Creating A Business Advantage With Offshore Resources

Creating A Business Advantage
With Offshore Resources
White Paper

info@kpipartners.com | www.kpipartners.com
© 2011, KPI Partners Inc. All rights reserved. No part of this material may be reproduced or
stored in a retrieval system without the written permission from the authors.

Table of Contents
Offshore Development In Fortune 500 Enterprises ......................................................................................................... 3

Global Offshore Market Scenarios ....................................................................................................................................................... 3

The Offshore Technology Center Concept ........................................................................................................................ 5

Offshore Technology Centers .............................................................................................................................................................. 5
Advantages Of The Offshore Technology Center............................................................................................................................... 6
Quality: The Knowledge To Do Nearly Any Job Well .......................................................................................................................................................... 6
Cost: Savings Of Over 50% Are Typical .................................................................................................................................................................................... 7
Start-Up Time .................................................................................................................................................................................................................................... 8
Communications ............................................................................................................................................................................................................................. 8
Security – Data and Intellectual Property Rights ................................................................................................................................................................. 9
On-Time Delivery ............................................................................................................................................................................................................................. 9

Return-On-Investment Through Offshore ...................................................................................................................... 10

Indian Offshore ROI: Risk Adjusted .................................................................................................................................................. 10
Discovery .......................................................................................................................................................................................................................................... 10
Development Model .................................................................................................................................................................................................................... 11
Metrics ............................................................................................................................................................................................................................................... 11
Phasing .............................................................................................................................................................................................................................................. 11
Overhead .......................................................................................................................................................................................................................................... 11
Assumptions ................................................................................................................................................................................................................................... 12
Risk ...................................................................................................................................................................................................................................................... 12

Candidates For Offshore................................................................................................................................................... 13
Key Success Factors........................................................................................................................................................... 14
Appendix I: Engaging The KPI Offshore Technology Center ........................................................................................ 16
Step 1: Team Identification ........................................................................................................................................................................................................ 16
Step 2: Acclimatization of Client’s Processes....................................................................................................................................................................... 16
Step 3: Process Definition ........................................................................................................................................................................................................... 16
Step 4: Offshore Environment .................................................................................................................................................................................................. 16
Step 5: Project Execution ............................................................................................................................................................................................................ 17
Typical Offshore Development Cycle ................................................................................................................................................ 17
Monitoring Offshore Technology Center Activities ......................................................................................................................... 18
Organizational Model ......................................................................................................................................................................... 18
Offshore Component ................................................................................................................................................................................................................... 19
On-Site Component For Blended-Shore Models ............................................................................................................................................................... 19
Security Policy ..................................................................................................................................................................................... 19
Access Rights .................................................................................................................................................................................................................................. 19
User Login and Firewalls ............................................................................................................................................................................................................. 20
Physical Security ............................................................................................................................................................................................................................ 20
Offshore Technology Center Experience .......................................................................................................................................... 20
Knowledge Retention .................................................................................................................................................................................................................. 20
Work Structuring and Workflow Management .................................................................................................................................................................. 20
Ownership of Delivery ................................................................................................................................................................................................................. 20
Configuration Management...................................................................................................................................................................................................... 21

About KPI Partners ............................................................................................................................................................ 22

© 2011, KPI Partners Inc. All rights reserved. No part of this material may be reproduced or stored in a retrieval system
without the written permission from the authors.

2

This white paper discusses how KPI Partners leverages the offshore and blended-shore model for
higher market growth and business advantage.

Offshore Development In Fortune 500
Enterprises
Offshore outsourcing is now a mainstream practice for Fortune 500 Enterprises as more and more
companies are going offshore to develop and maintain software. Microsoft, GE, Bank of America,
American Express, and Oracle are examples of such enterprises. Surveys by the Indian National
Association of Software & Services Companies (NASSCOM) and Gartner Group found that 40% of
Fortune 500 companies are outsourcing some aspect of their software development.
The reason is simple: outsourcing saves time and money. The development of customized
software requires a detailed understanding of business processes and the way IT supports those
business processes. Building an effective offshore partnership requires much effort and delicate
handling by senior managers.

Global Offshore Market Scenarios
Although Indian vendors dominate today’s offshore market with an estimated 80% to 95% of
offshore revenue, countries like Ireland and Israel are building their own successful capabilities and
many foreign companies are planning to compete for the American market.
The level of the projects and processes moved offshore is becoming more sophisticated. Five years
ago, U.S. companies primarily sent cost-sensitive, trailing-edge projects offshore (e.g., legacy
maintenance, conversions and migrations). As the offshore firms proved themselves successful, their
customers began to send higher-level IT work offshore (e.g., applications and web development,
enterprise integration, ERP work, and e-business development).
Processes to enable global software development efforts or offshore application management have
been tweaked and streamlined throughout the years. Although Indian companies may not use any
special coding tools or techniques beyond what U.S. enterprises use, their meticulous approach
toward these processes — preparing documentation, planning for alpha and beta releases,
establishing user acceptance procedures, regression testing procedures and collecting metrics
during development activities — has aided in the industry’s success.
The offshore industry is highly dependent on first-class communications to sustain current and
future growth. Voice and data communications from Indian data centers to the United States or
Europe are excellent.

3

Cultural issues are better understood. Cultural issues play a significant role. The use of offshore
contractors has in some cases provoked substantial resistance from programmers fearing for their
jobs. Simply importing foreign personnel to customer sites opens the door to many abuses--and
potential liability. For these reasons, the Indian market is de-emphasizing customer-based
engagements in favor of performing the preponderance of work at the offshore site. Typically,
however, some on-site presence is required as is depicted in KPI’s offshore development process in
Appendix I.
The advantages have become clear. Cost savings was the primary reason US clients began to adopt
the offshore model in the early 1990s. The major drivers in the past few years have gone way beyond
cost — although current economic conditions have caused cost to once again become the No. 1
reason customers are exploring offshore outsourcing today. Other drivers include:
•
•
•
•
•
•

Time to market
Available and flexible talent pool
Quality
Higher productivity
A 24-hour workday for support activities
Quick ramp-up

The cost dynamics and workforce mix are changing. Many countries, such as India, derive their
competitive cost advantage from performing high-margin activities offshore. The general goal is to
perform 70% to 80% of programming activities offsite (which increases margins, while lowering the
overall cost to enterprises) and achieve approximately 50% of export revenue offsite (equal split with
onsite revenue).


4

The Offshore Technology Center
Concept
Business demands for IT solutions have never been greater or more complex. They include clientserver, data warehousing, ERP implementation (both back office and front office), sales force
automation, knowledge management, and Internet (Intranet, extranet, e-commerce). IT managers
know that there is a tremendous shortage of key qualified IT resources that is growing significantly
each passing year. Given the demand and the skills shortage, offshore outsourcing is the perfect
solution.
In India, the largest supplier of IT outsourcing services, IT exports have grown from US $30 million in
1989 to over US $2.7 billion in 1998. The growth has been continually compounding at a rate over
50% per year for the past several years.
There are several factors that clients cite for offshore outsourcing. At the heart of all these is the
inability to find qualified IT resources. Clients also mention accelerated delivery / time-to-market
factors, higher productivity and quality (often significantly better then they can deliver themselves),
fixed price contracts, and significantly lower costs.
Keeping in view these critical factors, the Offshore Technology Center concept was designed. Under
this concept, KPI provides the entire infrastructure and a full-time development team to the client at
a dedicated KPI Partners Offshore Technology Center (OTC). The processes, methodologies, and
standards of the OTC are designed to keep the client’s concerns on offshore development and
development requirements into view. Depending on the client’s requirement the team at the OTC
can be expanded and scaled to quickly meet the growing needs of the client.
In a blended-shore model, a part of the development team may be located on-site at the customer's
facility.

Offshore Technology Centers
KPI Partners provides all the infrastructure requirements and a specified number of full-time IT
personnel within the Offshore Technology Center. Part of our team may be located on site at the
customer's facility in a blended-shore model. The client typically only furnishes unique hardware and
software to the OTC team. The processes, methodologies, and standards of the Offshore Technology
Center may be those of either KPI’s or the client.


5

Advantages Of The Offshore Technology Center
The following table presents some of the advantages of an Offshore Technology Center versus inhouse development.
Quality & Technical Expertise

Some of the best talent is made available. All the latest
development tools and training are available.

Cost

Reduced investment in hiring and training skilled resources.
Reduces costs and risks.

Start-Up Time

Often much faster than trying to staff an in-house project.
Small projects can be started in a few days and large projects
in a few weeks.

Communications

Satellite, Internet, voice, and video conferencing technology
are available and can be used to reduce project failure risks.

Security

Excellent security, both physical and intellectual. The
methodologies typically include internationally enforceable
non-disclosure agreements as well as physical/IPR security.

On-Time Delivery

Improves delivery schedules, thereby, increasing
competitive edge. Delivery guarantees are often provided.

Scalability

Teams can be ramped up or down sized quickly. Physical
resources like space, equipment, etc. can be mobilized
quickly. Alleviates the problem of resource mobilization,
especially, in critical situations, enabling internal

Quality: The Knowledge To Do Nearly Any Job Well
Many of the world's major software programs are developed in whole or in part offshore. Nearly all
of the Fortune 500 enterprises use offshore development services or have their own branches set up
offshore. Training on the latest technologies and modern hardware are easily available. A large
number of centers are ISO 9000 certified and / or SEI CMM compliant. In short, the ability to do
nearly any software project is available offshore. KPI’s offshore quality processes are SEI
CMM Level 3 compliant.


6

Cost: Savings Of Over 50% Are Typical
KPI can save companies over 50% of the costs of hiring personnel and even more if the solution was
to use contractors. Clients wind up with all the normal outsourcing benefits of no continuing
personnel cost obligation and have a much lower cost as well. In general, here are ballpark costs that
can be presented to the potential clients:

Developers

Generally, $35 to $55/hour, depending on the type of work.
Some work can be done for less, while specialties can cost
more. There is usually an overhead cost for project
management but negligible for long term projects.

Data, Voice, and Video

Minimal if requirements are not excessive and the Internet
can be used. Dedicated Satellite links with highly secure
connections are readily available at KPI now.

Travel & Lodging

Nearly all the large projects necessitate some members of
KPI team to be at the client site for spec gathering in the
beginning. Large projects may mean KPI personnel at client
site throughout the project.

Equipment Costs

KPI has a fully equipped developmental lab, with state-ofthe-art desktop systems and a dedicated 128 KBPS
communication link. Additional local government sops /
incentives are also available for IT exports.


7

Start-Up Time
The actual time it takes to get clients project started at a KPI Offshore Technology Center depends on
several factors:

Project Size

KPI does not have a huge numbers of developers simply
sitting around waiting for offshore work. However, KPI can
free a few developers to start small projects or to get started
on a portion of larger projects. Project managers are
another key element. KPI can get started on a client project
rapidly and far quicker than staffing a project internally

Project Type

If a project requires special training, it will take extra learning
time. KPI usually sends personnel to client site for
knowledge transfer sessions where a team leader will go
through the training phase before returning and to train the
rest of the offshore personnel.

Specifications

In nearly every project, some time must be devoted to
gathering and submitting specifications. If a project does
not have proper requirements and design documentation,
more time must be allocated.

Communication

With any team-oriented working environment, you can
expect a period of time to establish good rapport and
communication between client’s key people and KPI’s
offshore personnel.

Communications
KPI has setup dedicated communication links to optimize the interaction with the team at the client
site. It is now easy and inexpensive too to exchange data, voice, and video over these secure links.
Phone is fairly inexpensive, as we have implemented voice over IP within our KPI Offshore
Technology Centers.


8

Security – Data and Intellectual Property Rights
Security is an issue, but projects sent offshore are generally no more at risk than anything outsourced
domestically. KPI offers security that is on par with US corporations. Extensive background checks
and identification is required for anyone entering areas that have customer code. India has made
Intellectual Property violations a non-bailable offence.
KPI is a US Corporation, which means any contracts the client signs are governed by US law, and
disputes would be handled in US courts.

On-Time Delivery
Huge cost savings are of no value if there are delivery delays. Experienced project managers that
know how to properly set schedules, create realistic expectations, and maintain communication with
clients are essential. KPI works closely with clients to develop realistic schedules, goals, and
investment projections.


9

Return-On-Investment Through
Offshore
A recent industry study by Giga Group, considering the use of Indian offshore companies for
application development and / or support, showed upward of a140% return-on Investment (ROI)
with a very conservative model and fully burdened with risk.
Figure 1 shows expected ROI, risk adjusted, with volume of activity sent offshore. What is interesting
to note is the "knee" in the graph, indicating the critical mass point in terms of volume. At this point,
fixed and overhead expenses have been maximally amortized and variable costs begin to dominate
the ROI.

Indian Offshore ROI: Risk Adjusted

The model assumes an initiation period where the transition to outsource would take place. During
this time, KPI prepares by performing the following tasks to the potential client:

Discovery

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Conduct a comprehensive discovery of all software development and identify those projects most
viable for immediate outsourcing, along with those that may be outsourced after some experience
and those that should most likely not be outsourced. An additional discovery point to be addressed
during this task is the identification of overlapping or duplicate functionality across applications, or
the opportunity to combine one or more applications and eliminate support costs.

Development Model
Develop a full life-cycle development model for outsourced software development. This would
include the documentation needed with examples or instructions, the decision points along the way,
and program management if necessary.

Metrics
Create an effectiveness measurement system and create a baseline for measurement. This will be
used to ensure expected cost benefits are being received as well as consistency in quality and cycle
times.

Phasing
Begin outsourcing in a phased approach, moving more and more offshore over time, starting with
some initial pilot projects.

Overhead
In addition to including costs at typical fully burdened US labor rates for the task list stated above,
the model also considers the following overhead items:
•
•
•
•

Dedicated communications links for the duration of outsourcing
Dedicated program management for both companies in both countries
One time "hit" for contract termination, after initial period of performance, to bring work back
in house (worst case scenario)
Travel and expenses (T&E)


11

Assumptions
Other assumptions factored in by the ROI model above include:
•
•
•
•

Constant presence by KPI personnel at the client site for 25 percent of the time with the rest
at the offshore center.
Cost escalation of 10 percent per year, applied to all costs.
Discount rate of 30 percent for all net present value calculations.
Three-year period of performance.

Apart from the cost savings, the KPI ROI model does not consider potential value benefits delivered
through faster cycle times and better software quality.

Risk
Risk is also applied to the model using triangular distribution approach, which requires a low, most
likely and high estimate as bounds of potential costs and savings. Risks to cost savings are modeled
as ranging from yielding 50% of the expected cost savings to yielding 100%. That is, potential
savings are conservatively modeled as being bounded, on the high side, by the estimate.
The estimate is calculated using a rate ratio (KPI’s offshore labor rate in a 25%/75% on/offshore mix
divided by typical US labor rate) and multiplying that rate ratio by the volume of work to be done
offshore. Risks to cost savings are primarily attributable to the potential for poor requirements
definition, resulting in lengthened, iterative cycles. Risks to cost are modeled as ranging from 90% of
the estimate to 200%, the latter of which would represent a two times cost overrun. Risks to costs
are primarily attributable to overcoming organizational inertia.


12

Candidates For Offshore
Companies with a fairly large IT setup – over 50 in-house employees focusing on software
development or maintenance should consider an offshore technology center, since time and
substantial resources are required to setup and monitor the offshore development. To reap the
benefits of offshore centers, care should be taken to look at and address the needs of the company
as a whole. This is best strategized and driven by a senior IT leader – such as Chief Information
Officer.
Client projects in the following technology areas, suit well for offshore development, as they are in
the top priority* of any CIO:
•
•
•
•
•
•
•

Business Intelligence Applications
Packaged Application Transitions
E-Commerce Infrastructure Security
Data Mining / Warehousing
Middleware/Messaging
Distributed Process Management
Mobile / Remote Access / PDA

Considering the management issues* that concern CIOs of today, the following issues lend well for
offshore implementations:
•
•
•
•
•

Business/IT Fusion
Demonstrating Bus. Value
IT Skills (Recruit, Retain, Reskill)
Process / Project Management
Knowledge Management

* Based on Giga Information Group, 2002


13

Key Success Factors
The success factors for utilizing an Offshore Technology Center depend of a number of factors, the
most important ones are listed below:
1.
2.
3.
4.
5.

Process Methodology: a fully documented software development methodology
On-site Project Manager: a clear-cut conduit between client and on-site / offshore teams
Common Terminology: a dictionary of agreed terminology
Version Control: a documented version control / configuration management process
Clear Contracts: high quality outsourcing makes it essential for client companies to have
expertise in writing contracts and in managing vendor relationships. In software, as in other
partnerships, a successful offshore partnership requires a high degree of due diligence and
commitment from both sides.
6. Site visits: information about capabilities, tools and expertise of vendors is sketchy, so on-site
visits, as well as research / references, are essential.
7. Service level agreements: once the decision is made, it is critical that the service levels are
well defined for resources, performance incentives, and quality.
8. Pilots: in order to test out the waters in offshore development, it is suggested that the less
critical projects are moved offshore first to gain a level of comfort. Support projects lend
themselves well to building confidence. After less critical projects are tried out, development
work can be fully trusted to an offshore partner. This way the rapport and the process
improvisation happen on the way and rough edges can be smoothed out.
For outsourcing to give the best results, the vendor must:
•
•
•
•

Provide trained staff
Have operational excellence
Offer knowledge transfer through well-planned training schedules
Consider factors like: Internal dynamics, timing, changes in internal or business
circumstances during the project definition and planning stages

All of which are fully demonstrable and available at KPI Offshore Technology Center. The client on
the other hand, must:
•
•
•
•
•
•
•

Ensure that the vendor’s business model and skills match their requirement
Provide complete support to the vendor
Quantify the crucial measures, service levels and expectations
Not have expectations for unrealistic levels of performance
Not set cost structures that prevents the vendor from making a profit
Not put constraints on the outsourcing vendor’s methodology
Not undercut staff to a point where the technology transition turns difficult


14

It is increasingly becoming important for companies to outsource their software needs to an offshore
development center. Any company that is considering establishment of offshore or blended-shore
model should have a thorough understanding of their benefits and limitations along with a strong
management plan. A disciplined approach in establishing offshore development, moving less critical
projects first and then gradually moving more complex / critical projects later can save lots of heartburn and revenue.


15

Appendix I: Engaging The KPI Offshore
Technology Center
The following are the typical onboarding steps for engaging a KPI Offshore Technology Center as a
seamless extension of your software development facilities.

Step 1: Team Identification
The setup activity begins with the hand picking of technical/domain experts and programmers with
the required skills.

Step 2: Acclimatization of Client’s Processes
After this core team is in place, application and systems knowledge are transferred with the
coordination of client experts. This activity typically takes place at the client site.

Step 3: Process Definition
A process methodology is defined and customized to meet client requirements. This is a key step in
the whole process; as teams separated by time and space need to follow agreed procedures and
processes to ensure high quality of deliverables. This methodology also includes checkpoints and
protocols and review mechanisms, to remove ambiguities in communications. Use of standards and
tools is identified and incorporated.

Step 4: Offshore Environment
Simulation
The defined methodologies and processes are tested and fine-tuned, often with the core team
working from the client facilities for a brief period in a simulated offshore environment. The initial
results and prototyped deliveries are checked against the agreed norms for compliance. If there are
any deviations, the services level agreements are further refined. This cycle is continued until the
requirements are met, confirmed and signed off.
Infrastructure
As a sub-step to this activity, a seamless IT environment is created offshore with communications
links to client facilities. Depending on the requirement the Offshore Technology Center team is
inducted at the offshore site. Some of the core team members return and train the offshore team on
specific systems and applications, thus completing the offshore setup of resources.

16

Step 5: Project Execution
The Offshore Technology Center team is now ready to execute projects for the said client. This will
ensure on time, on budget deliveries using the quality process and methodologies.

Typical Offshore Development Cycle
The figure below depicts a typical offshore development cycle, where, a 24-hr work cycle can be
achieved.

Fig. 1: Typical Offshore Development Cycle


17

Monitoring Offshore Technology Center Activities
With the advent of Internet and point-to-point leased networks, it is possible to monitor the offshore
projects / developments at micro / macro level. The following are the typical methods of monitoring
remote offshore development:
•
•
•
•
•
•

Online document reviews
Weekly status reporting – telephone & video conferences
Monthly management reviews
Milestone based management review visits
E-mail & fax
Performance based dashboards

Organizational Model


18

Offshore Component
The key roles involved in offshore project management are:
•
•
•
•

Project Manager
Project Leader
Team Members (Software Engineers)
Quality Manager

A Quality Management System clearly defines roles and responsibilities for all positions (Project
Manager, Team Leader and Software Engineer).

On-Site Component For Blended-Shore Models
The key roles involved in an on-site presence are:
•
•
•
•
•
•
•
•

On-site Project Manager
Team Members: All reporting to On-site Project Manager
On-site Coordinator
DBAs
Business Analysts
24 X 365 Support Personnel
Application Developers
System Testers

Security Policy
A documented and reliable security system is followed, which provides protection from
unauthorized access to, or disclosure of, information. The security system covers all three-core
components of IT security:
1. Confidentiality, or the prevention of unauthorized disclosure of information.
2. Integrity, or the prevention of unauthorized modification of information.
3. Authorization, technology tools for controlled information flow

Access Rights
Project specific access rights are given to the developers facility group regularly which verifies
authorization and also controls and monitors out-bound mail attachments.


19

User Login and Firewalls
The logging into network by any user is unique and workstation dependent. Changing of passwords
is automatically prompted to users after every fortnight. The employees also need to sign a nondisclosure undertaking.

Physical Security
All employees need access cards to enter into the office. The access system tracks the entry / exit of
all employees. Media movements are allowed only if they are duly checked, registered and
authorized.

Offshore Technology Center Experience
Based on the rich experience of our core team in building and managing Offshore Technology
Centers, we have identified the following issues in setting up of OTC team and have evolved a set of
strategies to mitigate these risks.

Knowledge Retention
Retention of knowledge is crucial to the OTC concept in the software industry due to high attrition
rates.
We have taken several measures to address this:
•
•
•

Structured project execution/management processes to reduce dependence on individuals.
Incentive schemes to motivate people.
Planned job rotations to provide growth opportunities.

Work Structuring and Workflow Management
“Look forward” planning is undertaken to ensure adequate availability of resources as needed.
Aggressive hiring and continuous internal training contribute to build staffing level and mix to
match workflow requirements.

Ownership of Delivery
For each OTC team, we identify unique “relationship owners” who are responsible for all customer
interaction. These managers are fully empowered to take all decisions required to meet client needs.


20

Configuration Management
As an OTC team works as an extension of client organization, close control over common items is
important. Our configuration management procedures cover the collaborative approach to
common work items.


21

About KPI Partners
KPI Partners is an experienced Oracle Business Intelligence (BI) and Hyperion Enterprise Performance
Management (EPM) systems implementation partner. Service offerings include consulting services,
training, and exclusive pre-built analytical applications. As a Platinum level member of Oracle
PartnerNetwork, the experts at KPI Partners have successfully completed many complex
implementations of Oracle BI and EPM. Along the way, KPI has been honored with the Oracle Titan
Award, the Oracle Excellence Award, and as Oracle Specialized Partner of the Year.
Find them at kpipartners.com.


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Creating A Business Advantage With Offshore Resources

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