The Hindu Business Line : Advantage offshoring

Getting into the shoes of a decision maker is thrilling, especially during times of a slowdown. It is even better when he happens to lead an IT organisation himself and decides that an offshore vendor in India can help him better than his own set-up would.

Meet Peter Houselander, Director of Health & Social Care, Anite Public Sector, who spoke to eWorld on his experience in offshoring work to the CSS-Slash Support group. This arm of Anite offers software products and services to governments in the UK. Excerpts:

Can you take us through your outsourcing philosophy?

We are a provider of software products and services to local Governments in the UK. Our market segment has become increasingly competitive with Governments improving their procurement processes and setting tight financial targets to those local authorities.

This, combined with new competition in our market that has come up with low pricing, has made us evaluate ourselves.

We needed to look at our cost base and to see how we could scale up in a cost-effective manner.

We could not afford to add infrastructure and hire permanent and contract staff in the UK because of the costs associated with that. It was fairly clear that we had to engage, in some form, with an offshore partner.

What challenges did you face internally that led you to offshoring?

In 2005, we were building up part of our group to handle a massive new product development in the electronic document records management area, in which we operate. We had a small group of staff in our Manchester office that were Microsoft experts, that had a culture of traditionally being poorly managed, doing things in the way they wanted to and always operating as a close-knit permanent group of staff. That was a big challenge to manage.

(That was the piece of work we decided to offshore. It was not as if we wanted to throw the biggest challenge to our offshore vendor nor was it a reflection on the team here, but the nature of work was such that it lent itself easily to offshoring.)

We had another major challenge, that of performance, in the integrated child (-care) system product that we had built.

We decided to change the underlying technology architecture associated with that product and move APIs from database tier to middle tier and move them from Oracle to Java. We needed to do that as quickly as possible and that required us to scale up and have a large team offshore.

We had already had an offshore model with an organisation in Latvia (from 2001-02). We had difficult times with them and continuing with them was not going to be strategic. We had to re-look at the global model of offshoring in 2005.

What countries did you evaluate when you wanted to move work offshore?

We looked at offshore options in South Africa, Ireland, China and Eastern Europe. We felt that offshore maturity was high in India.

Having finalised the country, we went about finalising the offshore partner in India. We decided very early on that we would not partner with a big Tier 1 player and that we would work with a mature mid-sized technology company.

It was not just from a risk averse but also risk management perspective that we wanted maturity in the offshore company. For, we wanted to initiate a process that would give us immediate returns, not just in cost savings but in enabling our business to overcome the difficulties that the Latvian partnership had provided us.

We wanted this new offshore partner to move into a very stable engagement model. CSS had a good reputation with a solid focus on quality and service delivery and we found them to be a mature, trustworthy organisation.

What else did you look for when you evaluated your offshore partner?

The key thing was the general technology and management experience, of managing offshore development. The fact that CSS was not a product development company, in terms of their own product, was less of an issue because they had been engaged in several offshore engagements where the end result has been a product or a software solution for a large organisation, which had so many thousands of users engaged in that product activity.

For us, maturity of engagement, right technical expertise, technological knowledge and being involved in other key development projects was important and CSS had all of these.

Initially, we went through a process of getting CSS staff Onshore and getting them to merge with the Anite team in the UK rather than going through the offshore route immediately.

Having done that, we quickly moved into an area that has since become the most significant scale of resource from an offshore model and that was the Health and Social Care part of Anite’s business.

We got a contingent team onshore from CSS to learn the software and the processes we go through. The plan was for them to then go offshore and build a bigger team at CSS.

One of the interesting things we realised along the way was that the individuals in both organisations have career aspirations. And those don’t always match 100 per cent with the business requirement. Together we have learnt to manage the career aspirations on both sides and without projects getting impacted.

Did you consider setting up your own shop in India?

We have looked at the option of setting up our own organisation offshore.

However, there is a risk associated with that and a management overhead as well. In order to scale up, you need to recruit your own staff. When you want to scale down, it’s your own cost and you are left with your own people on the bench. You need to have a flexible resourcing model in your own company in another country.

And mistakenly, sometimes, you have your own management technique in that country when you ought to have a local management team with knowledge of how you manage organisations locally.

We actually like the maturity of the partnership in the current offshore model. If you start your own organisation in another country, there is the element of risk that you may stop being as competitive. When you have an offshore model, you don’t have to bother with the scaling up/scaling down issues and of retention.

Have you had occasion to scale down the offshore business in the last few years?

Yes, we have done a bit of planned scaling down. But we had initially scaled up quite rapidly.

We are currently going through an awkward period where the Government in the UK has deferred a major set of requirements being published, for which we were all geared up and ready to go.

What that has shown us is that the partnership business model is right for Anite, even though it causes CSS a little bit of headache in the short term.

In the context of the US slowdown, recession and a possible impact in Europe, would it at all affect Government spending in the UK?

I think there is an element of protection because the Government tends to set up two-three-year investment plans and as a result we can find ourselves with a degree of protection in our market. The difficulty arises when there isn’t a planned investment period and we then have to mine out new opportunities where the local authorities haven’t necessarily allocated the funds to drive those through.

Then, we have to make sure that the ROI associated with new businesses is driven by efficiencies and cost-saving opportunities. In those instances we get into things like mobile technology, where people can be more flexible working and be out of the office and with the document management style office where they can flip down on filing cabinets (you won’t believe the number of filing cabinets Government organisations in the UK sometimes have). It then allows the local authorities to re evaluate their property portfolio because the Government sector has a massive property portfolio. They can start flipping at their properties and have a flexible mobile workforce, where documents are stored electronically and they can thus achieve significant savings.

Have you evaluated the revenue sharing or risk-reward pricing model with CSS?

We are already engaged in conversation with CSS regarding such models. There is one on the table and CSS has been open to a number of different options that we have been discussing.

Do you work with your clients on value-based pricing?

It is amazing, actually. Our clients want a lower price as a base when they start the engagement. The whole principle behind the risk-reward-value or outcome-pricing model is the low initial outlay with the potential for the service provider to achieve more than they would have earned if all of the objectives and outcomes are met.

However, the problem with this model is that, in year two and three, once the local authorities find that the service provider has achieved the target and earns more than what they may have in the traditional pricing model, they get upset. They get into a mindset of looking at the traditional model. So we do get into quite heated conversations on this model, and they generally tend to shy away from such a model. So, there are not too many contracts on this model.

How bad is the slowdown in the UK?

We have seen that the telecom market has slowed significantly and that has caused challenges. There may be some remodelling required for the Anite Group as we move into the next financial year. The banking sector has had significant challenges, particularly relating to default on mortgages in the US. We have gone through a lot of privatisation models from the Government where they wanted to make sure that there is a competitive market. And all of a sudden we have one major financial institution being taken back under the wings of the government. We are also seeing the housing market slowing down.

Does offshoring actually increase during a slowdown?

There has now been an acceptance of the offshore model. Many UK and global organisations have just accepted the concept of off shoring and outsourcing. There are many more senior managers who now have experience of that and because of the movement of these managers across industries and organisations, I would be surprised if the takeoff of off shoring is as slow as before, in times of a global slowdown. There is now a lot better understanding of the implementation of the offshore model and the benefits that an organisation can achieve.

bharatk@thehindu.co.in

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