Offshore software development has been embraced by the vast majority of commercial software vendors and enterprise application development groups. Why? Because a world flattened by globalization makes it possible to improve competitiveness by taking advantage of the easy exchange of low-cost, high-quality technical skills. But despite the obvious cost and skill advantages, sending software projects offshore introduces new risks to your software development projects.
The global IT services market has exploded and is expected to continue its phenomenal growth. According to IDC, this market will hit $1.2 trillion by the end of 2006, compared with $300 million in 2004. And software development is the lead function to be sent offshore, as IDC expects half of applications to be outsourced by 2008.
According to a recent study by Duke University and Booz Allen Hamilton, high-end functions like software development are rapidly gaining acceptance as outsource candidates. And as the pattern of offshoring migrates from low-end to high-end work, the challenges faced by the management have moved from dealing with political backlash to more operational issues like retaining managerial control and gaining operational efficiency.
As application development becomes increasingly dispersed, those running these projects face a new twist to the age-old challenge of managing distributed software projects. Traditional team management techniques, like scorecards and site meetings, are ineffective and impossible to scale in a world where teams span vast physical, temporal, cultural, and organizational barriers.
Managers are finding it increasingly hard to get the facts needed to build a reliable picture of projects and to make informed decisions. Thomas Koulopolous, the founder of Delphi Group and author of Smartsourcing who recently participated in a 6th Sense Analytics online panel discussion “Building Software in a Flat World,” characterizes this loss of control as a major obstacle to working in a globally distributed environment. Koulopolous suggests that this problem is experienced by 35% of organizations engaged in offshoring today. The Duke/Booz Allen study agrees with this assessment, suggesting that loss of managerial control has trumped cultural and political issues as the primary challenge for offshore projects today.
Absence of factual insight can lead to missed deadlines, budget creep, and a fundamental erosion of trust and goodwill in relationships. The result? Companies waste billions of dollars each year in project overruns, cancellations and missed business goals, according to the Standish Group’s CHAOS report.
This whitepaper outlines a way for organizations to build a modern framework for managing distributed teams that overcomes the structural challenges of working across far-flung locations, and ensures projects come in as expected—on time, on budget and on target with business goals. This framework reuses your existing development infrastructure to restore visibility and empowered decision making within your globally distributed software development projects.
A Tale of Two Models
Recent hype has blurred the distinctions in offshore development models, making anything offshore nearly synonymous with outsourcing. While offshore outsourcing has garnered most of the attention, customers
are also beginning to engage in a model Gartner Group calls “offshore insourcing,” where companies own and operate the staff, infrastructure and processes by way of organic growth or through acquisitions in offshore locations.
While both approaches have different costs and benefits, both are united by the same challenge in maintaining visibility, trust and control when traditional management techniques are applied.
The challenges inherent in managing a global team have driven some customers to altogether rethink the notion of outsourcing to offshore third-party suppliers. The number of customers planning to use offshore suppliers is at its lowest in two years: 64% compared to 85% in 2004, according to the DiamondCluster International 2006 Global IT Outsourcing Study. Customers are breaking outsource contracts in record numbers because of discontent with suppliers’ performance and a feeling that outsourcing deals fail to live up to the anticipated benefits. In fact, 47% were terminated prematurely during the last year, as compared to 21% two years ago.
But the reality is that adopting an offshore insourcing model doesn’t necessarily resolve these challenges. The physical distribution of teams—insource or outsource—negatively impacts visibility and control, making it considerably harder to lead, manage and make informed decisions.
