Rough seas

Early in the decade, right around 2000 through 2002, I witnessed such an incredible increase in overseas outsourcing of technology work that our economy seemed doomed to suffer fallout — and to be sure, reckless ventures that attempted to wholesale outsource entire projects suffered many a demise as the technology bubble “burst.”

This was a good thing. The technology industry and its investors learned a great deal from this period — including valuable lessons regarding what can and cannot be executed in a vacuum. Today we live in a more mature, more stable technology economy — one that does not shy away from outsourcing, but does so much more wisely.

The lessons learned are, seemingly, common sense — yet the technology-rush fever of the Internet boom blinded us to the truths of our economy. The Internet did not fundamentally change our economy, any more than the advent of the printing press, automobile or semiconductor did. As with any emerging technology, the Internet boom repeated a pattern that has born itself out time and again — a pattern of rapid growth, exuberant over-investment, and ultimate collapse (though thankfully a relatively small collapse in comparison to some past events).

As a technology auditor, a role I filled during 2000 to 2001 more often than any other period in my career, I was introduced to a full half-dozen companies that had bought the outsourcing promise hook-line-and-sinker. This was a period of seemingly limitless funding, when even the most bizarre — and poorly developed — ideas could attract financing.

In this environment of over-enthusiastic investing, venture groups where climbing over each other to fund ideas. Often companies were funded based on little more than a bright idea and an attractive sales pitch — sometimes leaving a bewildered CEO holding a check for a huge sum of money despite no track record of success — or even any record whatsoever. Naturally, many companies turned to outsourcing on the promise that a quickly written product brief and six months would net a polished product ready to make its owner millions of dollars in revenue.

But technology ideas aren’t that easy to convey to teams of developers that don’t speak the CEO’s language, tend to work when their U. S. counterparts are closed for the evening and — just as with our model CEO — don’t have a track record of success. In fact, most outsourcing vendors in the early 2000’s where in fact brand new and often relied on hiring a large number of recent college graduates in hopes that bodies could compensate for lack of experience.

Today everyone, including our outsourcing partners, have learned a lot. Even so, the challenges remain — and are very hard to surmount effectively. So how can a company reap the benefits of overseas outsourcing without incurring the risks?

Perhaps the most important thing to keep in mind is that outsource vendors cannot operate in a vacuum. Every single project I audited that took the “throw it over the fence and wait” approach failed. Most of them failed dramatically, often having nothing to show for their lost capital but a lawsuit and a missed opportunity.

There must be expertise within the company that can manage the project and provide technical oversight. This is most successful when the outsourcing vendor augments internal resources, but most technical and project leadership comes from the employing company.

This is necessary, more than anything, to make sure that the project can be well monitored and guided on a day-to-day basis. Without adequate expertise, a company can easily have the wool pulled over its eyes — and that can lead to a project that fails to execute for months before management realizes what is going on.

Any project that runs in a vacuum is doomed to failure. The best strategy to prevent this is to treat the outsource vendor as a source of talent, but to integrate that talent into the company. This means initiating a project at the company. Outsourced employees should come to the company, integrate with the team and attain a full level of knowledge transfer before returning to overseas vendor offices. This strategy helps to improve team communication as well — as company employees interact and learn from vendor employees a collaborative team is formed. This is critical to achieve the level of integration needed in technology endeavors.

Another common downfall is accepting a vendor’s staffing assignments without question. Would you hire someone to work for you without interviewing them? Of course not, and yet even today it is common practice to retain the services of a outsourcing vendor without interviewing each person that staffs the project (in fact one of my recent clients actually initiated a project on this basis — and predictably the project failed). Unfortunately, the consequences are often disastrous. The vendor is not in a position to properly qualify staffing and in the worst case an unscrupulous vendor will take advantage of the situation, staffing up to make a quick buck with no care for the consequences.

The solution is of course to insist that all staffing will be handled as if hiring full time employees. Every single candidate presented by the contracting company must be interviewed and qualify under the same standards that full time employees must meet.

Just as who a company employes is important so is creating a collaborative, communication-rich environment between the company and vendor. This is even more important in an outsource environment because of the barriers to communication imposed by language, varying time zones and different cultures.

A most effective strategy in this regard includes constant “cross-pollination” between company and vendor teams. This starts when vendor employees initially begin the contract on-site and remain there until a sufficient level of technology transfer has happened and all parties agree that the vendor employees are ready for off-site work. During the contract a continual policy of on-site representation by the vendor must be delivered. The most successful projects that I have seen include a strategy of rotating involvement by all vendor employees. This means that a portion of the vendor staff will always be on-site at the company. As employees come up to speed and are ready to work remotely, they return to overseas offices while other vendor employees rotate in.

Equally important is joint management of the team as a cohesive whole. This means appointing company and vendor senior staff to manage the project and to do it as a unified, single project team.

Many vendors are not held accountable for their responsibilities on a project until serious issues arise. All to frequently the events that lead up to discussions of accountability stem from missed deliverables. This is usually too late to salvage the situation as impending deadlines, budgets and management concerns point to an immediate remedy: contract termination.

Taking steps to integrate vendor employees into a collaborative, highly communicative team is critical to achieving technical success but ultimately involvement and responsibility has to be driven from the top down. The vendor must be responsible for meeting frequent checkpoints, as often as every week. Failure to meet these frequent checkpoints requires management review and should carry potential penalties in the vendor contract.

Reasonable goals must be set forth before engaging the vendor and continual progress must be visible. Of course setting up weekly deliverables before a project begins is nearly impossible. But it is possible to set significant monthly or semi-monthly goals and establish a weekly joint review session of progress. This in essence is an embodiment of Agile methodology, a technique that I believe is required in order to maintain tight control and visibility into vendor progress.

The net result of our experience over the past decade in outsourcing has shown us that overseas markets have not completely altered our economy. The global community has opened up new possibilities and opportunities, but we have also learned that wholesale outsourcing is not a viable solution. This means that the perceived value of overseas outsourcing is often overstated — it’s easy for a company to look at resource costs, seemingly indicating fractions on the dollar compared to local resources. But this is not a holistic view of the problem — it’s the vacuum view. In point of fact, carefully executed outsourcing can lower costs, but there is an overhead for distributed company resources around the globe. This overhead often takes the form of high travel costs, delays in implementation and the assumption and mitigation of significant risk. Accordingly it is not a venture I would ever recommend for a small company as the risks and mitigation strategies are too high. On the other hand, companies that can manage the effort of distributing a project can often realize noticeable gains — but the overhead and risk have shown us that these gains are moderate, not dramatic.