Outsourcing: Going offshore

Posted:

17:23 16 May 2005

 

 

 

 

Attention to detail, effective communications and rigorous planning are essential to successful outsourcing. In this major case study, Helen Beckett looks at how Britannia Airways is reaping the benefits of putting these principles into practice.

Moving work to parts of the world where labour is cheaper has always been an economic reality, but offshore working has a particular appeal for IT. Software development lends itself to discrete projects that can be executed by remote teams. And the increasing reach and sophistication of communications networks also puts workers in India within earshot of the UK. Offshore outsourcing is, according to recent adopter Britannia Airways, "virtually impossible to ignore".

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The chartered airline service decided to investigate whether offshore could work for it following a restructure in the company. "We were benchmarking IT costs against our sister companies and there was a fair degree of healthy competition," says Eddie Marsden-Jones, airline systems manager at Britannia Airways. "By going offshore we discovered there was a large cost saving to be made." In fact, Britannia has shaved £900,000 off its IT bill in the first 12 months of operation.

This scale of cost-saving can be attributed to the bold approach taken by Britannia. Whereas early adopters limited their IT offshore taskforce to low-risk tasks such as code maintenance or non-business-critical development, Britannia decided to go the whole hog. It has entrusted its entire suite of application development and management to an IT team in Bangalore, India - an operation managed by LogicaCMG.

"The success factor in offshoring depends on embracing it wholeheartedly," says Marsden-Jones. "If you just do it piecemeal, there is a negative impact on communications. People do not perceive the impact of what they are doing down the line." Additionally, keeping some software development function in-house would mean difficult and ongoing decisions about when to use offshore resource. "Our end goal was to get everything out there from the off."

However, Marsden-Jones is keen to dispel any notion that the IT department is gambling with Britannia's future by putting all its eggs in the offshore basket. "Although we are innovative, we are risk-averse and change-averse. Our business likes to be stable and secure and IT has to match that in its strategy." The decision was also thoroughly investigated and fully backed by the board. "It was not just a one-page flip-chart presentation up in the board room. It was a stringent decision that fitted in with the business drivers," he says.

Key to achieving the stability demanded by the business was selecting the right business partner for the venture. Because of the strategic implications and large sums of money involved, Britannia turned to an independent outsourcing consultancy, Quantum Plus, to source the supplier and negotiate the terms of the contract. "If everything goes to plan, companies only outsource once," says Marsden-Jones, so there is no previous experience to draw upon.

Although Britannia had never used a third party for sourcing before, it knew Quantum Plus because senior personnel from the two companies had worked together previously. Quantum Plus has brokered offshore outsourcing deals for the past five years and has learned important lessons. "The biggest mistake is failing to accommodate provisions in the contract for offshore issues such as inflation or political instability," says Nick Davies, senior consultant at Quantum Plus.

A rigorous selection process was drawn up based on Quantum Plus' method and customised for Britannia's requirements. Understanding a client's motivation for offshoring is key, stresses Davies. It dictates selection parameters and underpins the entire process. "For an airline, integrity and safety are paramount. For a financial services company, however, the overwhelming concern might be with the security of suppliers," he says.

Using a third party can help cut through corporate politics, which can always threaten to hijack any big decision, adds Davies. "We make sure that all the decisions are dispassionate and as mechanical as possible. From an audit point of view, it is absolutely vital that you show supplier X was chosen for Y reasons and that this can be demonstrated in black and white. It is important not to fall into the trap of going for the cheapest option."

LogicaCMG was picked chiefly for its willingness to charge development at a "blended rate"' and to adopt working practices as defined by the customer. "The blended rate means Britannia gets access to a model that allows both rapid application and waterfall development styles at a price independent of whether work is performed onshore or off," says David Sale, service delivery manager at LogicaCMG. Also, the commitment by the European arm of LogicaCMG to escalate issues to the most senior management provided an extra measure of comfort to Britannia.

But success does not rest solely on picking the right partner. "You cannot just shunt IT offshore, you have to change the way you interact with the department," says Marsden- Jones. He emphasises that this is something the entire business has to take on board, including business users. "Previously the business expected IT to carry it through user testing, but it has to be more accepting of its obligations now."

For IT, the most important shift was that requirements analysts and project managers had to get better at the detail. "If you ask your offshore team to develop a door, you have to specify it is a door in a wall, otherwise you could get a door for a floor," says Marsden-Jones. Both of these teams are retained by Britannia onshore at the airline's Luton headquarters. Both teams had to be retrained in preparation for the new "everything's in the detail" culture.

Business analysts had previously morphed into the roles of facilitator and mini project managers and would rely on the supplier to say what was wanted. "Now the responsibility for saying what we want - accurately - falls firmly in our camp," says Marsden-Jones. "Project managers have been trained in formal methods and are now Prince 2 qualified." But to gain the necessary experience to deliver properly, you really need several projects under your belt, he says.

The contract specifies precisely how Britannia must request work from the LogicaCMG team to minimise the risk of miscommunication. "We were used to having more of a pally relationship with our suppliers. Now everything has to be detailed and signed off," says Marsden-Jones.

"End-to-end ownership is key in offshore development" agrees Sale. LogicaCMG recommends that the flow of communication - from end-user requirements, through functional spec, technical spec, development, quality assurance, and on to delivery and user acceptance testing - is managed by as few people as possible. "In all of our most successful developments, we have had business analysts and/or programme managers adopting a dual-geography role, bridging the gap both procedurally and physically," says Sale.

Formal methods, detailed and clear documentation and signing off procedures are adhered to religiously in the offshore universe. However, there has to be a shared language at an even more basic level.

"Accents can be a real problem for the people at both ends of the telephone line," says Marsden-Jones. Written into the contract is a clause requiring the supplier to ensure its team can be understood in English. And to ensure that voice calls are of good enough quality not to exacerbate any accent problems, Britannia invested in a voice over IP network. This means it can budget all calls for a flat rate of £40,000 a year, so the IT team does not skimp on necessary phone calls.

Despite the huge effort involved in drawing up a contract that practically specifies when people breathe, it goes without saying that mistakes occur in such a huge change, and these have been a rich source of learning about clear communications for Britannia. Specifically, it learned how to engage with its offshore partner for resource planning by creating more accurate workload forecasts and project pipelines. "Historically, we would not always inform a development partner of a potential project until it was a done deal," says Marsden-Jones.

Despite the effort and angst of moving IT to India within a six-month period, the move has paid dividends. It has satisfied the board's desire for a resource without the associated UK labour cost. The £900,000 cost saving realised to date comes from trimming labour costs. And although wage costs are rising in popular offshore destinations, Britannia is confident Bangalore will continue to represent good value because the offshore charge is linked to the retail price index. If inflation increases beyond a pre-determined cap, user and supplier will discuss an alternative location.

IT has become more flexible too, and that is important for Britannia. "We try not to do IT work in the summer when we're busy flying," says Marsden-Jones. "We are an industry that has big fluctuations." The deal with LogicaCMG accommodates Britannia's seasonal requirement by guaranteeing 3,000 man-days of work. If this requirement is exceeded, LogicaCMG sources the extra skills for the busy period and then flexes back down afterwards. "When we do development, we have to be fast and nimble," says Marsden-Jones. "Offshore is a good model for this."

Some businesses are tempted offshore for IT skills at bargain prices, but many bargain hunters will tell you the cheapest goods are not always what they are cracked up to be. Britannia has chosen to use offshore as a means of accessing premium skills that represent great value, when it needs them. "Indian developers are not a generic resource that can work on every application - they are highly skilled individuals," says Marsden-Jones.

Key guidelines for IT directors

You have to get down to the detail. Offshore programmers and developers do not share the knowledge of an operating or commercial environment and so this must be specified too. l Business as a whole has to change, not just IT. Business users must fully meet their obligations during the requirements analysis and user acceptance testing phases. This might entail travelling to the offshore location. l For IT directors considering moving their service desk offshore, the biggest message is to set end-user expectation. The bottom line is you do not get Oxford accents for offshore prices. End-users who understand the reasons for moving the service desk offshore are always far more accepting of the change.