41 trillion in 2010, a 3.29-per-cent increase over Bt6.21 trillion in 2009.

Source:http://www.nationmultimedia.com/home/2010/03/26/technology/SME-campaign-to-boost-local-IT-firms-30125639.html