February 06, 2006
Case categories include: Human Resources International Business Operations
By Robert Sher
What a GREAT idea! Rather than having an office close to home where management is already in place, why not open that office 12,000 miles away, and staff it with people for whom English is a second language, and who are from a very different culture? They won’t bother us with questions all day because they’ll be working when we are asleep. Best of all, they’ll work for a fraction of what workers charge here, and they are telling us to just send the business over and they’ll figure out any details we don’t explain. It sounds too good to be true (hint!).
I know, you think I’m crazy. But you’ve already guessed – I’m talking about off-shoring. My description above is, sadly, the way it is being approached by many major firms. Not surprisingly, off-shoring has not turned out to be a panacea. Yet it is a solution. As logic would dictate, it is a complicated solution that must be approached rationally and prudently.
When you need to be always on
Ed Kit, President of Software Development Technologies (SDT), has some answers. His firm tests software. This is very time-consuming and very important. Programs with many branches must be tested and results tracked carefully. Ed also acts as a consultant to Fortune 1000 firms that test their own software, often supplying the software testing tooling. There is always time pressure to get the software approved and to market. Testing 24/7 is the way it has to be.
While everybody loves cheap, SDT provides speed and effectiveness for as low a cost as possible. SDT’s solution is a guide for all businesses thinking of off-shoring, and, while it costs a bit more than cheap, it gets the job done.
SDT has their corporate offices in Los Altos, California, an “onshore” facility in Norman, Oklahoma, and an offshore subsidiary in Hyderabad, India. They blend their solutions using staff from all three locations.
No quick fixes
Mr. Kit approaches off-shoring from the perspective that activities abroad must be closely managed. He knows that the off-shoring solution has many potential problems, and he prepares for and anticipates them all. That’s the first takeaway: Off-shoring is not a quick fix. It’s a commitment to doing what it takes to make it work – to bridge all the gaps and manage all the details, which include many cultural issues. Lots of training is built in, as well as time to get to know people, personalities and environments. People on both continents must be trained together because they will need to work as a team. Everyone must get past the “them and us” syndrome.
We only fail to plan
Good executives know that teams must have processes and instructions that have been carefully defined and tested. Yet Mr. Kit shakes his head in dismay at the number of tasks sent offshore without careful planning. Takeaway two: Every detail of the project must be nailed down, including who is to do what, and when. The U.S. business must take responsibility for this upfront: No outsourcing vendor – no matter how smart they are -- can do the work the way you need it done if you don’t tell them how.
With all this planning and effort, the scale of the project must be big so that the labor savings can make up for the increased management overhead. The systems and processes must be so efficient that they make up for the inefficiencies that will creep in because of cultural and time zone differences.
To reduce the cost of managing the complexity, Mr. Kit opened up an Oklahoma office where salaries and other costs are less than half of Silicon Valley. His Oklahoma team does all the project management as well as the actual testing while India sleeps. Then, each day, there is a project handoff as Oklahoma winds down and India begins. Twelve hours later, the process reverses. The largest projects often have one person from corporate interfacing with the U.S. client whose software is being tested.
With labor prices in India rising quickly, the pressure to have effective systems and distribute the work sensibly is growing. It is critical to make the best use of technology and excellent management skills everywhere.
Add easy offshoring to the list of business fantasies debunked. The fantasy of the “New Economy” where the lack of profit of online companies didn’t matter was debunked years ago. Now the hope for intelligent, cheap labor that can read our minds and perform miracles while we sleep has bit the dust. Back we go to the drudgery of planning and common sense – like carefully managing remote locations, wherever they are in the world.
• Treat an offshore facility like any remote location, with an extra dose of planning, training and ongoing oversight.
• Your project/operation must be large to reap significant cost savings, and you must commit HQ time and resources to the effort.
• Consider a blended solution, combining the efforts of U.S.-based teams and offshore teams.
Robert Sher is principal of CEO to CEO, specializing in assisting CEOs and business leaders as they navigate critical passages. He is the author of The Feel of the Deal; How I Built a Business through Acquisitions. He may be reached at Robert@ceotoceo.biz.
Company and Case Facts:
Company: Software Development Technologies
Person: Edward Kit, CEO and Founder
Alliance Member since: 2004
Business Founded: 1992
Product: Custom software testing and consulting services, training, methodologies and first-in-class test products
Typical Customer: IT, ISV software companies
Written: February, 2006
Address: SDT Corporate Offices, 170 State Street, Suite 205, Los Altos, CA 94022