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Shailendra Palvia, a professor at Long Island University, and cofounder of the Center for Global Outsourcing, in Atlanta, suggests reversing the usual process for selecting an outside contractor: Choose a destination country before choosing which outsourcing supplier to use. "India is a prime destination because people there speak fluent English, both American English and British English. That removes one huge barriercommunicationimmediately," Palvia says. "If you do not have that constraintif your company already has a lot of Chinese workers, for instancethen you can consider China because their services cost a bit less than what you'd find in India. Or you might want to go to the Philippines for call-center outsourcing, because the Philippines offers a cost advantage some 20 percent less than India." There are, of course, other things to consider. India, with its long history as a British colony, has a highly evolved legal system based on the U.K.'s system. China, still new to free-market competition, has a legal system that Western companies find far more complex.
Attorney John Yates, head of the technology group for law firm Morris, Manning & Martin LLP in Atlanta, warns that while such "sleeper" issues as confidentiality, privacy and security aren't yet on the front burner for IT managers, they should be. "We can be assured that there will be massive litigation resulting from these issues," Yates says. "That will increase costs and make outsourcing less attractive." You think it's bad dealing with U.S. attorneys? Just wait until you need to hire attorneys in India, the Philippines and the United States. "We're going to see best practices emerge largely out of litigation in this area," he says.
Once you've chosen a region, select one or possibly two of the top competitors to complete a short-term pilot project. "Give them something that requires perhaps six months to a year," Palvia advises. "If the experience is good on a less mission-critical project, that lays a good foundation." Before work begins, Palvia suggests negotiating a detailed service-level agreement that spells out exactly what the outsourcing firm is meant to do.
Even with a clear-cut agreement, managing the relationship can become the next headache. Expectations about who completes what, and when, must be made absolutely clear, despite differences in language, culture and experience. "We tend to get involved when things have gone wrong," says Stuart Morstead, a cofounder of ISANI Group Inc., an offshore advisory consultancy based in Houston. "In a domestic environment, projects might be successful in spite of themselves. But offshore, no amount of luck will get you over a poor management hump."
A key problem for many companies, Morstead says, is the tendency to hand off an IT project to an outsourcer, then fail to check on progress until shortly before the entire package is scheduled to be done. "Your requirement specs have to be much more sophisticated," he says. "It's not like having IT on one floor and business units on another floor for whom you're building a new application. Domestic IT has a lot of access to the user community to validate design, but that's not going to happen 12,000 miles away. You have to be very, very clear from the start." Even then, he warns, an outsourcing firm's lack of familiarity with a given industry's needs can complicate matters.
Building regular checkpoints and goals into the contract, such as completing certain features within a given number of days, can help defuse disagreements before they gain traction. "The old rule of garbage in, garbage out still applies here," Morstead says. "If your provider is not accustomed to challenging the specs you've provided, even if they're gibberish, you're going to end up in trouble. Better to find that out early."
Putting experienced people in charge of the project on the domestic side can make all the difference. Don't jettison the entire in-house IT staff when the offshore partner is brought on board. There are still key management roles that experienced personnel should perform, including weaving together code generated overseas with domestic systems. When companies outsource a critical function like IT, says Rudy Puryear, a director at Bain & Co. in Chicago, they must retain key IT managers familiar both with what's happening overseas and with local technology issues.
While the cost savings are nice, many companies ultimately choose to outsource because of the flexibility inherent in the relationship. Rather than ramping up domestic full-time staff to handle larger IT projects, then paying them to sit idle during slower periods, outsourcing allows corporations to have the skills they need when they need them. Glickman, formerly of DFS Group, likens this to "just-in-time" manufacturing, in which the parts needed to assemble a product are created within hours of the finished item rolling off the line. "I didn't want to invest my fixed salary in specialized skills waiting for projects and problems to address," Glickman says. "This way I could come in on a just-in-time basis and have that as a variable expense."