Offshore Outsourcing Failure, or Change Management Failure?

I heard another story of failure with a software development team working from India for a client in the U.S. yesterday.  Mulling it over this morning, I am struck by the number of factors racked up against this team ever succeeding in the first place, yet the interpretation of the American client focused on only one element – that the team was based in India.

What I heard was not as simple: the vendor was pushed on the development manager by a new senior exec, and was resisted by the local development team; the vendor had no formal QA processes; the vendor was a very small company, seems to have had challenges with recruitment and retention, and their team wasn’t consistent from one week to the next; etc.  These challenges were intensified or aggravated by the team working across cultural differences, language differences (Indian English is not the same as American English), and time zones.  However, most of these challenges could, and in fact, often do, occur with locally-based vendors,  too.  In my view, this is less an “offshore outsourcing” failure, but a project management failure and a vendor failure, aggravated by the challenges of working with a globally distributed team.

Efforts earlier on to ensure buy-in from the development organization and properly vetting the vendor could have possibly prevented this meltdown.  These are two standard change management elements in any significant project which, at least in hindsight, appear to have been given short shrift.

In addition, all parties in any global project need to ensure that core project management elements are both fully implemented, and adapted for a global team.  Some of the basics include:

• Project structure. Spell this out in detail: team members, roles, responsibilities, reporting structure, and time commitments, by project phase.  For a global team, it is essential to document these expectations and to have initial in-person meetings for key team members to build relationships with one another.
• Communications. Design a communication plan that specifies regular communications across multiple communication modes and parties (in person, video, email, phone, IM; individual, team, stakeholders), and addresses all project elements, including project deliverables, financials, relationship, and strategic value.
• Shared understanding. Ensure that all team members, across all locations, understand the project’s end user needs, the work process and methodology, and how to use the work tools (e.g., code repositories, wikis or KM applications, ticket systems, QA software, etc.).  This will require an upfront investment in training and should include some co-location time, to enable team members to understand organizational culture and values.
• Appropriate infrastructure. In IT projects, this typically includes computers, servers, internet, back-up power, security, etc. Don’t forget the “soft” infrastructure of adequate communication channels, travel support, HR policies, training, etc.

These are standard elements in any project management or consulting methodology, but they are frequently neglected, particularly when small businesses are involved, as being “overkill.”  When these aren’t in place, the project is likely to fail, with financial and reputational losses for both client and vendor.  All too often, I see companies start offshore engagements with a focus on the rates and the contract, when the attention really needs to be on sound change management practices.

Car Sales Soar…in India and China

The Wall Street Journal (sorry, subscription required) noted earlier this week that February car sales in India increased 22% over last year.  China’s car sales increased by 2.7% in January and February.   This contrasts starkly with car sales in the U.S., which declined by 41%, and Europe, which declined 18% (only rising in Germany).

To be sure, there are some quirks behind these numbers: India’s sales last February were especially low because of anticipated changes in excise taxes, and this February have been spurred by increased credit availability.  China’s sales were similarly influenced by a cut in the purchase tax (Germany’s sales increase was also driven by a policy change,  an incentive to scrap old cars) .  Still, the WSJ article forecasts an 8% increase in China car sales for all of 2009, and notes that it is now the largest car market in the world, having surpassed light vehicle sales in the U.S. in January.

The woes of the big three American car companies are splashed across the newspapers almost every day,  and they are only alive because of massive loans from the U.S. government.  European car manufacturers are doing layoffs,  production and salary freezes , and seeking loans from their governments.   Meanwhile, Tata Motors announces it is opening a new plant in Gujarat, to start manufacturing the Nano.

Could this pattern be any clearer?  While all economies have stumbled and fallen in this global recession, it certainly looks like India and China are going to be picking themselves up and brushing off the dirt sooner than the U.S. and Europe.

“It’s going to happen somewhere other than the United States”

The NY Times today has a  front page article that discusses what the economy may look like going forward,  after the recession ends (whenever it ends).  This quote in particular caught my eye:

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

It’s clear that financial services will not come back in the same form or size, and also seems very likely that retail will be significantly reshaped by the current changes in Americans’ consumption patterns.  But it seems less obvious that American companies will continue to increase their business overseas: China’s economy saw a huge decline in exports last quarter, growth in India’s outsourcing industry has dropped off dramatically,  and President Obama continues to ask for legal changes to discourage American companies from “shipping jobs overseas.”  So I think that Silvia’s comment points to a longer view of our global economy, to a fundamental reshifting of how American businesses work.

Back in August 2008, the Economist published a section talking about globalization and the strengths of emerging market companies.  We all know about lower labor costs, but the Economist pointed out a number of other factors: greater understanding of the consumers in these fast-growing economies, ability to design and produce goods at lower cost points, lower cost burdens from pensions and healthcare, sometimes lower regulatory compliance costs or cost-effective business models that can be used beyond their home country.   The articles also discussed the “legacy costs” in US and EU-based companies:

multinational companies in developed countries must grapple with legacy costs of various kinds—financial (pensions, health-care liabilities), organisational (headquarters far away from new markets) and cultural (old ways of thinking)

Coming out of this recession will require not just adjustments in the financial services and retail industries, but a fundamental re-evaluation of business strategy in the global economy.  To be successful, American businesses will increasingly need to understand how to work in emerging markets, and adopt some lessons of frugality, resilience and agility from these new economic players.

Globalization of Legal Services Models

One of my business partners,  Matthew Sullivan, has just published an article on the trend of globalizing legal services, both through legal process outsourcing (LPO) and shared service centers.   The article appears on Phil Fersht’s Horses for Sources blog, one of the leading blogs about the outsourcing industry and business globalization in general.

In the article, Matt argues that the growth in the globalization of legal services and the LPO industry is likely to continue and pick up steam in 2009 (and beyond).  The primary driver is reducing the cost of legal services, particularly as the volume of e-discovery work increases dramatically.   In addition, several barriers to outsourcing legal services work have come down: recent legal decisions have allowed legal services outsourcing (with some conditions), a number of solid pure-play legal services and diversified outsourcing service providers have emerged, and both clients and vendors are able to leverage broad knowledge about how to effectively manage US-India business processes to the legal services arena.

Matt has a unique perspective on this: he’s a US-trained attorney who worked for an IT outsourcing firm in India for two years.  There are already a couple of comments and questions on the post, and I’m sure he’d welcome more.

Reviews of India’s Open-Economy Policy

As noted in an earlier post, Jalal Alamgir’s new book, India’s Open-Economy Policy: Globalism, Rivalry, Continuity, was recently published by Routledge.

Dr. Alamgir’s book was just selected by Asia Policy as one of two dozen recommended books for its 2008 Policymakers Library, and one of only two books focused on India.  You can download the PDF with the reviews of the recommended books at the journal’s website here.  Asia Policy is the journal of the well-respected National Bureau of Asian Research, and needless to say, we are proud to see our partner’s work recognized in this way.

Among the policy implications cited by the review is this nugget: “To reduce domestic political risks associated with controversial economic policies, policymakers can… [r]efocus domestic political opposition to issues of international position, status, or competition.”  This seems particularly relevant to U.S. policy at this time, when there is often semi-fanatical concern about “jobs going overseas,” with little consideration for the repercussions of protectionist policies.  Could the political debate be reframed to focus instead on the value of international trade for the U.S., and building our position as an economic partner of choice?