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Best Practices for Dealing with Offshore Software Development Best Practices for Dealing with Offshore Software Development by David A. Vogel, Ph.D. and Jill E. Connolly Intertech Engineering Associates, Inc. as published in Handbook of Business Strategy 2005 Is cost the only benefit to offshore outsourcing, Advantages of Offshore Outsourcing or are there others? Do you give up anything For US companies to endure the disadvantages of for the cost savings? The purpose of this offshoring listed below, the advantages need to be article is to examine why US companies substantial. Advantages reported by US companies outsource software development offshore, and that have experience with offshoring: to determine whether the benefits of offshore • The most powerful attraction is significant outsourcing outweigh the drawbacks. cost savings. US companies are finding that offshoring their software development ffshore outsourcing (offshoring) of software saves them money because of lower labor development has been an increasingly popular costs. For example, Otis Elevator Company trend in recent years. The cost benefits are O COMPANY PROFILE easy to understand when you consider that the average annual salary for an engineer in the USA is $70,000 Intertech Engineering Associates, Inc. in 2004, compared with a $13,580 average salary for an engineer in India, according to Electronic Business Address: 100 Lowder Brook Avenue magazine. Suite 2500 Westwood, MA 02090 Is offshoring worth it? Are the cost savings as large www.inea.com - (781) 801-1100 as they seem? Is quality of the software sacrificed Industry: (Electro)Medical Devices or is it improved? Are there risks associated with Services: Assessments offshoring software development? Are there ways Training you can hedge against any such risks? Should you Consulting consider offshoring any type of software, or are there Hands-on Engineering some things you should not offshore? How can you Skills: Product Design Risk Management recognize the danger signs of offshore work going Requirements Engineering awry? Are there alternatives to outsourcing software Electronics Development development offshore, or are there alternative ways Software Development Software Verification and Validation to offshore? Production/Quality System Software Validation spent $420,000 on transition costs to have Disadvantages of Offshore Outsourcing 15 people (75 percent of a 20-person team) Nothing is without tradeoffs, and offshoring is not working offshore in India.1 After one year, it an exception. Before sending software development recouped that investment and now the company offshore, it is important also to consider all of the potential is saving $1.4 million a year on application drawbacks. Only then can an accurate determination be development and maintenance, according to made as to whether the rewards outweigh the risks of CIO Magazine.2 offshoring. • There is an abundance of technically trained developers willing and eager to work for the lower labor rate offshore. Nothing is without tradeoffs, and offshoring • Some companies are attracted to offshore is not an exception. Before sending software outsourcing because of potential tax savings. development offshore, it is important also to They can take advantage of opportunities for consider all of the potential drawbacks. exploitation of tax incentives offered by the Indian government,3 including a ten-year tax holiday for R&D companies engaged in A number of disadvantages and risks are associated with scientific industrial research, and a weighted offshoring. Among those reported by those companies deduction of 150 percent offered for scientific experienced with offshoring are: research and development expenditure.4 • The most obvious disadvantage is language. • Some companies that have had successful Differences in language can sometimes lead to experiences with offshoring report that miscommunication, either due to language styles 7 outsourcing offshore allows their companies or incorrect vocabulary use. Miscommunications to focus on business critical initiatives, while can cause many problems since good they outsource their non-critical software and communication between user and developer is project-management functions. key to accurately extracting the requirements for the software to be developed. • Some, but not all, companies report that the quality of the software from offshore sources is • Travel and communications cost can be substantial superior to that which they were able to develop if your offshore partner needs to spend extended internally.5 periods of time here, or if communications to their offices is expensive. • Some developers collaborate with offshore development companies to perform software • Technology differences can pose problems. It development nearly 24 hours a day due to work is important to ensure that the hardware and being performed in different time zones. For software development platforms used for software example, when a US team is finishing their development are compatible with the intended day in Silicon Valley, an Indian team is just platforms for the end product software. starting theirs. This allows the Indian team to • Soft factors such as cultural differences relating pick up where the US team left off, providing to software development, different standards, a continuous software development cycle and coding practices, documentation styles, and work significantly improving time to market.6 ethic, all can be problematic. It is no surprise, with all of the potential drawbacks, that not all offshore software-development outsourcing “Best Practices for Dealing With Offshore Software Development” page as published in: Handbook of Business Strategy - 005 Copyright 005 - Intertech Engineering Associates, Inc. experiences are positive. The founder of a Westford, achieve CMM Level 5. They believe that it is less Massachusetts firm had a negative experience expensive to offshore the development work than when outsourcing to India, noted an article in to improve processes here in the USA. The higher Mass High Tech.8 The outsourced code was delivered to CMM levels require documentation, traceability, and his company much later than specified in the contract. a sophisticated quality organization. Medical device When the software finally arrived, it could not be installed manufacturers might recognize these requirements as on the servers because of hard-coded references to the the same requirements the FDA imposes for design development environment. When the client company’s controls on medical device software. The perception staff started reviewing the first set of deliverables they among many US companies is that changing the way were surprised to find out that the quality of the source things are done in their established software and IT code was extremely poor and was accompanied by little organizations is expensive at best and impossible at or no documentation. worst. They see their best opportunities are to either The company also experienced problems relating to what outsource to an organization that already operates at high the founder describes as “an increased level of arrogance quality levels, or to start a new software development on the part of the Indian teams which contributed to a group internally that follows quality design controls lack of focus and quality.” It is his opinion that some from the beginning. of the Indian outsourcing companies hire employees So, one might wonder, why have Indian developers with little to no experience and charge them off as been so successful in achieving the higher CMM quality experienced developers. Offshore outsourcers can easily levels? In India, many software companies focused on get away with this because US-based companies will software quality from their start. “Indian companies have a difficult time checking references in India. In had to build credibility in the outsourcing market. So the founder’s experience of offshoring project work they focused on the quality aspect, which naturally to India, he realized that absolutely no design process would differentiate them from ordinary suppliers. By was followed, and that companies were not investing doing this, they became the best in the world in terms in project management. This is just one company’s of processes and quality” says S. Deb, chief quality experience. The literature is full of both positive and officer, Wipro Technologies.10 negative experiences. The important point is that there are very real risks. No Guarantee of Higher Quality Is moving offshore the solution to higher quality The Quality Story software? Not necessarily. Level 5 CMM ratings do With the potential for so many problems, why are US not always guarantee high quality software. Krishnan companies still turning to offshore outsourcing as a Puthucode, head of TUV Rheinland’s Software Quality solution? Many say it is because offshore developed Services, who is an SEI-authorized lead assessor for software is not only cheaper, but it has higher quality. CMM-based assessments, believes that Indian software Offshore developers, such as those in India, have realized companies are not set on improving their processes the importance of quality in their service businesses. necessarily, but instead are using the CMM label to One such measure of software quality is the Software increase their market value.11 Engineering Institute’s Capability Maturity Model It is valuable to note that not all CMM assessments (CMM). Half of the Level 5 (the highest level obtainable) are alike. When evaluating CMM ratings of potential
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