Far From Home

Forrester Research recently revised upward the near-term impact of offshoring, saying an additional 240,000 services jobs will be outsourced next year, raising the total to 800,000. In addition, approximately 30 percent of enterprises are engaged in early-stage offshore development efforts. And customers in almost any industry are candidates to move certain IT tasks offshore--particularly help desk and application-development and maintenance.

Four sectors that are heavy users of offshoring services are the automotive, manufacturing, insurance and banking industries. What they all have in common is the desire to lower their application development and maintenance costs.

For example, Toyota's Lexus division found itself looking to India when it wanted to bring the manufacturing of its popular RX330 SUV to the United States. More specifically, it needed to develop an application that would support American vehicle-identification numbers (VIN) in order to push those cars off the lots. So, in an ironic twist, just as Lexus was making its debut in an American manufacturing plant, Toyota was using offshore developers in solution provider Keane's Bangalore development center to recode its legacy application. The eight-week "code-renovation project" cost the customer about $120,000.

Turns out, though, that Toyota had been embracing a near-shore outsourcing strategy in Halifax for several years before deciding to try resources in India.

"We wanted to walk before running," explains Brian Mason, national manager of application management services at Toyota Motor Sales USA, Torrance, Calif. "We felt this would be a controlled candidate to see what our experience would be like."

Toyota's relationship with Keane dates back to 2001, when Keane was tapped to manage the break-fix of Toyota USA's mainframe and AS400 code, Mason says. The idea was to have Keane handle low-level tasks like adding a column or field to a report. That freed up Toyota's existing IT developers in the United States to take on a significant business-transformation effort. While the maintenance of those legacy systems was not a trivial task, Mason says, Toyota was looking to move its in-house programmers to higher level functions, such as architecture, design and project management.

"We needed our best internal subject-matter experts freed up to really work with some of the application service providers on some of those large projects," Mason says.

For the VIN project, Toyota USA wanted an even cheaper place to do business. The cost of reprogramming the VIN application would have been approximately $50 in Halifax. But using Keane's Bangalore development center came out to about $28 per hour.

"We were very pleased with the quality of the results, the timeliness and the fact that we think we've gotten a very competitive dollar figure," Mason says.

Keane has maintained a good relationship with Toyota by going out of its way to understand its business requirements. In fact, Keane's ability to get close to the customer is also why the solution provider has won numerous nearshore and offshore outsourcing contracts of late. One major win was a $20 million deal with Schneider Electric for the software maintenance of several systems, including Cobol/CICS, Sybase PowerBuilder, and Oracle.

"We didn't demand going offshore--what we demanded was significant cost savings and significant quality improvements," says Mark Bolton, vice president of Schneider's North American operating division. "I didn't have a preference for how they did it. I didn't have a preference for where they did it."

On Guard
As recently as three years ago, Guardian Insurance had never outsourced any software development and maintenance offshore. But when Dennis Callahan arrived as the company's new senior vice president and CIO a few years back, he believed the company could reduce costs and improve software quality by outsourcing development offshore. Having successfully done so at AIG and Goldman Sachs, Callahan determined there was a ripe opportunity to reduce costs.

Initially, Guardian chose two specific applications centered around policy administration. After researching offshore-development firms, Guardian came up with a list of 12 providers. It issued an RFP, developed a shortlist of four finalists and visited them in India. In the end, Guardian chose two providers: India-based Patni and U.S.-based Covansys.

What were Guardian's key requirements before selecting a provider? Vertical-industry knowledge was a given, but the company also wanted a solution provider that was big enough to handle its exacting needs yet not so big that Guardian would get lost in the shuffle, says Shelley McIntyre, second vice president of business technology services, responsible for overseeing the company's offshore outsourcing effort. "We had to be important to them," McIntyre says. Having a strong domestic presence was important, too, though where the company was actually headquartered was not as important to Guardian.

"They had to be willing and flexible to meet our terms and conditions," McIntyre adds. Among those terms and conditions were competitive factors--a developer could not work on a project of a similar product line for a competitor. Also, the provider had to be willing to conduct background checks on employees. And cost was a consideration as well.

Banking On Offshore
For many customers considering offshore outsourcing, goals and motives change, as do economic and business conditions. When Mellon Bank first considered offshore development in 2001, its intent was to augment a staff shortage, according to Chris O'Brien, a senior vice president at Mellon.

"We really drove away from looking at this as a supplemental staffing type of exercise to be one much more of how we deliver our base capabilities at a lower cost more effectively," O'Brien said, speaking at a recent offshore outsourcing conference in New York.

Mellon developed a list of 10 potential offshore service providers using the Web and other research available. After going through an RFI process, the list was narrowed down to five. Financial strength, a portfolio assessment, the list of clients and calls to references were all considered. After taking a trip to India and going through legal contract negotiations, Mellon ended up going with Conversys and Infosys.

Going with two providers was a critical part of the plan from a risk-mitigation standpoint, O'Brien says.

"It really helps keep the vendors on their toes when they are competing for the work that you've got in hand," she says.

To make the engagement work effectively, her organization developed standard work-order templates that fit within the master contract. That assures everyone who executes a work order is complying with the contractual requirements. The second key area is tied to financials. Mellon wants to know what it's saving.

"We've implemented a financial model we use to evaluate every piece of work that comes through," O'Brien says.