Tuesday, November 18, 2008

Global Product Development Seen as a Boon for Product Lifecycle Management Vendors

Nearly all leading product lifecycle management (PLM) software vendors argue that companies can now leverage globalization, outsourcing, and Web-based collaboration technologies to gain tremendous growth potential. Nonetheless, this relatively new phenomenon has been a long time in the making, as the following history of offshoring reveals.

In the 1980s, offshore manufacturing became commonplace, as manufacturing companies looked to reduce their labor costs and maximize their profits by moving some, or most, of their manufacturing capacity to low-cost labor markets like Mexico, South Korea, and Taiwan. This was purely a cost-saving initiative, exploiting low-wage regions and tax incentives around the globe. It was based on the assumption that straightforward manufacturing "build" instructions with discrete inputs and outputs and strong management oversight would minimize risk and preserve intellectual capital.

In the mid-1990s, as a result of the Internet and Web-based software technology revolution, the concept of using low-cost resources to develop software and maintain existing systems was born, and offshore development facilities in countries like India, China, Ireland, and the Czech Republic flourished. Software companies began to offshore low-intensity functions like documentation, quality assurance, and product maintenance for maturing products. Over time, whole business processes, like help desk support, claims processing, and other traditional call center functions, were moved offshore.

Today, we are witnessing the advent of modern three dimensional computer-aided design (CAD), computer-aided manufacturing (CAM), product visualization, and PLM technologies with sophisticated data synchronization, product data management capabilities, work force collaboration, digitized document management, and IT-enabled product development workflow. Major companies like GE, United Technologies, and Toyota have leveraged this technology in conjunction with low-cost offshore engineering and manufacturing services capabilities, to exploit the benefits of global product development. By rearranging product development activities, personnel, and processes around the globe to take advantage of advantageous cost structures, these companies have experienced increased product development productivity with real and quantifiable financial rewards.

Global Product Development Requires Significant Process Change

A lot of hard work and significant investment is required early on in order to take full advantage of global product development. Implementing global product development involves a lengthy transition process, and requires reconfiguring product development functions across multiple regions in order to maximize productivity and minimize long-term cost while balancing and mitigating risk.

Each step in the product development process must be broken down into clear and concise modular processes, so that the processes can be individually assessed as candidates for potential offshore outsourcing company. This is a major challenge for many manufacturing companies, as they do not have a good handle on current design and development processes, and therefore have trouble breaking each discrete process down into manageable pieces that can be examined for cost efficiencies. It is imperative that any manufacturing enterprise have a formal cross-functional product development process road map and an instinctive process discipline before consideration is given to onshore or offshore outsourcing. The bottom line is that a company's internal product development house must be in order before it starts moving pieces of the equation offshore.

Concerns Abound

There typically is no shortage of concerns over a decision to offshore a part or all of a product development process. Even setting political concerns aside, there are considerable business, technical, and organizational concerns. Merely coming to"what" and"where" decisions is a stressful and lengthy experience that could give any product development or corporate executive grey hair. This is because in most cases, there is no going back without incurring significant costs and triggering second guesses about the merits of the initial decision to outsource.

Organizational concerns most often fall into the realm of control and communication. Dispersed product development processes require the same level of management scrutiny as non-dispersed ones, and are potentially subject to more unexpected change. Thus, formal and effective business processes that address change control are paramount. A well-defined and well-understood hierarchy of management control is also needed, as are 24-hour-a-day, 7-day-a-week communication channels that have redundancy in order to avert risk. Moreover, the decision to offshore product development has an impact on departments besides engineering and manufacturing. Its effects on logistics and supply chain, human resources, marketing, and customer support have to be taken into account when assessing total internal costs and impact.

Technology concerns still exist, even though technology advances in PLM, collaboration, and business networking are the key reasons that global product development is feasible today. Most of the target countries for global product development via offshore outsourcing, like Ireland, Israel, and especially India, have invested heavily in technology infrastructure, education, and technology awareness with strong government support, especially in regions such as Bangalore and Pune in India. Technology investments have been supplemented by national governments through tax incentives and educational subsidies since the mid-90s, and have had time to take root and grow. These investments have been especially beneficial to contract manufacturing, engineering services, software development, and business process outsourcing firms in these countries. Despite these investments, however, the technology concerns most often cited are localized network reliability, local and global Web disruptions, IT governance, technology distribution for things like software upgrades, and common business practices for digitized intellectual property.

Pressures on Software Product Development

For product development in most manufacturing sectors, increasing global competition consistently translates into increasing pressure to do the following:

* improve product quality
* reduce product cost
* respond to changing customer needs
* react to shortened product life cycles
* improve product innovation
* improve product retirement processes
* create byproducts and up-sell products
* reduce time-to-market

With these competitive pressures driving product development at an ever-increasing rate, analyst firms have found, based on recent studies, that over 90 percent of manufacturing firms across a diverse array of industries are formally examining global product development opportunities. How quickly manufacturing firms actually outsource to offshore entities will be a calculated business balance between product development risk and the need to remain competitive.

PLM vendors are on the cutting edge of the global product development opportunity curve in that it is their technology that will enable the feasibility of global product development. Major software providers are honing their marketing messages with a view to global product development. Several of these PLM vendors have even instituted their own PLM products as control tools for internal product development.


Growth in the PLM software solutions market will be a good barometer of the transition to global product development. Enterprises that shift over time to a global product development strategy must invest in modern PLM technology in order to minimize risk and ensure that the perceived cost savings and productivity gains are achieved. The PLM software market could be on the edge of a significant growth cycle, thanks to the coincidence of new PLM software technology capabilities and innovation with the increasing global competitive forces driving manufacturing enterprises toward global product development strategies.

Sunday, November 16, 2008


By James Downs

The task of defining test plans, acceptance criteria, and testing deliverables and processes for any software development effort can face many different and evolving challenges, from identifying applicable processes to maintaining those decisions over time.
Choosing a tool to help support these practices and strategies can not only help alleviate the burden placed on those involved, but it can add efficiency, organization, and a backbone for success.

Before explaining how we started and implemented the quality initiative at my company, let me provide a little background information. Meridian Knowledge Solutions is a leading provider of learning management system (LMS) and learning content management system software. We also provide professional services, courseware, development, and hosting services. We serve 4.5 million users at more than 200 public- and private-sector employers.

Our flagship product, Meridian Global LMS, integrates learning content management, workforce analytics, knowledge management, and competency modeling in one LMS. Meridian Global LMS provides users with access to courseware, documents, data, instructors, and other learners on demand. Any material designed to aid job performance is easily and readily available and completely integrated into a single Web site.

In this article, you will get an overview of the testing methodologies and processes used at Meridian, why we chose Oracle Test Manager for Web Applications to help us manage and support our processes and quality initiatives, and how we use Oracle Test Manager for Web Applications on a daily basis.

As many people are aware, defining a single process from the ground up to support any software lifecycle is an arduous task. Trying to define all processes to join every portion of the lifecycle can feel practically impossible. Fortunately it can be done, and it really is not as tough as you think.
In 2004, we decided to go to the drawing board and redefine the responsibilities and accountability of quality assurance (QA) as it related to our new product (Meridian Global LMS), and the companywide image in general.

Accomplishing this goal meant not only defining new methodologies for the product QA team, but figuring out how to tie these processes together with existing processes from other teams in the lifecycle. Our initial priority was to keep things as simple and streamlined as possible. “Working smarter, not harder” appeared to be the perfect motto for our agenda.

We started with centralized and individual processes based on normal industry standards, as well as our own knowledge of what has worked in real-world examples throughout our many years of collective experience. Portions of our core processes are derived from very basic and normal industry best practices from leading entities, such as the Capability Maturity Model Integration approach by the Software Engineering Institute. Lastly, we wanted to make sure any shortcomings we experienced in the past would not be repeated in the new processes.

We developed simple and rational best practices for a change control process, a test strategy, documentation practices, readiness review procedures, as well as supporting templates and
guidelines for QA deliverables. None of these deviate very far from what other companies and organizations implement when they too set up a QA and lifecycle program. We believe our advantage is in our commitment to these QA initiatives and how well they work with development, requirements, and management processes.

So what are all these fancy processes and how can you determine what to create? Start by defining basic required processes, and supplement them with optional processes that add more value when needed. Such deliverables are formal detailed test plans, final test reports, and cumulative testing metrics, among others. Some processes that can be very advantageous are test readiness reviews, release readiness reviews, and a formalized change control board (CCB). All of these, among others, help make up our Meridian ideology and methodology.

So we are all set, right? Now what? The big question and concern then became, How can we maintain and support all of this while trying to keep up with constant code changes, requirement updates, and product scope tangents?

The answer was Oracle Test Manager for Web Applications: a tool that has helped us seamlessly bring all these pieces together, while collaboratively enabling communication through a common portal.


The biggest advantage of Oracle Test Manager for Web Applications is its simplicity: all fundamental areas of the software lifecycle are available in a simple and intuitive interface. I personally have used numerous other applications for requirements, testing, and defect tracking that required too much time cross-pollinating information and trying to sync the independent applications. These applications were oftentimes much more expensive to implement and maintain than Oracle Test Manager for Web Applications was, and still are.

One of the most time-consuming, yet accountable, processes in QA is the ability to create traceability between requirements, tests, and defects. This is probably one of the most important traits Oracle Test Manager for Web Applications provides to us at Meridian. By allowing users to associate requirements to tests (see figure 1) and tests to issues (see figure 2), and thus automatically associating issues to requirements (see figure 3), Oracle Test Manager for Web Applications provides traceability and mapping that certainly aids in our CCB process, issue resolution, and testing preparation and execution.

Figure 1

Figure 2

Figure 3
Let us examine the Oracle Test Manager for Web Applications architecture and its independent Requirements, Tests, and Issues modules. The basic Oracle Test Manager for Web Applications setup using the dedicated license server and Microsoft SQL Server back end was an easy choice and convenient setup for us. Using Microsoft SQL Server provides a powerful and simple solution for database maintenance and backup support. Additionally, the dedicated Oracle Test Manager for Web Applications server does not have to be overly robust for basic operation, unlike other lifecycle solutions.

The Oracle Test Manager for Web Applications Requirements module provides a standardized platform for design and functional requirements creation and maintenance. Its out-of-the-box fields and options provide adequate support for even the most complex application. However, the ability to create custom fields in the Oracle Test Manager for Web Applications Administrator provides an even more powerful platform for requirements flexibility and management, and enables customization of the application to match your defined processes. The additional ability to attach files for such things as design images and functionality workflows increases productivity by allowing developers and testers the information needed to write code and tests correctly the first time. Also, Oracle Test Manager for Web Applications maintains all previously saved versions of a requirement and provides the ability to save comments with each saved version (through custom fields).

The Issues module shares all the same productivity, efficiency, and flexibility standards as the Requirements module. But it also provides us at Meridian with the platform we need to effectively and seamlessly manage our change control process. We take advantage of the custom field functionality to add any additional fields and options we need to manage ownership and expectations of defect and enhancement changes (see figure 4). The Issues module does not mange this process for us, but without it our change control process would not be anywhere close to the efficient and seamless process we use today. Additionally, the information contained in the Issues module gives us great flexibility in managing release readiness, as well as metrics reporting for each software release.

Figure 4

Last, but certainly not least, is the Tests module in Oracle Test Manager for Web Applications. Obviously, from a natural QA perspective, this is the focal point of the application. The ability to structure the tests by means of folders and test groups is integral for proper test management and maintenance. But the ability to manage individual manual, automated (from Oracle Functional Testing for Web Applications), and third-party tests is the core advantage to this module. For anyone converting existing QA material to a managed system like Oracle Test Manager for Web Applications, the manual test process is second to none. Simply and easily, existing tests in such applications as Microsoft Word, Microsoft Excel, or the like can be ported to the Oracle Test Manager for Web Applications test structure. Instantly, tests can be managed in a central location and reused countless times (see figure 5). What better way to make a test update in one location and seamlessly have this change applied to all instances of that test’s use?

Figure 5
Similarly for more-advanced QA departments, the ability to maintain automated tests from Oracle Functional Testing for Web Applications also shares the same core advantages as manual tests. In the end, the Tests module alone can be enough of an advantage for a QA department to use to outweigh the costs of implementation and maintenance. It is such a good tool for us that all of our QA personnel can easily spend an entire working day logged into Oracle Test Manager for Web Applications conducting all of their daily and long term tasks.

Collectively, as stated previously, these three core modules enable the association between them to completely cover traceability that is vital to so many organizations. Some could say the traceability coverage, which is practically seamless by nature in Oracle Test Manager for Web Applications, saves our team days, if not weeks, on every release—making sure our functionality is covered from A to Z.

The same age-old question exists for us as all other QA organizations: Do we use automated testing or manual testing? No surprise here, we have to make the same decisions as any other managed QA department does. Is it cost effective to automate and maintain this type of testing? If so, what volume of tests do we automate? How often do we run these tests? How do we properly implement a sound automation practice? The questions are nearly endless, and an entire white paper could be devoted (and undoubtedly has) to this subject.

One of the biggest advantages of automated testing is repetitive execution of functional test scenarios against a consistent and expected interface. Basically, automated regression testing is probably the safest route to take. Because regression testing is most often executed against a relatively unchanged function(s) it is a safer bet to automate, thus requiring less maintenance.
We spend so much time adding new features and changing outdated functionality, so we have had little chance to automate portions of our application. This is in no way a bad thing, especially since we have identified this from the get-go, and not talked ourselves into a false hope that automation can in some way “save us” from the “perils” of manual testing. In fact, manual testing has been extremely effective for us. Our features change often, the application is so customizable, and our user interface is always being tweaked that we have to be very selective in what we automate so we do not create unnecessary maintenance.

That said, we have been designing a formal process to implement automation at levels that would give us the greatest benefit, because our QA processes were introduced years ago. When the time is right we will slowly implement smoke testing at the basic functional level so it is easier to maintain, yet buy us the greatest benefit. Because we apply new builds of code to our QA environments so often, smoke testing will really help us identify low-level defects at the root level on a more-efficient basis, rather than waiting for a tester to manually execute the process.
Just like all our processes, automated testing is a great support tool, but it does not dictate our processes and end results. Using Oracle Test Manager for Web Applications to manage the execution of the automated tests, as well as scheduling out the process runs, will fall right into place with the other modules we use in Oracle Test Manager for Web Applications.

The reporting capability has vastly improved in recent releases of Oracle Test Manager for Web Applications. Of particular interest is the dashboard style setup of the reports. In the past, we have used our own collaborative dashboard (in the form of weekly/monthly metrics) to present to management and owners to show such things as product status, defect resolution rate, and test/issue ownership. These are always vital for buy in and progress explanation; however, when they need to be presented frequently, they can really take a chunk of time to create. The dashboard reporting feature can greatly increase the time needed to put these numbers together, especially on a moment’s notice.

Also a somewhat new, but empowering, feature is the ability to create new reports for you and publish them for others to use. Different members of our product team employ their own private reports to help track internal progress, but also publish some instances to the team so information can be shared. This can be a huge advantage to check on status and other information instantly—without the need to call, e-mail, or meet with team members.
Standard out-of-the-box reports should not be overlooked either. We use these reports in varying degrees to report such things as test progress/status for release readiness, issue resolution/results to support our final test reports, as well as requirements to test traceability as
alluded to earlier. The Reporting module is another great advantage provided by the single, integrated solution offered by Oracle Test Manager for Web Applications.

With all applications, there are always certain shortcuts and tidbits that can help manage and maintain efficiency as well as contribute to knowledge transfer within the team. Here are some of those tips and tricks I have found over the years using Oracle Test Manager for Web Applications based on how we use it in our organization.

One of the biggest advantages is to reuse custom fields within the three core modules as often as possible. For example, we use the Version field across all three modules. Because we apply new versions of code to our testing environment at least once daily, the ability to log in and update the current version in one central location saves us time and ensures we don’t make any typos or mistakes. Naturally, correct versioning helps in reporting and metrics accuracy.

A very good tool recently included in Oracle Test Manager for Web Applications is the Screen Capture Utility. This is a wonderful application that can really speed up the time to include screenshots of bugs and GUI captures. Using the Screen Capture Utility can simplify the process of entering issues or the need to include GUI captures for requirements or tests. It is much more time efficient than using the old method of using the print screen (PrtScn) button, and some general tool such as Microsoft Paint to paste, crop, and save the picture.

Another interesting tidbit we have found is not to abandon the use of the Oracle Test Manager for Web Applications desktop interface. With more and more improvements to the Oracle Test Manager for Web Applications Web interface, it can be enticing to move to the more modern interface full time. However, there are a few key advantages to continuing to use the desktop interface. One of these is the use of drag-and-drop functionality. When working on large volumes of functional tests and test groups, such as we do, the ability to organize these tests assets by using drag and drop is a huge time-saver, rather than using the move left/right/up/down buttons in the Web interface. Similarly, the same advantage exists for requirements as well.
A final, but important, trick is to make sure the unique IDs are turned on. In the Tools > Options menu, be sure to select the check box to display unique IDs, rather than using the default index sorting (see figure 6). As you reorganize requirements and tests, the default indexing can change, which can be a real nuisance if you monitor traceability closely. Why? Because the indexing value will change as the entity is moved. Using unique IDs will avoid this potential problem. The unique ID will follow the Oracle Test Manager for Web Applications entity and maintain identification through its movement. Also under Options, you can control the number of records that will appear with a single node.

Figure 6
Another note about the unique IDs is to use different database instances per test manager project when copying a project (one project per database). Why? If you copy a project within the same database, the unique IDs will jump, so to speak. Because the IDs remain unique, what used to be TEST100 in Project A, will now be TEST500 in the copy of Project A. This obviously can throw a kink in maintaining consistent traceability. To avoid this, copy the project to a new and clean database instance where the ID mapping will remain the same. Copying within the same database can certainly have its advantages in certain situations, but we have found new database instances per test manager project as the best way to maintain our Oracle Test Manager for Web Applications archiving process and overall traceability. Following a major release, we copy the test manager project to a new database. The copy becomes the archive for that release, and we continue work in the “main” project.

In the end, Oracle Test Manager for Web Applications offers Meridian a relatively low-cost solution (especially when compared to similar vendors) that supports almost all aspects of our product development lifecycle. Because it is an extremely low maintenance and easily manageable application, we can spend more time relying on its benefits, and less time worrying about its dependability. It is important to note that we chose Oracle Test Manager for Web Applications as a supportive solution to help drive and maintain our processes and initiatives after they had been identified and defined. I believe that if you were to reverse this and choose a tool first, an organization can too easily become dependent on that solution, and their processes can become too restrictive and inflexible as their product and organization change over time.
In summary, Oracle Test Manager for Web Applications is a tool that assists us with decision-making, productivity, and knowledge throughput in a centralized interface. There is no doubt our efficiency would wane greatly without the ability for instant traceability and easy reuse and optimization of tests. Oracle Test Manager for Web Applications is a viable and credible solution that any organization should strongly consider to help support their lifecycle efforts.

Tuesday, November 4, 2008

Taking a Reality Check on Today’s Sofware Outsourcing Company Market

There are many verifiable facts about the global information
technology and business process outsourcing (ITO/BPO) market.
It is a multi-hundred billion dollar market. It is a growing market
in terms of the number and total volume of deals and the
number and size of service providers serving the market. If
through no other means, the magnitude of the outsourcing
market and its growth levels are verifiable by reviewing the
fi nancial performance levels of the publicly traded service
Whether or not outsourcing is “delivering on its promises” or
users of outsourcing are satisfied is more difficult - though by
no means impossible - to measure. Between the last quarter
of 2004 and the first quarter 2007 EquaTerra has conducted
eleven market studies that assessed buyers’ outsourcing usage
and satisfaction as well as their future outsourcing investment

The market assessments primarily focused on buyers that
had undertaken multiple process outsourcing and were of a
minimum size of $100M revenue or 1,000 employees, though
in most cases the studies focused on much larger organizations.
Most studies also included only respondents that were director
level or above and were involved in the outsourcing decision
making process. During that same time frame EquaTerra also
conducted 10 iterations of its quarterly EquaTerra BPO/ITO
Pulse surveys. In short, the studies have been numerous,
comprehensive, and targeted to respondents whose opinions
matter most when it comes to assessing the software outsourcing company
Across all of these studies, buyer satisfaction with outsourcing
remained positive, or above the norm (i.e., buyers were always
more satisfi ed than dissatisfied), though there was room for
• A 2005 study of 200 BPO users found that 96 percent were
moderately (55 percent) or highly satisfied (41 percent) with
their efforts.
• The same study found that 73 percent of BPO users felt that
efforts had enabled process improvement.
• A 2006 study of 289 ITO buyers found that 82 percent
ranked themselves as being satisfied or verysatisfi ed with
their efforts.
• A 2006 study of 200 buyers across seven BPO categories
found satisfaction levels ranging from 6.5 (call center/CRM)
to 7.8 (R&D/pharmawork) on a one to ten scale where one
was not at all satisfied and ten was very satisfied.

Two 2006 studies, one with 310 respondents and one with
113 respondents, assessed satisfaction levels in the following
fi ve functional outsourcing areas: IT, finance and accounting,
human resources, procurement and call center. One on a one
to fi ve scale, with one being not at all satisfied and five being
very satisfi ed, satisfaction levels ranged from 3.13 to 3.40. In
the study of 113 outsourcing users, satisfaction levels with the
outsourcing service providers employed averaged 3.48 on the
same one to fi ve scale.
• A critical 2007 study of multi-process HRO buyers assessed
whether the benefits sought from outsourcing had been
achieved. On a one to five scale, with one being benefits not
at all achieved and five being benefits fully achieved, response
levels ranged from 2.48 to 3.00.
There are differing opinions on the success in outsourcing. The
topic has provenripe for criticism among axegrinders, and those
opinions aside, most business people view outsourcing as one
of many tools available to improve performance and reduce
costs, but only if it is pursued under the right circumstances and
executed efficiently and effectively. This requires building an
effective outsourcing governance organization and designing a
relationship that delivers sustainable value. IT executives must
continually and proactively validate their outsourcing decisions.
These outsourcing buyers must evaluate their own situations,
and this report is designed for those looking for the market
perspective in broader outsourcing market trends and
lessons learned.
In many cases with EquaTerra clients, the business case and
organizational strategy will drive clients to conclude outsourcing
functions are critical to success. Outsourcing remains a strategic
tool among many of our clients. Yet, the internal requirements,
technology and provider community provide a constantly
changing environment that often requires modifying an
outsourcing arrangement to properly adjust for these
moving parts.
It is also just not EquaTerra research that finds that buyers are
generally achieving the benefits sought from outsourcing. A
market study of 226 commercial firm executives by PwC released
in May 2007 found executives “bullish” on IT outsourcing. In
this study, 87 percent of respondents indicated ITO delivered on
the business benefits originally sought. Ninety-one percent of
respondents planned to outsource again and felt ITO had become
““an essential business practice.” The fi ndings do not imply ITO is
easy to undertake or always the right solution for an IT problem
but certainly it indicates that ITO has become a common and
often benefi cial tool for CIOs and their organizations to employ.
The last three EquaTerra studies referenced above, however,
highlight that outsourcing satisfaction levels can improve,
especially in HRO. That said, the levels are still positive and
above average. It is also important to note that multi-process
outsourcing, as addressed in these surveys, is still a relatively
immature industry. In HRO, for example, EquaTerra estimates
that there have globally only been 75-100 HRO deals involving
fi ve or more of the 22 HR processes. This is a small percentage
of the potential buyers for HRO. In many respects these early
adopters and their service providers are still learning what
its takes to undertake outsourcing of this scale and scope
successfully and hence are experiencing lower satisfaction levels.
Many of these larger and more complex deals have also
occurred relatively recently. This is important because
satisfaction levels in the early stages of deals, for example, is
lower during the typical 12 to 24 month transition period than
it would be in the steady-state or later in the deal (see Figure 1
from the EquaTerra 2006 market study, sample size 310). This
is because transition is inevitably painful and buyers also often
have unrealistic expectations about immediate outsourcing
improvements. Buyers also often initially under-invest in
outsourcing governance. Later into engagements buyers
typically increase their governance investment which drives
performance improvement often because buyers have a better
understanding of what it takes to make outsourcing work well.
While the ITO market by most measures is more mature
than other types of outsourcing addressed in these research
efforts, ITO buyers and services providers are in a dynamic and
rapidly changing market that tests their abilities to continually
improve service quality. Hence, despite its maturity, the ITO
market does not have markedly higher satisfaction levels. ITO
has experienced the most “mega-deals” that are inherently
challenging to deliver successfully. ITO is the most globalized
general and administration outsourcing category and the
service provider market is the most dynamic. ITO efforts also
have to deal with a very rapidly changing IT hardware and
software environment (e.g., the Internet, “e-business,” ERP, Y2K,
open source and other IT life events of the past 10 years). The
terms of most ITO deals, for example, are longer than the
lifecycle of the underlying technology.
Another means to test outsourcing satisfaction is to determine
the future investment plans for current outsourcing users.
Here EquaTerra also fi nds the message positive on outsourcing
performance and bullish on its future. Across multiple market
studies, EquaTerra assessed future ITO and BPO investment

Approximately one third of buyers
surveyed planned to maintain their current levels of outsourcing.
Approximately 25 percent in each study planned to expand
outsourcing’s usage either in the same functional area currently
outsourced or in new functional areas or in new geographies,
divisions or business units. Less than two percent of respondents
indicated that their organizations planned to curtail or eliminate
their outsourcing efforts. Note that respondents in these studies
could select more than one response, which is why totals exceed
100 percent.
In aggregate, therefore, current outsourcing buyers are much
more likely to expand their outsourcing efforts rather than
maintain current levels and rarely were they planning to fully
bring work back in-house. This investment trend would seem to
clearly indicate most buyers are satisfi ed with the return on their
outsourcing investments.
The “curtail” or “eliminate” outsourcing response levels are much
lower than the third party research cited in Figure 1. Setting
aside potential issues with research quality on either side, there
are some other potential causes for the extreme variations.
One is that EquaTerra’s market research studies focus on larger
buyer organizations. As noted, respondents are typically from
organizations with more than $100M in revenue and typically are
from fi rms with $10B or more in revenue. Larger organizations
with larger outsourcing investments are typically more
experienced and more committed to their efforts. Similarly,
EquaTerra research studies focus on deals with greater scope in
terms of multi-process or multi-functional efforts often involving
multiple geographies and business units. While efforts of this
scale are more complex, they are also potentially more rewarding
and buyers are more dedicated to driving their success.
What matters most is that buyers ensure that they understand
the demographics of any market research effort when
determining how applicable it is to compare to their own
situation and effort. If a F100 outsourcing buyer is undertaking
a global, multi-process HRO deal it is of little value to know that,
for example, small cap buyers of modest offshore application
development efforts often terminate their projects before the
original completion date. Just as outsourcing success requires a
business plan tailored to buyers’ individual needs and situations,
so too must comparative efforts to understand market trends
and best practices. It is for this same reason that EquaTerra
often takes issue with classic outsourcing performance
benchmarking efforts; too often they are not comparing
like situations or make extrapolations based on underlying,
inaccurate or incomplete data. We will address issues with
performance benchmarking in a future EquaTerra Perspective.
In contrast, several recent research studies do not present
outsourcing as a viable approach (see Figure 3, next page). In
an attempt to help current and prospective outsourcing buyers
better understand the reality of current outsourcing market
trends, this Perspective aggregates EquaTerra market research
on ITO and BPO buyer satisfaction levels and future investment
plans. These fi ndings reinforce the EquaTerra position that,
despite its problems, outsourcing has been proven as a viable
business tool for enabling process improvement and cost
How are Outsourcing Buyers Responding?
It is clear from the EquaTerra market research that most
outsourcing buyers are continuing to invest in and expand
their outsourcing efforts. Buyers also are becoming more
sophisticated in their efforts. This sophistication manifests itself
in several ways:
• Buyers are more likely to pursue multi-sourcing efforts
and spread work across multiple service providers and
engagements. In some cases, often in HRO, this is a result
of not being able to find a single service provider with
the capacity and desire to take on a “mega-deal.” More
often, though, it is recognition of the potential benefits
of multi-sourcing. These benefits are derived from using
specialist service providers for certain functions and
processes, deploying incrementally smaller but more
manageable deals, diversifying risk, and taking advantage
of a burgeoning market of qualified service providers. It
is important for buyers to recognize and weigh, however,
the increased cost and complexity of multi-sourcing both
in the sourcing process as well as ongoing outsourcing

How are Outsourcing Service Providers
Leading ITO and BPO service providers today are reacting to the
outsourcing learnings that have occurred in the market over
the past several years. They are improving their deal pursuit
processes to better ensure they are not chasing after potentially
bad or unprofitable deals or clients. Executive management
at most firms have better insight into and involvement in
the pursuit of major deals. Leading providers are also better
managing their pursuit costs and focusing on the most
appealing opportunities.
The ITO market has been reinvented by the extensive use of
remote, lower cost resources. India-based service providers
have excelled through this model but multinational ITO
providers are rapidly expanding their own lower cost market
footprint. Both groups are expanding rapidly to emerging
service delivery locations like the Philippines, Central and South
America, Eastern and Central Europe, Russia, and China. While
the initial focus was on lower delivery costs via labor arbitrage,
the emphasis now is on exploiting the use of highly skilled
resources and creating truly global service delivery models.
Global ITO also had moved beyond application development
and maintenance to support commercial packaged application
services and most recently infrastructure and operations
services. So while the ITO service provider market is most
mature in the general and administration space, it is still very
dynamic and rapidly changing.

Major BPO service providers, particularly in the HRO space, are
still often struggling with capacity issues. This is in part of a
function of operating in a maturing market and highlights
the complex nature of deals that are being constructed. All
BPO service providers need to better sell and deliver more
standardized service offerings, emphasizing the value of
successfully delivering a service over the appeal of a more
complex and unique service that may prove more difficult to
successfully deliver profitably.
While multinational service providers’ continued expansion into
lower cost markets will help their margins, it also gives them
access to additional talent to address capacity constraint issues.
Western expansion by India-based service providers is helping to
support their efforts to move from the ITO space into the BPO
space, an effort most are succeeding at though still on a small
scale. Multinationals, however, need to continue to work to
improve their remote delivery capabilities while providers from
lower cost markets must continue to successfully manage rapid
growth levels and continue to build out their specifi c business
process and vertical industry capabilities.
The Advisor Perspective – Critical Points to
Buyers of outsourcing services need to determine if, when and
where BPO and ITO are suitable business tools to deploy in
their organizations and understand how these relationships are
likely to change over time. Keen focus is not only required on
building the outsourcing business case but also on ensuring the
skills, resources and commitment exists to successfully execute
on and then manage and govern the outsourcing effort.
Critical to outsourcing success for buyers is to understand
what has and has not worked for their peers. While every
outsourcing effort is unique, buyers can learn much from the
experiences of their predecessors. This is why it is important for
buyers to track and monitor success levels for outsourcing in
the market as well as monitor the nature of future investment
plans. Buyers must use caution, however, and ensure that
any market assessments they are reviewing are accurate and
applicable to their own circumstances.
Recognizing that while outsourcing satisfaction levels are
positive and the market continues to grow, buyers should still
identify typical problem areas in outsourcing and proactively
address them. Here are some common pitfalls that buyers
should strive to avoid:
• Outsourcing decision criteria and their relative importance
are poorly defi ned: If outsourcing goals are not clearly
defi ned, it is diffi cult to determine if they are ever met.
• Shortcuts are taken to expedite the deal: Buyers must take
the time and seek the advice and expertise needed to
build a business plan and identify and negotiate with the
appropriate service provider as well as plan for the transition
and governance work. Rushing the outsourcing courtship
can lead to a troubled marriage.
• The choice of the commercial model is disconnected from
change drivers: Contractual obligations, service levels
and pricing should drive the service provider towards the
desired outsourcing goals. For example, maximizing cost
reductions typically does not mix well with improving
service levels.
• The governance and retained organizations are poorly
designed and implemented: Buyers must begin to plan
early for the outsourcing transition and subsequent
governance efforts. Adequately staffi ng the retained and
governance organizations and deploying solid policies,
processes and procedures are critical to outsourcing
• Unrealistic or poorly communicated expectations about
what changes will occur when outsourcing occurs: Buyers
must focus on change management and better manage
both user and executives’ expectations. Things are typically
worse, not better, during the early stages of an outsourcing
effort and buyers must prepare for this likelihood.
• The focus is on fi rst and second years’ savings rather than on
balancing short- and long-term benefi ts: While quick hits
are important, buyers must view the outsourcing process as
a journey and not as an event.
• Buyer and service providers are unable to manage change:
Because outsourcing is a journey, many unexpected events
will occur. Processes, trust, open communications, and
executive-level involvement and support on both sides are
critical to managing this change

Sunday, November 2, 2008

IT Outsourcing Governance


As technology has evolved and become increasingly pervasive, there isn’t a business function that isn’t in some way enabled by technology. The point at which business finds itself today is one of “IT is the business,” and vice versa. IT cannot be viewed any differently than the fundamental business processes on which the organization operates.

In fact, IT is now as integral a part of business as is financial reporting, manufacturing processes or even chairs and desks. In the coming years, it’s possible that the roles of CIO and COO will become one in the same, and IT capabilities will ultimately dissipate into the organization as
fundamental operating skills required by any executive. This complete integration of IT into the business causes information to become the driving force, not any specific technology.

To ensure that IT outsourcing companies — who operate with a tremendous amount of responsibility in our new age of compliance and oversight — are indeed working to further the interests of their partners and not just themselves, companies often create a framework within
which the outsourcing partner must perform. It’s within the bounds of this outsourcing governance framework that many relationships will either succeed or fail.

Since the 1980s, there’s been a great deal of discussion and posturing on both sides of the company-outsourcer fence regarding the structure of outsourcing governance. However, we’ve learned that all the rules in the world won’t ensure the successful deployment and management
of an outsourced relationship. Clearly, the need for effectively defined mechanics and service levels is important, but all those checks and balances are only as good as the cultural alignment of the two partners.

Symbyo Technologies has developed a fairly simple definition of cultural alignment through our years of providing outsourced information technology services to mid-market businesses. We believe that the recipients of services should be able to trust the motivations of the provider of those services. This sounds easy but is in reality, very hard to achieve.

Although it’s often misunderstood, outsourcing is not a new concept. The fi rst supply and demand relationship was effectively the outsourcing of a specifi c set of functions. When you purchase a packet of frozen peas at the grocery store, you have effectively outsourced the growing, harvesting, packaging and delivery of those vegetables. It’s just another case of demand aggregation equating to improved price-performance, predictability and quality of service. Or at least that’s what it should be.

Many have read the historical and projected statistics for failed outsourcing relationships, as well as the myriad of cited reasons. The bottom line is that IT outsourcing is a maturing industry that requires vendors and customers to recognize the fluid relationship dynamics required to drive a successful partnership.

The skills needed to manage an outsourcing vendor are most likely different from the skills required to run your current IT department. Obviously, the more complex your needs, the harder it is to ensure price-performance, predictability and quality of service on the part of the
outsourcer. That’s the primary reason for ensuring cultural alignment and a clear process of governance.

Toward the goal of creating a powerful outsourcing governance environment, we see three distinct phases in the lifecycle of building a trust-based relationship: selection of a vendor, establishment of the process and living within the ongoing partnership.

> Be informed on both sides. The process of governance needs to start at the selection phase. When selecting a vendor be sure to include criteria specifically targeted at governance. Also, work hard to understand your vendor’s business model. If they cannot convey how their business makes money, how could they possibly build a longterm, winning scenario for you? And if you believe your prospective outsourcing partner doesn’t understand your business, then keep

> Check your vendor’s references. Not the ones they want to give you but the ones they don’t want to give you — tell potential vendors you’d like to speak with ex-customers. Review the potential vendor’s recent press releases and look at the different stages of their customer
relationships: transitioning, steady state or contract term expiration.

Instead of asking for three references, ask for the complete customer list and select customers that you believe most closely match your profi le.

> Look in the mirror — objectively. Consider how your IT department is viewed internally. Is it a department of business-savvy IT professionals who are aligned to the primary objectives of your organization? If it’s not, is that what you’re looking to fi nd in an outsourcing partner?
Do parts of your team function more effectively than others? Understanding what you have is the lion’s share of defining what you need.

It’s also important to fully understand what your customer — the end user — wants from IT. Is IT viewed positively and as being successful in your company? Is IT a strategic enabler or a necessary evil? The answers to these questions are essential clues to finding the best outsourcing vendor for your needs, and not simply taking the recommendation of one company.

> Turn back to plan ahead. When considering how best to manage your outsourcing services vendor, you should revisit why you decided to, or why you are considering outsourcing in the fi rst place. This primary motivation should then be able to be tracked through all aspects of

Is your primary motivation strategic transformation? Or is it improved quality of service, cost containment, or a combination of the above? With these factors in mind, does your planned or current governance strategy support those objectives?

For example, if your primary motivation is strategic transformation, how are you going to measure the success of that transformation? When are you going to measure it? And what happens if your goals aren’t reached? These are all factors that play a role in creating a successful, long-term outsourcing relationship with realistic expectations and well-defined
metrics for measurement in place

the long-term. The outsourcing vendor’s approach to problem resolution must align with your business needs.

Cultural compatibility — Beyond understanding the nature of your business, your outsourcing partner must understand and be compatible with your corporate culture, regardless of the size of your company. The mechanics of governance are only as good as the cultural compatibility
between the customer and the vendor.

Resilience of communication — Another aspect of ensuring continued alignment is a multi-level communications framework. A successful communication structure is best served by multiple interaction points at varying levels of seniority between the client and the vendor.

Face-to-face meetings — As in any good relationship, there’s no substitute for frequent, face-to-face meetings. If the outsourcing partner isn’t geographically close, work out a schedule in advance for meetings and protect those dates. Video conferencing and collaborative online meetings can also go a long way toward fostering open, honest communications.

Senior leadership involvement – On both sides of the partnership the involvement of strong, senior leadership is paramount to a successful governance program. It’s only through this involvement that the needs of the business can align with the service delivery program. Both parties must communicate on a strategic, not cost-center basis.

Key functional users — Your outsourcing partner must possess a fundamental knowledge of your primary business processes that are supported by the enterprise systems your business uses, such as enterprise resource planning (ERP). Unquestionably, you’ll want to partner with an outsourcing fi rm that has a solid understanding of the functional aspects of these complex systems, and recognizes the strategic importance they hold for your business as well.
Advocacy — Does your outsourcing vendor have a separate management structure for customer advocacy in addition to internal operational execution? One person wearing many hats may sound good for economies of scale and price-performance, but it will cost you intimacy with your vendor.

Flexibility — A vendor needs to be able to react to the changing needs of customers. While most vendors are very flexible with regard to expansion of services, few are equally fl exible when it comes to accommodating change or reduction of services. This is a key factor to the longevity of a relationship.

As you work to establish your governance process, align on the principles behind specific goals. As with compliance, the best governance structures are built on principles and guidelines instead
of rules.

We believe the governance process should not just be focused on the quality of specific services, or the contract terms and conditions.

It should prevent value erosion, and the preservation of the end user experience. So, as you work to establish and maintain cultural alignment, don’t build a structure that motivates your outsourcer to merely satisfy the contract as opposed to satisfying the customer and
delivering value beyond the statistics.

That said, effective measurements are critical. But keep in mind that these programs need to exist to support the primary motivation for outsourcing, which in almost all cases will be to support the company’s business model and overall corporate goals.

Following are a number of mechanical and tactical aspects that you should consider wrapping within your governance process, and some questions you should be asking in each area:

Customer care model
— Be sure to clearly articulate your expectations when it comes to customer care. How often will there be communication? How many customer managers will be assigned to your account? What kind of reporting structure will be in place? How flexible is the outsourcing partner in terms of adapting their structure and processes to your needs?

Service Level Agreements (SLAs)
— The foundation of your services package will be the SLA. It should defi ne the process, service levels, checks and balances, and reporting mechanism for your IT outsourcing agreement. Ask how your SLA will be monitored, and if you have independent access to a dashboard or other monitoring system.

Typical SLAs consist of various availability or performance metrics. Also, consider the inclusion of softer SLA components such as number of end user complaints, effective escalation adherence, etc.

Quality of Service reporting (QoS)
— What kinds of standards will your agreement be measured against? Are you able to defi ne your own metrics for QoS, or are they all established by the outsourcing vendor? What time frames are involved in the reporting process, and what kinds of problem resolution structures are in place?

Adherence to IT best practices
— Ask your prospective provider if they adhere to IT best practices. If so, what’s the authoritative source for these practices? All too often, IT providers will claim they follow best practices when what they actually follow are the best practices they’ve
been able to develop internally, An example of an authoritative source of best practices is the IT Infrastructure Library (ITIL), a globally recognized series of documents that are used to aid the implementation of a bestpractices framework for IT Service Management.

Problem resolution —
Has your prospective outsourcing partner developed clearly defi ned issue identifi cation, escalation, resolution and communication processes? Is the extent of your desired involvement in the problem resolution process understood and clearly documented?

In Symbyo’s experience, an exemplary problem management process (and the customer’s trust in the process) is a key driver allowing IT management to focus on “strategic” priorities. These processes should go beyond what’s normally included as part of your SLA, and are a key component of building and maintaining a harmonious relationship for


The four critical components for living within the process are leadership, cost, flexibility and business metrics:

First and foremost, outsourcing elements of your IT infrastructure or operations doesn’t mean that the need for innovative leadership goes away. Too many businesses entering into outsourced relationships underestimate the on-going management commitment associated with governance. Ensuring the involvement of the same strong leaders who helped create the outsourcing agreement is critical to effective governance and the continued alignment of principles.

Secondly, since lowering the cost of delivering IT services is often a driver for outsourcing, the outsourcer must deliver services below the cost of what a company can do for itself, while still maintaining a profit. Obviously, the reason a vendor is able to provide improved price performance is demand aggregation and predictability of demand.

Major swings in demand present difficult business issues for the vendor to solve. And their ability to take change in stride should be taken into consideration when setting expectations or crafting the mechanism of governance.

Also, keep in mind that flexibility — along with customer intimacy and effective governance — is a two-way street. An integral part of cultural alignment is understanding the fact that you are effectively creating an extension of your own business within the outsourcer’s organization. If
you treat it as such you will get signifi cantly more value than approaching the transaction in an arm’s length manner.

Lastly, revisit your primary business objective for outsourcing on a frequent basis. Create a non-SLA based score card approach to monitoring those objectives and ensure that your business does not lose sight of the original motivation. Without metrics in place, after many
years into a relationship it’s easy to forget those objectives and trend towards a dysfunctional transactional approach.


The cardinal sin of outsourcing governance is one of focusing entirely on the mechanics and the price. By doing that you’ll be missing the true potential of the relationship. So spend the time and effort required to ensure an effective governance process, but don’t lose sight of the fact that without cultural alignment with your vendor, you’ll only be creating ground rules for debate, not agreement.

At Symbyo, we believe that governance in and of itself will not align IT to the business. Strong business leadership at the head of the governance mechanism is key. You can view it in the same context of IT’s role within business. The governance process — like IT — is a power tool to be wielded by a competent business leader.