Monitoring is the key to offshoring, expert says

It is impossible to manage an offshore project using the same methodology applied to traditional, in-house development, says an executive at a national securities agency.

Ian Gilhooley, chief operating officer for The Canadian Depository for Securities Ltd. (CDS) in Toronto, said CDS had to learn how to rejig its methodologies when it decided to outsource some of its development work to India.

About five years ago CDS issued a request for proposal to find an outsourcing provider that could replace the legacy technology behind CDS’s core systems. CDS spokesperson Janet Comeau said the firm pursued the system rebuild because it expected the increased automation of depository, clearing and settlement activities to save $6 million, mostly in staff costs related to system maintenance.

Gilhooley said Tata Consultancy Services Ltd. (TCS), a Mumbai, India-based IT services organization, won the bid because it offered the best price, it had experience building a similar system for the Swiss depository and it demonstrated that it was able to understand CDS’s requirements.

S. Ramadorai, TCS’s CEO, who was in Toronto last month to visit the outsourcer’s offices in the area, said the benefits of outsourcing development work to India come from a cost and skills standpoint.

Companies have “met with significant cost pressures in the last few years, in the face of enormous competition. They are looking for a way to create products and services quickly and cost effectively,” Ramadorai said.

One of the biggest advantages of outsourcing to India is the “value of your dollar in terms of intellectual capital” — in other words, the ability to tap into a larger pool of IT talent than is available in many other locations, while paying significantly less for the labour, he said.

But Gilhooley said finding the right talent for the right price in India is the easy part — the bigger task is keeping track of the project’s status while developers are working on it overseas. Most in-house development methodologies are “created with domestic development in mind,” he said. This approach normally includes what’s described as “line of sight management,” where there is constant face-to-face communication between the project manager and the developer, he said.

But if a company decides to send development work offshore, its strategy for managing the project must be completely different. “You have to make changes to make it fit to a new approach,” Gilhooley added.

For CDS, the first step was to create a detailed project plan, which the company reviewed extensively every week. “We’d make a Transatlantic phone call first thing on Monday mornings at 7 a.m. Toronto time, where we went through the plan in detail, discussed what was to be delivered and what was the status of the project,” he said.

The second step was for CDS to visit India once every three months to “ensure that what we thought was happening was actually happening,” said Gilhooley. Some of its most experienced and knowledgeable developers did “quality assurance and health checks,” testing the system to make sure it was up to CDS’s specifications before bringing it back to Canada.

“Even though it was done offshore there was very frequent contact between the team in Canada and team in Chennai, India,” Gilhooley added. When it was finally ready, the CDS IT department, along with 80 Canadian TCS employees, integrated the system, dubbed CDSX, with other in-house systems and re-tested it before the full rollout in March of 2003.

At the same time as the CDSX project, TCS also built a new risk management system for CDS that looks at the activity going through CDSX and tries to measure the current and future risk of each transaction, Gilhooley said.

After the rollout and some initial fixes, there was a 12-month transition period starting in October of 2003 where TCS helped stabilize the system and make some more changes. At the end of the transition period, the number of TCS employees working onsite at CDS dropped to about 20 — they stayed on to maintain the system full-time.

Gilhooley said the most important part of any offshore project is coming up with a precise requirements definition. In fact, he said he would not recommend a company sending any development work overseas without being absolutely clear in its specifications.

“If you think your business is so complicated that you need to do more of a prototyping approach, then offshore development might not be for you,” he said.

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