#5 High turnover

One of the major challenges facing the Indian IT services industry is the high rate of turnover among Indian IT professionals.

I will start this article by telling a story.

Recently, we were approached by a software vendor that had outsourced its new product development to India and were looking to have someone else take over because they were fed up. They were 14 months behind schedule, had spent well over $1M, with 20,000+ high severity defects and were facing the loss of funding to move forward, which would cripple their business. But they choose their vendor wisely. They invited the team of 8 senior people over from India to engage in knowledge transfer for 3 months and sent their own people to India for several weeks.

So what happened? Well, besides the obvious time and cultural challenges of outsourcing software development to a far off land, they also had 100% turnover of the original 8 people that spent 3 months on knowledge transfer. The customer ended up spending much more time explaining what they wanted, retraining, and fixing bugs to no avail.

So, the point is that vendor attrition can seriously damage your project and even your business.

Why is this happening?

Rapid growth among outsourcing industry has created a dynamic labor market, especially in Asian countries. For example, companies in India have turnover rates exceeding 30% and for small companies it is not unusual to see offshore staff turnover rates exceeding 50%.

This attrition rate is primarily due to the restricted career options or growth opportunities that workers have. Some leave their career pursuing a higher education, but some others leave their current job looking for higher pay and more benefits.

Higher skilled resources generally have the highest attrition, because of the low payment and stressful work schedule. While working with an Asian country in a software development project, teams sometimes have to work night shifts or have calls in the middle of the night. All this is done to cope with the overhead caused by the time zone differences.

Staff attrition (or turnover) represents significant costs for the companies that obviously are charged to the client, increasing the cost of the project. “Some companies believe that the attrition rates in India—and the costs associated with them—are so high that they can override the benefits of lower wage costs.”

Even large companies, as Wipro, have to deal with this attrition rate. According to a report by Reuters, “Bangalore-headquartered Wipro said high staff turnover rates had forced it to replace 90 per cent of the 14,340 employees in its largely call centre-focused BPO business in the last year”

What to Do?

Before choosing a partner for an outsourcing software development project make sure their turnover rate is not more than 10-15%, thus ensuring that your project is completed in the agreed time and quality. Some customers seeking outsourced software development also specifically asked for the resource names to be designated in the agreement. In the end, it is a risk that should be considered.

*Turnover calculator

Back to: 10 Ways to Fail at Outsourcing

#4 Low skilled or under qualified resources

Offshore service providers faced with high demand and pressure margins, leveraged skilled, customer-facing resources to win deals and then assigned the work to low skilled resources that were simply order takers with little or no relevant experience.

Following the Waterfall development lifecycle, companies spent months producing detailed functional and technical requirements documents that were then thrown over the wall to vendor teams.

The results were often catastrophic. Projects took twice as long and cost twice as much. Quality suffered as buggy software plagued the release plans. The delivery resources were unable to provide insight and guidance to customer teams who believed their expectations were perfectly clear. Many vendor team members feared looking bad in front of their peers or the clients and would keep quiet about project challenges and delays. Extensive travel by both teams (customer and vendor) was required to put projects back on track.

Typically the results showed that projects cost 40-50% more than anticipated and there was a 30-50% loss of productivity caused by time zone and cultural differences, and the lack of experience, which goes to show, you get what you pay for.

Some companies, fearing the loss of control and poor quality, decided to setup their own captive development centers, hoping to get better results.

Even Google had some problems finding skilled development resources as they were competing for the best software talent. The company's Founder and Director Kavitark Ram Shriram admitted: “Google, which is considered to have a very low attrition rate even in the high-job-hopping Indian IT space, has found it more challenging to hire certain talent in India as compared to other parts of the world”.

Apple in April of 2006 commenced operations in India, but one month later shut down. Some of the reasons cited were: India isn't as cheap as it used to be, the turnover is high, and the competition for good people is strong. In the end, Apple felt it could do it more efficiently elsewhere.


How to Avoid Unskilled Resources

Later, wiser companies choosing to outsource to Asia, turn to outsourcing consultants to help them prepare RFIs, RFPs, and select responsible vendors. RFI questionnaires typically ask for the number of resources with a specific skill set, forgetting to ask how many might be available when their project is set to commence. Really savvy customers with more mature vendor selection processes choose to visit the final contenders and individually interview each resource that is tentatively allocated.

Finally, customers demand fixed bid project engagements with performance based compensation to incentivize the vendors to get it done right the first time. While this helps the customers control the costs, the delivery deadlines still get pushed out and the vendor is just happy they got the deal.

Ultimately, the best way to ensure that you will not get under skilled resources on your project is to do all the above and check with recent references.

Back to: 10 Ways to Fail at Outsourcing

# 3 Cultural differences – 10 ways to fail at outsourcing

How can cultural differences affect project success, you ask? Well, we begin explaining what culture is. Culture is defined as the shared patterns of behaviors and interactions, cognitive constructs, and affective understanding that are learned through a process of socialization. So, when talking about outsourcing, cultural differences have been regarded as one of the most serious challenges. In the context of this blog post, we are speaking from the perspective of North American businesses outsourcing software development.

Countries not only have their own cultures but also have certain work cultures. A good example is a meeting with Indians, that is typically lead by the most senior person in the team and sub-ordinates don’t speak unless their boss ask them to do so. On the other hand, in UK all team members have the same opportunity to talk at anytime if they have a valuable contribution. The same comparison could be made for many Asian counterparts.

Asians typically do not say “no”, especially if you are a client. They are used to satisfying their clients even if they can’t do it. Many dislike giving bad news, even though your project is having some difficulties they will probably hold this information back, hoping to resolve the issue on their own. However, what often happens is that problems are not resolved and some Asian outsourcing counterparts will continue to hide the problem until it is impossible to hide any further. Unfortunately for you the paying customer, this sometimes means finding out when it is already too late to fix it.

At first glance, this doesn’t seem as a problem, but when you are working with outsourcing teams this can turn into a headache. Why? Outsourcing requires excellent communication and a near perfect understanding of what is wanted and needed. This is difficult enough amongst same culture teams on the same office, let alone with different cultures in different time zones and in different countries.
Especially in the age of web-based software such as Software-as-a-Service (SaaS), when talking about the user interface, the look and feel is vital. All messages and content should be written to the intended audience. Even though programmers are from other country, they should speak and write with the customer’s language and understand the culture.

To mitigate these differences it is recommended to analyze various providers to choose the best for your specific business. For programming, be very specific in the requirements and be sure that it was well understood. A pilot project is highly recommended prior to a long term commitment.

The US has more cultural similarities with neighboring countries such as Canada and Mexico, while Japan shares more cultural similarities with India and China. Intermingling histories and borders make them more compatible and facilitate the work.

Back to: 10 Ways to Fail at Outsourcing

India, Still Cheapest Outsourcing Destination - Everest Group

"According to Everest Group, an outsourcing consultant group, India is expected to forge ahead in the offshoring landscape among top outsourcing countries. This is despite some stiff competition making waves in Brazil, China and the Philippines.

What would be the advantage that is unique to India, one might ask, apart from having six billion or more of the world’s population, unbridled poverty and a rising middle class? And the answer is: India scores high on the IT outsourcing checklist in three important categories – the massive talent pool (India is commonly dubbed the ‘world’s largest democracy’), very low cost structures, and most importantly a higher degree of cultural alignment to Western markets than outsourcing in China, for example.

In that regard, it is fair to say that the world buys Chinese goods because it’s cheap, but buys Indian services because they’re ‘West-aligned.’

Everest Group’s Managing Principal for Research, Eric Simonson told The Hindu’s Business Line, “We are in the process of wrapping up a survey we did, for which we have preliminary results from 400 responses. We asked people about their perception of different countries. On a scale of 1-5, India is the only country that scores five…If you look at other offshore locations, the volume is more ‘complimentary'. India is the hub, will be the hub.

Everest also noted that other countries are well poised and are aggressively pursuing the offshore market with some degree of success. However, when companies consider adding units, they tend to add units in India.

Research from the group suggest that of 116 new offshore delivery sites set up in 2009, a whopping 35 centers were cornered by India. Apparently, this was the largest number of new offshore delivery sites in any geography in 2009 with the Philippines trailing with 15 delivery centers – just 13% of the total offshore market.

The recent debate about India losing dominance as an offshoring site and the prominence of new outsourcing hotspots, i.e. Brazil, China, Pilippines, Poland and Vietnam has been offset by the results from the Everest Group.

Perhaps one of the biggest attributes of India is that it is one of the most inexpensive destinations for offshore operations in comparison with the aforementioned countries. For instance, BPO operations is about 85 percent cheaper in India in comparison with Tier 1 locations like Atlanta in the U.S. Similarly, operating cost in Brazil is about 50% less when compared to the U.S." Jacob Cherian

However, Everest Group is not focusing on Total Cost of Engagement (TCE), just the hourly rates.

The Total Cost of Engagement (TCE) evaluates the total expenditures of outsourcing projects. In addition to the hourly rates of engineering talent you must consider the cost of additional management overhead, travel costs, the painful cost of staff turnover, and a certain amount of productivity loss due to the distance and degraded communications. Most of these costs are directly related to the separation in time between teams.

In the end, outsourcing to India could be more expensive because of the TCE.

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