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
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
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
Outside development, key tools include:
- Microsoft Live Meeting
- 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,"
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
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
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
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.
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.