by Ian S. Hayes

What began as a trickle is turning into a torrent... Once a single-location back-office function, IT is becoming as distributed as the computers it supports. Driven by our increasingly globalized economy, IT services are following the lead of industries such as manufacturing and agriculture in their shift to less expensive geographic locales. Over the past decade, remote delivery of IT services has expanded from local offsite (in the US) to near shore (predominantly Canada and Mexico) and offshore locations (India, Ireland, Russia, Singapore, Philippines and even China). And, it is not just the "undesirable" projects that are moving offshore. Globally sourced projects themselves have shifted from standalone efforts to highly interactive ones, thanks to advances in communications, hardware and software. From database migrations to application support and advanced development projects, IT efforts are migrating to wherever they can be performed optimally.

Global sourcing is a hot topic in executive suites throughout the US and Europe. Legitimized by pioneers such as General Electric, offshore service providers proved their value on Year 2000 efforts and as an alternative source for resources during past shortages. Their successes have created a truly global market for IT resources, attracting companies seeking lower costs, faster time-to-market and access to a large pool of highly skilled resources. Market leaders now treat global sourcing as a defined, long-term strategy rather than a tactical solution for implementing a given project. This article provides an overview of global sourcing and offers advice on its strategic implementation.

Global sourcing occurs when buyers purchase goods and/or services from sellers located anywhere in the world. Global sourcing of goods, crops and other commodities has been common for many years in industries such as manufacturing and agriculture, used as a proactive strategy to reap economic advantage. Take a look at the clothing and other manufactured products you buy. How many were made in the US? As third-world nations continue to implement free market reforms, educate their vast workforces and develop depths of expertise and knowledge, these emerging economies are a viable and cost-effective alternative to using more expensive, domestic resources.

For most IT organizations, global sourcing is a "when" not an "if" proposition. Highly attractive to CEOs and CFOs, global sourcing allows companies to improve their financial position through cost savings that contribute directly to the bottom line. It also makes companies more agile and better able to capitalize on emerging opportunities through "spot" purchases of resources and services. Companies are increasingly using global sourcing to engage in labor arbitrage, to shift work to less expensive locales, cut costs, offer more competitive pricing and grab market share. They are conducting work virtually around the clock on important projects to shorten implementation windows and speed time-to-market. Companies using global sourcing are able to compete more successfully, better their financial standing, and obtain more favorable valuations vis-à-vis their peers. With these compelling benefits, global sourcing will soon become a fact of life for IT organizations.

Why is global sourcing suddenly hot? Several enabling factors have converged to mitigate former risks and challenges of shifting work overseas. The most important ones are:

• Growing pools of highly skilled resources

Jobs in Information Technology are considered prestigious and are highly sought after in most developing countries. While wage scales in those countries are significantly lower than in North America and Western Europe, they are quite high by local standards, attracting well-trained professionals. Candidates with doctorates and other high-level degrees are common and larger service providers typically offer extensive additional training to their staff.

• State-of-the-art facilities

The work environments in today's offshore service providers are a far cry from the "sweatshop" images that plagued them in their early days. The high-end organizations have facilities, equipment, tools and processes that rival, and often exceed, their US and European counterparts. India, for example, has more facilities rated at Level 5 on the Software Engineering Institute's Capability and Maturity Model than any other country. Eager to attract foreign capital, many governments offer considerable support to services firms providing facilities, infrastructure upgrades and tax incentives.

• Advances in telecommunications

Recent advances in international telecommunications capabilities have improved the reliability and quality of communications. Cost-effective infrastructure options are available from wired, landline communication services to wireless, satellite services. The standards introduced by the Internet have also fostered quick deployment and inter-operability of networks and communications in virtually every country and company around the globe.

• Improvements in collaborative tools and platforms

The emergence of robust, high quality collaborative tools, platforms and processes have permitted dispersed project teams to work together as though co-located. Work units are easily assigned and synchronized between team members, and work products are controlled and shared in a central manner.

• Maturing delivery models

Service providers have learned that physically situating project liaisons at the client site helps facilitate strong communication and interaction both with the client and with offshore teams. Service provider personnel are responsible for handling the logistics of communications -- including time zone differences, protocols and cultural nuances -- insulating the client from these facets of global sourcing.

 

As an IT organization, the time to start examining and crafting your global sourcing strategy is now. Few companies can afford to ignore the cost savings and economic advantages offered by global sourcing. With planning and preparation, your organization can implement a sourcing strategy that fits well with your culture and objectives. If you don't spend the time to create your own policy, you will wind up having one imposed on you. Learn your lessons from the early adopters and think proactively rather than reactively.

Fortunately, global sourcing is not an all or nothing proposition. You can selectively apply global sourcing to discrete areas to gain benefits, but doing so successfully takes some effort and intelligence on your part. As you go about crafting your strategy, keep this important advice in mind.

Building defenses against globalization doesn't work. Despite unions, tariffs, politicking, and other attempts to erect trade barriers and defenses, manufacturing workers have been unable to stave off the inevitable migration of tasks to lower cost locations. Rather than fighting it, turn global sourcing to your advantage by figuring out how to make it work effectively in your organization. While problems and issues still exist, many companies have figured out how to overcome these challenges. As a result, the climate for global sourcing is improving rapidly. Old knock-offs no longer apply. The quality of offshore IT organizations and software processes, particularly in India, is on par with, and often exceeds, the level found in the US. Highly educated workers, some with advanced science and mathematics degrees, are able to tackle complex business and technical issues. Spreading work across multiple countries can mitigate the risk of moving business offshore. The same factors that make it easy to shift work in the US also make it easy to move workloads globally to avoid geopolitical unrest and other problems in any single location.

Create a strategy for the long-term rather than the short-term. Start by developing a network of global sourcing options. Where would you consider shifting work? Then devise a means of matching particular project characteristics to the performance characteristics of a sourcing center. Should complex technical projects go to centers staffed by workers with PhDs? Next, begin to build a project infrastructure capable of managing geographically distributed projects on a continuous basis. What organizational structures and processes work best with distributed projects?

If you are not already familiar with the global sourcing capabilities of services firms, you may be very surprised. Many large US firms have subsidiaries in offshore locations or partnerships with foreign services firms. Research the key players in each market, and see what they can offer your organization. By selecting the right service provider as a partner, you may be able to blend offsite, near shore and offshore resources, easily assembling teams with the right skills and talents for the immediate project at hand. As projects start and terminate, business directions change or economic conditions fluctuate, you can disassemble teams and shift projects and workloads to advantageous locations. Knowledgeable service providers will have the structure and philosophy in place to provide continuity and stability no matter where physical resources are located, and can free your company from dealing with any logistical or cultural issues and challenges.

Implementing an ongoing global sourcing strategy is very different than tactically sending an occasional project to an offshore provider. Although putting the necessary sourcing infrastructure in place takes time, money and resources, it will pay for itself many times over through higher efficiency, increased user satisfaction and lower project risk. The first step is understanding the objectives for the sourcing strategy. A very different strategy is needed if the primary objective is to reduce IT expenditures to their lowest possible level than if the objective is to speed delivery of critical projects or offload application support. These objectives drive decisions on which work is handled by which organization, the ratio of on-site to offshore personnel and the level of knowledge transfer needed. The next step is considering and addressing the logistical issues of a distributed organization. These issues include project governance, interfaces between individuals and organizations (who works with who?), location of project assets such as data and source code, and ownership and support responsibility for hardware, software and communications infrastructures.

A true global sourcing strategy addresses more than the relationship between an IT organization and an offshore service provider. The IT organizations in many companies are currently distributed across multiple locations and a multi-national company already has internationally located facilities. Further, most IT organizations have a mixture of long-term and short-term relationships with a variety of service providers. A global sourcing strategy considers each of these locations and relationships as a building block in an overall strategy that evaluates the unique characteristics of each option and determines which work efforts are best distributed to each source. These sourcing options can be categorized as follows:

• IT personnel

The IT personnel working for a company are a critical component of any sourcing strategy. They manage the overall strategy, serve as an interface to company executives and business areas, have subject matter expertise, and handle a variety of projects themselves. If there are multiple IT locations, treat each location as a unique entity with its own characteristics.

• Local onsite

This category includes contractors and other service provider personnel co-located with the IT organization. In the case of contractors, they may supply unique skills or short-term assistance to internal IT staff. Other service providers may maintain an onsite team to perform highly interactive tasks and serve as an interface to offsite resources.

• Local offsite

Offsite locations in lower cost areas of the host country are the first level of a distributed sourcing strategy. For example, a service provider may locate an application development center in a rural area to take advantage of lower salaries and less expensive facilities. This differential can be significant when comparing costs in Manhattan against rural Iowa. While more expensive than offshore alternatives, by operating in the same country, local offsite avoids many cultural, legal and logistical issues.

• Near shore

Near shore sourcing uses facilities in nearby countries with lower operating costs. For example, US companies use near shore facilities in Canada, Mexico and the Caribbean and Western European companies send work to Ireland, Russia and other Eastern European countries. Near shore resources tend to be less expensive than local offsite and remain within convenient travel distance from the host organization.

• Offshore

Offshore sourcing relies on facilities in developing countries, such as India, Russia, Philippines and China that offer a combination of highly skilled resources and significant wage differentials. These facilities offer excellent price performance for their services and by being located in other time zones, enable multi-shift development. The trade off is less convenient travel, cultural differences, logistical issues, and a variety of business, legal and infrastructure risks.

An effective sourcing strategy builds a "virtual" IT organization that binds components drawn from the above sourcing options. The greatest difficulty in creating this virtual organization is getting a disparate and multi-cultural collection of organizations to work together effectively. Key issues include ensuring good communications, common standards and effective hand-offs between organizations. Setting up a project infrastructure of shared processes, practices and standards backed by a common set of supporting tools is the best means for overcoming these issues. All project teams working in the virtual organization must use this infrastructure, placing a premium on developing long-term relationships with the participating service providers. A large, international services firm with a collection of local, near shore and offshore facilities may be able to provide a turn-key solution that integrates a project infrastructure with its range of resources.

As shown in the diagram above, a project infrastructure consists of a Program Management Office (PMO) that oversees the sourcing operations. It governs the relationships with each entity, distributes work assignments, and measures and manages service levels. The common infrastructure consists of processes for activities such as communications, project management, documentation, version control, testing and work product integration. It includes tools for collaborative work environment, work request tracking, project management, configuration management, development, testing and knowledge management. The infrastructure also provides standards and methodologies to be shared as appropriate between projects.

A global sourcing strategy distributes work by matching the needs of a given project with the capabilities of a sourcing option. Parameters for optimum work distribution include cost, schedule, responsiveness and user interaction, skill and resource needs and special factors such as security requirements, confidentiality of data and strategic value. Figures 2 and 3 show a few of these factors in action. Both figures categorize different types of projects into quadrants by creativity and interaction.

The first scale assesses the level of creativity needed to accomplish the task. Highly creative tasks address unique problems and tend to use new technologies. Since they are breaking new ground, there are no easy processes to follow. In contrast, highly efficient tasks involve known technologies and common solutions. As a result, they tend to be repetitive, requiring less original thought by a programmer, and are more amenable to formally defined processes.

The second scale assesses the degree of user interaction required to perform the task. Freestanding tasks are those which can be specified in detail, enabling them to be performed by a programmer with minimal interaction with the task's originator. Highly interactive tasks are those that require considerable communication and interaction between the programmer and originator. For example, a web development project that relies on rapid iterations of prototypes is highly interactive and is best performed in a location where the developer and user can work side-by-side. Conversely, a database conversion effort is usually highly specified and requires very little user interaction.

Figure 2 shows examples of the types of projects that fall into each quadrant. The database conversion is a classic example of a quadrant 1 project, being highly specified with very repetitive steps. Being creatively designed "on the fly" as a collaboration between the user and programmer, the web project falls into quadrant 4.

Figure 3 shows the appropriate delivery model for the projects in each quadrant. The web project in quadrant 4 is best performed onsite by programmers working in an open environment that encourages them to think "outside of the box". The quadrant 1 database conversion is well-suited for a software factory environment. Since creativity is low, junior programmers can be used, and the high level of specification simplifies the assignment to an offshore location. The combination of highly efficient processes, junior staff and offshore resources enables the conversion to be performed for far less cost than possible with onsite resources.

Note: each global sourcing partner has its own characteristics; don't fall into the trap of assuming all offshore firms are factories that can handle only rote tasks nor that onsite teams are necessarily capable of handling quadrant 4 types of tasks.

The picture below shows a simple example of global sourcing in action. In this example, application support has been outsourced to a service provider with near shore and offshore facilities. The objective of this engagement is to reduce IT costs without compromising support quality. A secondary desire is to insulate business users from the logistics of the global sourcing relationship. To accomplish this goal, work assignments are partitioned across all three facilities. The onsite team consists of the project's managers and its subject matter experts. They are responsible for the client interface, capturing requirements, creating specifications and the final integration and deployment of project deliverables. Located in an adjacent time zone, a near shore facility in Canada handles telephone support, immediate fixes and other high priority tasks. It performs the first level of work product integration and conducts system testing. To reduce costs, the bulk of programming and routine support assignments are performed in the facility in India.

While global sourcing offers considerable advantages, it has many risks and challenges in addition to the inherent risks found in every project. Each country has its own set of business practices, cultural issues, legal requirements and political, environmental and infrastructure risks that must be understood and handled successfully. As global sourcing gains momentum and foreign governments embrace its ability to attract business and capital, these hurdles are being overcome, but they still exist. Global sourcing risks fall into the following major categories.

• Project

Critical project issues include communications, governance and managing to performance commitments. Interfaces and hand-offs between organizations are particular points of risk. Ensuring clear transfer of control for each project is essential as most projects fail due to poor project management. Establishing and enforcing the use of a strong project infrastructure along with common standards and project metrics is the best means of mitigating these risks.

• Program and Data Integrity

Sharing software and data assets across multiple organizations requires thorough version control to protect integrity and recoverability. Use of shared configuration management tools and back up and version control procedures is essential. Synchronized versions of critical components and work products should be kept in multiple locations as protection against disruptions.

• Security

Physical security and protection of intellectual property and trade secrets are critical issues, particularly in countries with differing legal systems. High end providers maintain strong security at their locations and have procedures to protect intellectual property. However, the best method to ensure the protection of highly sensitive programs and data is to limit their sourcing to locations that can guarantee impeccable security.

• Infrastructure

While they are improving, the communications, power and other utility infrastructures in developing countries are subject to frequent disruptions. Before shipping critical work to an offshore facility, evaluate the methods they use to mitigate infrastructure failures. These protections include UPS systems, backup generators and redundant communication lines and network equipment.

• Business Disruption

As the events of the past twelve months have so painfully demonstrated, all facilities face the risk of business disruption due to political unrest, terrorist activities, natural disasters or other catastrophes. Mitigate these risks by ensuring that work and resources can be quickly shifted between locations to minimize the impact of disruptions. The better offshore providers maintain teams ready to travel out of the country on short notice to restore full operations in a new location.

Ready or not, Pandora's box has been opened. Global sourcing of IT projects is here to stay. Whether a company seeks to reduce costs, improve time-to-market for new systems, or gain access to a large pool of skilled resources, global sourcing provides an attractive alternative. Rather than fear global sourcing, IT organizations should embrace it. Developing a global sourcing strategy and building the relationships and project infrastructure to support it will bring enhanced capabilities, smoother projects and greater control of the IT organization's destiny.