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Introducing Offshore Concepts

Executive Briefing. Nick Krym, 02-07-2006

Good Reasons for Going Offshore

Nick Krym

02-07-06

06 Application and Service Expansion


Q1 - Q2

Feature Set 1

Feature Set 2
Feature Set 3
Q2 - Q3

Feature Set 4 Feature Set 5

Feature Set 6
Feature Set 7

Feature Set 8
Q3 - Q4

Feature Set 9 Feature Set 10 Feature Set 11

Nick Krym

02-07-06

Engineering Team: State of the Nation


Hiring more lessons learned
Time Cost Salary Fit Retention

Project XXX some lessons learned


Legacy code Skills Methodology

Brief inventory of Achilles heels


Resource dependency Ability to execute Ability to grow Legacy Infrastructure Ability to deal with demand spikes

Nick Krym

02-07-06

Offshore Outsourcing: Major Risks


Cost-Reduction Expectations IP Security/Protection Process Differences Geographical Dispersion Vendor Financial Stability Cultural Differences

Data Security/Protection
Vendor Failure to Deliver Scope Creep Government Regulation

Turnover of Key Personnel


Knowledge Transfer Communication Issues Loss of Team Spirit

Nick Krym

02-07-06

Major risks specific to our team


Cost-Reduction Expectations
Reasons / Elements
Low rates designed to masquerade real costs Most offshore activities are characterized by very high overhead and startup cost Most of offshore staff is less productive than on-site resources Knowledge transfer / product handover generate addition substantial expenses We must change the expectations framework. We should NOT be expecting cost saving. Whatever we manage to save is a gravy. The benefits are in access to resources, infrastructure, skills as well as ability to deal with demand sawmill We need to define some reporting framework that will allow us to communicate realities of the financial aspects of the engagement

Mitigation

Cultural Differences & Geographical Dispersion


Reasons / Elements
Time difference Scope control Root cause analysis Initiative Self-confidence Hierarchy Body shop mentality Communication overhead Communication breakdowns and failures Time / style expectations with internal staff Dedicated liaison for dealing with offshore Travel budgets Processes Documentation

Mitigation

Nick Krym

02-07-06

Major risks specific to our team, cont.


Turnover of Key Personnel
Reasons / Elements
Indias large cities have close to 25% IT personnel turnover 25% turnover ~ 50% hidden rate hike Handpick geographies and companies Put contractual elements for key personnel retention Build redundancy into the team

Mitigation

Knowledge Transfer
Reasons / Elements
Domain expertise Communications Geographical issues Core resource development Processes and documentation Travel budget

Mitigation

Data Security and IP Protection


Reasons / Elements
IP code access Data Processes Security

Mitigation

Nick Krym

02-07-06

Personnel Issues
Main issues
Is my job at risk? Is my salary at risk? Is my career at risk? Is my quality of life at risk? We are OK as we are, why change? Whats in it for me? After all said and done there is more said then done Consistent non-stop messaging Consistent aggressive motivation Be prepared to pay above market Staff redundancy Process improvements
Nick Krym 02-07-06 8

Mitigation

Offshore Outsourcing: Partnership Drivers


Product offering / competitive strength Market opportunities / time to market

Company scalability / flexibility


Dealing with resource constraints
Financial consideration / Budget Infrastructure / Office Sub-optimal resource composition Resource demand sawmill Access to skilled resources / missing competence

Concentration on core competency

Dealing with back log


Process maturity

Nick Krym

02-07-06

Offshore Outsourcing: First Steps


Commitment Establishing Strategy

Budget
RFP Vendor Selection

Establishing partnership
Pilot Full scale engagement

Reevaluation Cycle

Nick Krym

02-07-06

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Vendor Selection: Main Factors


Competitive Pricing Access to Resources Delivery Track Record

Turnover Rate
Data Security IP Protection Project Management

Process Fit
Account Management Cultural Fit Financial Stability Longevity

Nick Krym

02-07-06

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Vendor Selection: Other Factors & Process


Financial Issues
When do we get the investment Volume of the investment Allocation of the investment

Resource Constraints
Product Management Project Management Architects

Executive Factors
Board Partnerships Executive Team

Type of work we decide to outsource


Infrastructure Application Maintenance

Vendor Comparison
Criteria Competitive Pricing Access to Resources Delivery Track Record Turnover Rate Data Security IP Protection Project Management Process Fit Account Management Cultural Fit Financial Stability Longevity Total Weight 20 18 15 13 10 10 8 8 8 6 4 1 Vendor 1 Rating Weighed Rating 3 60 3 54 4 60 2 26 5 50 4 40 3 24 2 16 2 16 3 18 2 8 5 5 377 Vendor 2 Rating Weighed Rating 4 80 3 54 4 60 2 26 3 30 4 40 3 24 2 16 3 24 3 18 2 8 5 5 385 Vendor 3 Rating Weighed Rating 4 80 3 54 4 60 2 26 5 50 3 30 3 24 1 8 5 40 4 24 2 8 2 2 406 Vendor 4 Rating Weighed Rating 3 60 3 54 4 60 2 26 5 50 4 40 3 24 2 16 5 40 3 18 2 8 3 3 399 Vendor 5 Rating Weighed Rating 5 100 2 36 1 15 2 26 3 30 4 40 5 40 2 16 3 24 3 18 2 8 2 2 355

Nick Krym

02-07-06

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Top IT offshore resource producers: capacity


Country Average Salary of college graduate ($US) in 2001 Salary rumors for IT professionals in ($US) 2005 Total Number of college graduates in 2001 Average Cost of IT resources a year in 2001 Estimated number of IT employees in 2001

India China Philippines Mexico Ireland Russia Ukraine

$2,400 $2,000 $2,900 $1,400 $19,500 $2,000 $1,900

$13,000.00 $9,500.00 $17,000.00 $11,000.00 $35,000.00 $19,000.00 $14,000.00

2,100,000 950,000 380,000 137,000 43,200 450,00 78,000

$5,880 $8,952 $6,565 $7,400 $29,000 $7,500 $7,200

415,000 200,000 290,000 N/A 23,000 N/A N/A

Nick Krym

02-07-06

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Top IT offshore resource producers: risks


Country Infrastructure Operating Environment Skills Availability Cultural Compatibility English Skills Political Climate Cost

China India Ireland Mexico Philippines Russia Ukraine

Poor to good Poor to good Good Good Poor to good Poor to good Poor to good

Challenging Moderate Good Poor Poor Challenging Challenging

Moderate High Moderate Poor Moderate Moderate Fair

Poor Good Good Good Fair Fair Fair

Poor Good Good Good Good Fair Fair

Moderate Moderate Moderate High Moderate Low Low

Low Moderate High High Moderate Moderate Low

Nick Krym

02-07-06

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Top IT offshore resource producers: outlook


Country Resource Turn Around Local Presence Account Management Project Manageme nt Access to Relevant Development Skills General Fit as a Partner

China India Ireland Mexico Philippines Russia Ukraine

Low Med Med High Med Med Low Med Low High Low Med

Med High Low Low Low Low Med Low

Low Med Med High Med Low Med Low Med Low Med Med

Low High Med High Med High Low Med Med Med Med

Low Med Med High Med Low Med High Med High Med

Med High Med High Low Low Med Med High Med High

Nick Krym

02-07-06

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Example of Salary rumors Neusoft, Inc.

Nick Krym

02-07-06

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Some Thoughts on the Strategy


Geography Type of vendors

How many vendors


Type of activities to be outsourced Projects to be outsourced

Work allocation
Pilot strategy Success criteria

Reevaluation strategy

Nick Krym

02-07-06

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Q&A
Questions? Suggestions / Ideas / Critique?

Next Steps?

Nick Krym

02-07-06

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