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.