In-Depth

Outsourcing: A Developing Relationship

How one software company successfully teamed with an international outsourcer to get its products to market.

While Deloitte Consulting LLP's most recent report on outsourcing cites a majority of projects ending up as failures, IT management continues to feel the pressure to outsource development as a way to accomplish the ever-impossible mission of doing more with less. According to one study Deloitte cites, about 66 percent of projects fail to achieve most or even any of the benefits the client was aiming for, while 78 percent of buyers end up cutting the engagement short.

While such engagements do fail, it seems they fail for a cluster of common but very avoidable reasons. There are organizations that have succeeded not just with outsourcing but with offshoring as well, which is the process of sending the jobs overseas. They've succeeded for several reasons.

eProject Inc., a Seattle-based Software as a Service (SaaS) provider of project management systems, has had unabashed success partnering with an outsourcing firm located in the Ukraine and in Redmond, Wash. ("The Ukraine of Washington State," as it's known locally). Since eProject has succeeded where the majority have failed, it's useful to know what it has done differently, and how it has built success while others have reduced development projects to piles of rubble with their own unreconstructed incompetence.

"We went out and got references for offshoring partners. The qualifications we were looking for were unusual," says Chris Lynch, eProject's vice president of engineering. "We were looking for quality of work rather than lower costs ... I was hiring locally, so costs were budgeted," he says.

"Quality was always the biggest need. Our specs called for a partner that was technically competent and independent, [who] would tell us what they thought we were doing right or wrong, and who would function as an extended part of our team. We wanted a peer who had enough expertise of their own to recommend content and coding techniques as well," Lynch explains.

The skill of this approach is borne out by the evidence of the financial results. eProject has expanded through a steady march of quarterly product updates to about $16 million in sales with over 125 percent growth in each of the last two years. Some choices are easy to follow by any organization trying outsourcing for the first time or improving other aspects of its existing outsourcing model.

The Right Reason Is Not Cost
While the most common reason the organizations the Deloitte survey queried were looking to outsource was cost-savings (70 percent), this wasn't the reason eProject succeeded. In fact, the focus away from cost-savings may have been its key success factor.

Lynch originally sought outsourced development resources because there was a shortage of skilled talent available in the Seattle metro area at the time. One of the organizations he found anxious to take on work in the United States was Validio Ukraine Ltd., with a business office in Redmond and project talent in the Ukraine's second-biggest city, Kharkov. Validio specializes in projects that require help in requirements definition, testing and support, as well as implementation.

eProject's Software Foundation

The eProject Inc. staff members use a wide spectrum of software to get their work done, based mostly on Microsoft operating systems with a mixture of non-Microsoft and Microsoft applications. The products used within their engineering group include:

  • eProject PPM6 for Scrum/Agile Project Management
  • Microsoft Visual Studio Team Foundation Server
  • Microsoft SQL Server 2005
  • Microsoft .NET Framework
  • AutomatedQA Corp.'s TestComplete
  • MediaWiki

Outside development, key tools include:

  • Salesforce.com
  • Skype
  • Microsoft Live Meeting
  • WebEx
  • Windows Live Messenger
  • Google Talk
  • Google Docs & Spreadsheets
  • Google Enterprise Search Appliance
  • Microsoft Word, Visio, Excel and Powerpoint

They run mostly Microsoft Windows XP, 2003 or Vista, with a small but growing fraction using Mac OS X.

"We put out a technical design doc, user requirements and the functional specs, and we asked how they'd do it," Lynch explains. "We didn't tell them too much ... We didn't want them telling us what we wanted to hear, but to see what they could bring to the table. We were looking in the response for project-team thinking more than we were the logistics of outsourcing," he says.

Lynch adds that there have been cost-savings relative to Seattle-based development, but that's a by-product, not the main course.

Integral Part of the Team
Rather than industrialize the process-exhaustively define the specs then sub-contract out the work to outsiders as though manufacturing sub-components-the eProject employees work as peers with the people who get their paychecks from Validio.

The eProject staff members update each other every single day in stand-up meetings, an artifact of their commitment to Agile project management techniques that complement their Agile development methods. The Kharkovians are part of those meetings. Participants practice a staple of stand-up meetings: What did you do and find out yesterday, what's on your list today, what's coming up next that we should consider or knit into today's plans?

All the development talent marinates in the shading, knowledge-immersion and exchange that happen in the quotidian practice of fine-tuning the day's output. This follows the principles of the most -- perhaps the only -- successful school of development management thought, which is elaborated by Timothy Lister and Tom DeMarco in their book "Peopleware." The "Peopleware" approach involves, among other practices, mutual coaching, with everyone being a coach on some topics and a learner on others, with management committed to making room for that activity. eProject employees actively encourage the process and work from the presumption, which can be self-fulfilling, that the team members from Validio will bring as much to the knowledge environment as the Seattle team members.

No Loss of Quality
The Deloitte study doesn't cite a concrete percentage of service buyers' overall disappointment with the quality of outsourced work, but they mention it enough to make it clear that in the general outsourcing case it's a significant drawback.

Because eProject makes it clear that quality is a goal, and because the Validio part of the team is so thoroughly knit into the everyday work of the group, Validio staff will turn down immediate profits to reinforce project quality.

At one of the quarterly planning meetings where a cross-section of the talent from Kharkov was in Seattle (eProject alternates quarters, sending part of the team to Kharkov every other quarter), Project Manager Tatyana Yanush, software engineer Oleksandr Megel and quality assurance engineer Marianna Almakaieva attended. When a manager on the Seattle part of the team sought a Kharkov resource for documenting some software development kit (SDK) methods, Yanush pushed back, essentially turning down billable hours, because she believed the job could be more effectively delivered by someone with proximity to the SDK's Seattle authors.

Diffusion of Knowledge
Daily stand-up meetings are high-velocity knowledge-transmission vehicles, but not everyone can attend every meeting. Also, what knowledge management honchos call "institutional memory" -- wisdom both explicit and unspoken -- isn't ultimately reusable in quick meetings.

eProject's remedy to this is to have one of its senior team members maintain an outline-shaped institutional memory in a wiki container. The team member updates it during meetings based on consensus understanding of decisions and issues.

Tag-Team Process
Proximity, whether geographic, cultural or domain understanding, is the single ingredient that -- if missing -- is the factor most likely to crush the value out of outsourcing. The rubbing elbows with end users, seeing them work in their jobs, overhearing their concerns, watching them interact with the end products of developed code -- all these inputs inform developers in ways you can't replace with even a perfect specification, and it doesn't make a difference whether the outsourced coders are in Calcutta or Cleveland.

eProject has figured out not only how to partially neutralize the 10-hour time difference between Seattle and Kharkov, but appears to have actually turned it into a virtue. At the end of every workday, the people on the team in one location send a detailed e-mail message to the other shop so the antipodal team can work on those tasks deemed most critical while the senders are at home. Like a pro wrestling tag-team, the paired groups pass work back and forth, resolving issues and speeding delivery against calendar time.

They don't tag-team everything, though. "There are certain times that we need very quick turnaround. If we need a solution within a day, we may not go to Validio. But if we have more than a day, we're fine," Lynch states.

A final method that reins in the quaquaversal nature of offshoring skilled work is that Validio has chosen to have its staff work entirely in the client's language. Perhaps unsurprisingly, the Ukrainian team members in Seattle speak English to each other even when no Seattleites are around. But this rule holds even in Kharkov, even when there are no native English-speakers present. Using common language tugs thinking into alignment.

Other Factors
While the eProject outsourcing model has many components you can copy, there are a few you probably won't.

Agile development methods, which lean towards evolutionary releases, fit its SaaS deliverable very precisely. eProjects' quarterly planning meetings dovetail perfectly with its quarterly release schedule, an affordance it wouldn't likely have if its deliverable was a set of client-server executables that had additional change management overhead built in.

eProject was founded with a strong knowledge-management practice, even before specific software it uses had come into existence. So the company, even with rapid growth, has shot up around a knowledge-sharing ethic driven by upper management. Executives like Lynch and Christian Smith, the vice president of sales and marketing, witnessed in previous rapidly-growing start-ups the diseconomies of scale that come with corporate expansion. They very deliberately set out to pave the path with sensible, explicit organizational designs and methods based on management innovation. Also, they hire in part based on how well the talent is predisposed to fit into their collaboration-rich, knowledge-sharing teamwork model.

"The commitment to using Validio forced us to tune our knowledge sharing in even sharper ways," Lynch notes.

If your organization did not grow up on top of a knowledge-management ethic, it's a bigger challenge to insert it at an advanced stage than it is to maintain it from organizational conception or adolescence.

Regardless, as the pressure to deliver more projects while not adding to staff seems inevitable, many can ponder the outsourcing lessons eProject offers.

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