Yesterday I had an intense meeting with a former colleague (now a friend) who is wrestling with a product offshoring failure. Unfortunately, when it comes to offshore product development, nobody talks about their failures publicly. It results in the informal knowledge staying in the heads of a few people. This hurts everybody (see point #4 in 5 Reasons Why R&D Offshoring is Maturing So Slowly).
Despite my desire to see a more public discussion of failures, I am not going to betray my friend’s confidence. Yet I feel that we need to move the process forward. So I will share what I think is the minimal framework for success. It’s something that has evolved over the years. It’s best applied at the start of a product offshoring initiative, although it can also be used to devise a curative cycle. There are five dimensions to consider…
1. Work Partitioning. There are many ways to partition work in a distributed product team. It can be done on the basis of process steps, architecture boundaries or competency pools. Having explicit work partitioning is better than the ad-hoc approach. But the goal has to be to pick the best work partitioning approach on the basis of the product’s business success. Very few teams are able to do this. They get sidetracked into choosing the “easiest” option (i.e. most pain free for US/home team, or quick start for India team). This sows the seeds of failure or a middling success.
2. Roles and responsibilities. Alignment between responsibility, authority and accountability is the hallmark of any good organization. Getting this right is even more important in a distributed organization. But it’s not easy to do this right unless the work partitioning model is explicit and aligned with business objectives. Problems are easy to spot. If unaddressed, they will show up as complaints of micro-management by the India team. The US side often sees the same problem as a lack of accountability within the India team.
3. Team Experience profile. If the team is under-qualified, it will not deliver. If it’s over-qualified, people will be under-challenged and will leave (in a tight employment market). So getting the right profile of people (by roles) is critically important. In my view, this is the hardest success dimension to address for the leadership team in India. This is where capability building, career management, employer-of-choice branding programs become necessary. If these don’t exist, the solution space shrinks considerably.
4. Project management. There is the resource management school and the risk management school of project management. What’s relevant here is the risk management approach. Getting the two sides to engage in frequent ongoing conversations about future risks and their resolution is more important than just status tracking or change control. This means that a modified PMM model is needed on both sides.
5 Management styles of interface-pairs. Let me explain what this means. In a distributed product team, there are only a few interface-pairs – these are managers across locations – that need to collaborate closely to get the product out. They can be peers or in a reporting relationship. If these interface-pairs are able to work well with each other, then their organizations also work well with each other. In effect, they create the organizational climate for collaboration. There is a lot that goes on at the interface-pair boundary often filtered through the lens of cultural, geography, and economic differences. To make this work well, good situational leadership skills are essential. In my experience, this often requires coaching on both sides.
Mind you, these dimensions may appear simple but they are not. Their implementation requires a commitment to change on both sides. Building this commitment (around the success framework) is simple when there is only one product involved (say, in a startup doing product offshoring). It’s a more involved process, often requiring a workshop when a number of products are involved (as is the case in a large company setting).
In VERITAS we had carefully turned this framework into a self-assessment tool that was prescriptive about which dimensions to focus on without being directive about the specifics. The teams were encouraged to track their scores on a kiviat (radar) chart. Rather than compare teams with each other, the focus was to encourage them to improve their own scores over time. Seen in this way, the success framework as an antidote to muddling through.
Although, there was a high correlation between the scores and the perceived success of product offshoring, two caveats are in order. First, this minimal framework doesn’t address the dynamic associated with the rapidly evolving talent/employment market in India. For an employer to compete in this market, one has to go beyond this success formula. This is another topic by itself. Secondly, this framework is set in the context of a captive R&D offshoring center. Non-captives require a slightly different treatment.
If you have been part of R&D offshoring, please jump in (anonymously, if you like) and share your learning’s.
[Update: Also see the subsequent post: India R&D Footprint: Time to Evaluate and Fix the Portfolio]
I agree a forum for open and honest discussion may be required. And product offshoring needs to be a well understood science. But the question here is, is this just about offshoring?
Do remote product development centers really work well anywhere outside of HQ? Do they mature beyond just being a resource center? Do they ever get away from cost being their primary value proposition? Let’s get beyond exceptions and look at the reality.
I remember Burlington/Chelmsford MA, Austin TX, Portland OR, Ireland being a hot location in the nineties for SF Bay Area firms to go do R&D. How well are those centers doing? I don’t quite hear much about Ireland these days? They may quite have the same issue to deal with.
I can see acquisitions working better even if they are remote given the business value proposition and relative well formed organizations they bring with them — And I can see them continue to succeed as long as they have some measure of independence. How about greenfield centers?
One suggestion for us to consider is moving away from captives and outsourcing models, both of which in my opinion are suboptimal for product R&D. How about looking at joint ventures? Between a product company and a large offshore outsourcer? In a JV, there is a business framework, strong leadership and a retention of IP through joint ownership. Structuring it well could give the parents not just cost benefits from the offshore location but also financial benefits from a high value subsidiary and go to market benefits in the local region. And JVs are probably better understood by the CEO/CFO than traditional offshoring of R&D. Such JVs could eventually spinoff and become full entities in their own right. The partners need to bring sufficient value to the table, joint investments and clear agreements that allow them to offer sufficient independence to the JV. Are there examples of such entities? Not sure — maybe the other readers could chime in. Could this work better, say in the Indian context?
Hi Sharad,
I believe, the following are also important things required for Successful Product Off shoring:
1. Willingness to make a change. The intense desire to succeed.
2. Building the right kind of talent profile. Building the right mix of smart thinkers and committed followers.
3. Building the right portfolio of “captive-projects” and “value-building-projects”. I don’t think you can have only one; you always have a mix of projects that are done - to save money and projects that build value.
Thanks,
Mukul.
I currently work in a large MNC servicing a large US based account. Before I share my thoughts Sharad, let me react to your points. I completely agree with all your points. I would add a few things based on my experience:
One more input on your points on Roles and responsibilities. We all (especially the US managers) have to learn to manage and deliver with multi site, multiple teams operating in different time zones. Surprisingly, this skill seems to be missing in the US based middle and sr. management of the MNCs I’ve worked with.
On the resource vs. risk management: You are completely right there. I think the current perspective of the careful focus on resource management comes out of US where the resources are extremely expensive and carefully managing/controlling these is of paramount importance. As compared to that, Indian resources are far cheaper (if one were to look at the balance sheet of any IT services Organization, the infrastructure, land, building and other assets are far more expensive than the people). It would make sense to focus on controlling these as compared to the amount of focus given to managing the costs of the resources. While people costs are rising and will become critical
focus, that is in the future and we are managing costs for the current fiscal and looking forward for the next 5 years.
Yes
I agree with your point about giving a greater focus should be given to risk and dependency management since the opportunity costs (and ROI) of these are much greater. We do not give sufficient focus to this in the IT industry as a whole. To contrast this, I remember attending a presentation in SPIN Bangalore. We had a sr. manager from L&T’s construction division talking about project management of very large projects. L&T operates on wafer thin margins (as compared to the IT industry) and their primary focus is on risk, issues and dependencies apart from controlling their OpEx and managing their cashflow through the project lifecycle.
I would like to add one more dimension to your list. that of “Organization culture”. Outsourcing consists of working in-situ with diverse societies and cultures that are not American. Cultural sensitivity on all sides is critical. If you treat your Indian counterpart as an American living in America or even as an Elbonian in Elbonia (Dilbert), you will never understand her and will never get the best out of her. You will see a high degree of frustration, high attrition and lack of commitment from your Indian operations. As a result, you will never build the trust and ability to soar. Everyone talks about diversity and culture, people don’t really live it.
Let me share some data and thoughts out of my experiences of working with my current organization:
Today I am not convinced large MNCs like the Accentures, the IBMs and Logicas of this world will succeed in offshoring their services play to India if they continue to harp on their current model of high end/high cost services and relationship building. I believe the Wipros and INFYs have a good chance of succeeding. In fact Wipro, Infosys and TCS are very high on the (competition) radar of my Organization. There have been cases where contracts were signed with Wipro and we were unaware of these until the deal was done. And these are Organizations where we had excellent relationships 10 years ago.
I work for a very very large account that has outsourced to my Organization for a very long time. Six years ago, we had a headlock on this account since we were the only player of consequence in their radar. Over time, the customer M&A’d other players in the same industry and inherited Infosys and Wipro as service partners. These contracts were priced at least 25 to 30% lesser than us. The merged companies refused to migrate their services business to us citing lower ROI as compared to the Indian Orgs. Questions are now being asked as to why wouldn’t our work be outsourced to the Indian Orgs. And believe me we are running scared.
It’s so bad that our folks do not negotiate properly with the customer with the result go ahead and commit projects and dates that are killing the delivery teams. Attrition is soaring.
The weaknesses of the Large MNCs in India are as follows:
- While the large MNCs will make all the right moves such as setting up India offices, offshoring their development shops, trying to move ownership to India, they are caught in a cultural warp which they will not be able to change until it is too late. Their culture is not geared to compete with the relatively leaner operations run by the Indian services Orgs.
- Their cost structures still are aligned to how they functioned in the 80s when INFY was just a dream.
- Lack of trust and investment in people in India has led to average to poor quality hires thus creating a vicious cycle. We have parallel management structures both in India and US (the management overhead here is extremely high) with a distinct lack of trust on both sides. Also, loading of teams on both sides have not been done properly. The end result has been a high degree of frustration, attrition and job rotation of people in India.
- Most US managers are still uncomfortable working on multi-site and multi-time zones (funnily this is true of all the IT MNCs I’ve worked for). They want direct control. They do not understand the Indian environment and culture. They try and impose their (american) perspectives on the Indian sites.
- Fear of job losses have caused US folks to sabotage work transition to India.
Basically, I’m on the other side of the Innovators Dilemma. I am part of an Organization that is getting disrupted. And I am watching a levathian fall in slow motion.
I learned one thing from working here. Disruption is not about new technology or new ways of doing things. Disruption is about challenging the culture of the incumbent organizations with a new one that is more nimble and effective - It was when Rome had become decadent that it fell. It is out of the Org. culture that the processes and systems result. Cultural and mind-set change is almost impossible since these are axiomatic to the sr. people leading the Org and to the functioning of the Org.
Having said this, I believe we still hold some aces in our hands. If we play our cards right, we still might be able to hold on to our accounts. Our aces are as follows:
- Relationship, knowledge and the value of staying in our network. This value can be very very large. Unlocking this value will involve first in explicitly bringing out the value of the network and putting that value in use within the customer.
- IP assets. Our IP assets are far greater than INFY and wipro. Should we put a concerted effort in generating ROI for our customer, we have a good chance of locking them down and relegating INFY to the position of a Tier 3 vendor.
One caveat - all these will pay off in times of plenty. When the market/economy is growing and life is good. In recession times and in times of a downturn, Organizations will be shedding weight with a vengeance and will be looking for ROI on core value.
In any case despite the stress, I find the whole game pretty interesting - I am really internalizing Innovators Dilemma here.
Mukul - Good suggestions. Thanks.
Anonymous - I am glad you are sharing your experience. As you point out its not an isolated case. Hopefully there is more open discussion about this kind of situations in the industry.
Vijay - I think you are onto something when you bring up acquisitions and JVs. Does the industry need to look beyond the current operating models? Certainly yes.
Couple of quick points:
1. The culture of the organization that is outsourcing and the one it is outsourcing to will have to gel
2. The major problems arise with the decision making happening at the strategic level and the operational folks are not in-sync with the concept - fears of potential job loss, the NIH syndrome, loosing control, etc.
3. Transformation of the mindset of operational folks of the company outsourcing - from being a local manager used to seeing all the people reporting into them daily to becoming a global manager, where reporting structures are matrixed, virtual team management, cross cultural people management, travel etc. are part and parcel of the job. Most operational mangagers have rarely left their state where they live and have limited exposure to multiple cultures.
So the key is to inclucate this change management, share objectives of the strategy across the organization at all levels and gain majority support..