Once you have found the right offshore supplier it is
essential to have a watertight contrat. But it is just as important
to develop a common cultural bond to ensure the relationship lasts
the distance. Helen Beckett reports.
Picking an offshore supplier is not unlike choosing a spouse.
For the partnership to pay dividends you have to be in it for the
long haul, and so making the right choice at the outset is
vital.
When partners come from different backgrounds it is even more
important to do the groundwork; good communication and a sharing of
values and ambitions are important in order to avoid disappointment
later on.
Like many newlyweds, users in the first throes of offshore
enthusiasm fail to practice due diligence, blinded by love or, in
this instance, the prospect of big cost savings. Analyst firm
Gartner predicts that by 2010, 75% of all failed IT service
management contracts - onshore and offshore - will be attributable
to cultural issues.
And while 75% of chief information officers are satisfied with
their offshore contracts, according to recruitment company Harvey
Nash, most admitted they should have spent more time ensuring that
their service level agreements were foolproof.
Nick Davies, senior consultant at offshore broker Quantum Plus,
believes that a basic compatibility, a willingness to work at the
relationship and a "prenuptial" agreement all play a part in a
successful offshore partnership. Of these elements, he rates the
prenuptial - or sound legal contract - as the most important.
"You can mitigate a number of specific offshore risks. These
include political instability, linguistic breakdown or even
inflation risks," he says.
A key reason for breakdown is the lack of a sound legal
agreement at the outset, especially when the user is new to
offshoring, says Geoff Drake, consultant director at infrastructure
consultancy The Infrassistance Company.
"A company will often accept the outsourcing supplier's contract
with a few minor modifications, or rely overly on the advice of
their financial director or an in-house lawyer. In-house lawyers
are doing property law one day and then delving into the details of
offshoring the next - but this is a very specialised and complex
area" he says.
A common mistake in negotiating offshore contracts is failing to
specify every single item that must be delivered.
"First-timers to offshoring are naive and think that because
they are accustomed to working with SLAs it will be the same, but
with people in an exotic location," says Drake. He recalls an
application development deal that did not explicitly state that the
software had to be tested and, crucially, had to work.
Poor linguistic skills are commonly cited as a problem in
offshore contracts, particularly if the outsourced area is a
support function that interfaces to the rest of the business. A
decent contract would state that the supplier must have the
necessary skills to be understood by customers in all situations,
says Davies.
However, communication consists of many non-verbal cues that
need to be understood to appreciate overall meaning, as John
Culbert, managing director of independent software house, Assentic
discovered.
"There is the Indian 'head wobble'. It can mean many different
things according to the context, and who is speaking. A programmer
may be saying, 'yes it is possible to do this', but meaning, 'there
is a better way of doing it'," says Culbert.
Another big difference between Western culture and that of the
Indian subcontinent that can heavily impact on IT delivery is a
reluctance to challenge decisions. This is because the Indian
culture is geared to pleasing the customer. Paul Moroney, European
IT manager at Hitachi, discovered this when he undertook his first
offshore contract.
"The offshore personnel would do exactly what they were asked,
even if they knew there was a better way," he says.
Assuming that the legal groundwork is sound, and communications
good, SLAs must also work to a new level to keep a long distance
relationship together. Developing a common language around service
delivery, rather than focusing on technical function, can make a
big difference to a relationship, says Jim White, business
technologist at Managed Objects.
"Using a framework such as a business services model provides
one version of the truth," he says. The model describes IT outcomes
in terms of availability of business applications rather than
network uptime, for example.
Such transparency of reporting means the customer and the
supplier share a common frame of reference and reduces the chances
of misunderstanding. Otherwise, he says, "I often see parties who
are in universal agreement - but still arguing."
Even if it does deliver benefits of cost savings plus
satisfactory service levels, there is the danger of an offshore
relationship simply going stale. Like all outsourcing agreements,
it is subject to the syndrome of "the grass is always greener"
where a user gets complacent, forgets about the long-term goals and
nitpicks about the shortcomings.
According to Drake, 50% of outsourcing agreements that are put
out to tender again do not have the incumbent's name on them. "And
when they do get on to the list it is generally as some kind of
yardstick to measure the other bidders against." Relationship
breakdown is usually because of lack of delivery, a soured
relationship or a combination of both, he says.
At Hitachi, Moroney has discovered that it is as important to
nurture relationships with business colleagues sitting a few desks
away, as the remote IT team in India. Managing expectations was a
key way of warding off potential unrest, and he prepared his
internal customers at the outset for the impact of offshoring. "We
had to ensure that the impact, if not positive, was at least
acceptable," he says.
Developing strategies to share culture as well as language is a
key factor to a successful and long-lived offshoring relationship.
Effective communication can help avoid cultural faux pas and
misunderstandings, and ensure a long and happy marriage.
Case study: Assentic builds a strong
partnership
Independent software developer Assentic decided to go offshore
to develop a software product to exploit recent legislation
enabling UK property firms to collaborate on deals. Managing
director John Culbert had reservations about going offshore, but
knew it was the only way he could afford to develop the product in
the short timeframe.
Satyam was recommended by colleagues in a Department of Trade
& Industry project group and the India-based supplier ticked
all the boxes relating to track record, customer references and
financials. Satyam is one of India's top 10 suppliers, and it was
keen to team up in order to learn about the UK property market.
The decision paid off as the partnership survived a
deal-breaking situation that no contract could have legislated
for.
The initial plan was to use a product already available on the
market and customise it for the particular requirements of the UK
market. "It appeared to be a platform that could deliver, and the
advantage was it gave us a faster time to market," says
Culbert.
Tweaking a ready-made product would entail greater licensing
costs, but would make development less expensive.
Three months into the project, functionality the product
supplier assured was "out of the box" did not materialise. "As soon
as I heard I got a plane to Hyderabad and sat down with some senior
people at Satyam. We worked out four high-level scenarios for
getting out of the fix," says Culbert.
Satyam was as keen as Assentic to resolve the situation given
its concern to retain credibility in a market it wanted to get in
to.
"Financially it was a hit," says Culbert. But the loss of
£150,000 - about 20% of the value of the project - has been shared
by Satyam, which admitted some of the responsibility. The offshore
supplier also softened the blow by agreeing to an easier payment
method. No legal clause in a contract could have legislated for
such a successful outcome, says Culbert.
"The reality is that if everything goes pear-shaped, we are
hardly likely to take a supplier to court. It would cost £500,000
and would likely be a case of throwing good money after bad."
With the partners' trust in each other strengthened after the
resolving the issue, Assentic is now planning further phases of
product development.
Case study: Hitachi UK adapts to a different
culture
When Hitachi UK had to put the application support and
maintenance function of its IT department offshore for financial
reasons, it decided to follow a tried and tested route.
Hitachi America had an offshore agreement with Itelligroup and
the Indian-based supplier was well known to the group. It was a way
for Paul Moroney, European IT manager at Hitachi, to save on
evaluation and due diligence, he says.
Even though Itelligroup was a known quantity, Moroney and his
team still had to go through a steep learning curve to learn how to
communicate and do business with the company.
"One of the biggest issues is cultural. The Indian culture is
geared very much to pleasing the customer," says Moroney. This can
mean that teams often follow instructions without challenging
decisions, even if they think there is a better way of carrying out
a task or project.
Part of the solution lay in anticipating this mindset and being
more precise about specifications. Another strategy was to have
three members of the Itelligroup team working permanently at
Hitachi's UK site. This allowed them to encourage team members to
"push back", and also to translate specifications back to the other
18 team members in Hyderabad.
In return, the Itelligroup team requested Hitachi-branded
materials to take back to their offices to help them acclimatise to
the new business environment.
Sharing the same time zone is a huge advantage to good
communication. The Hyderabad team works from 1.30pm to 9.30pm so
the staff are on hand. "It works for them too - they spend time
with their families in the morning and are in an air-conditioned
office at the hottest time of the day," says Moroney.