This is the 2nd article of the series. In this article I’m going to discuss the tiers of outsourcing.
When you initiate an outsourced project as the outsourcee, or when making the decision to outsource a project as the outsourcer it’s very important to understand which tier of outsourcing you are in to. This will give you some intelligence in advance about these extra issues you may face in outsourced projects compared to collocated projects. I can think of many dimensions of outsourcing when I define the tiers..
But following categorization based on geography – distance and time zones simply help me to understand many common positive and negative risks of such projects in each context.
'Outsourcing is outsourcing' either you outsource the project to your next door software company or to a company in the other side of the globe. Because in either case you need to manage external contracts, requirements, risks, security and knowledge transferring. However as I have shown in this diagram, the challenges in outsource project management increases when we move up in the tires mainly due to the communication issues and secondly due to cultural issues which I will be discussing in some of the future articles.
First, lets look at the bottom tier. The main advantage of outsourcing to a company with less travel distance is that it could facilitate more of face to face discussions whenever required. This will cut off a big portion of distant communication risks. The other point is that having same language speaking people working for you may provide you the luxury of using your native language in business discussions. Mostly the business and personal cultures will not have much difference with both the company professionals who work together for the projects and that will result much quicker relationship building among project teams. However this tier of outsourcing mostly delivers only the benefits described in the 1st and 2nd points which I discussed in the 1st part of this article.
Nearsourcing , the 2nd tier of outsourcing is more commonly seen among Western and Eastern Europe countries. Countries such as Poland, the Czech Republic, Slovakia and Hungary are stabilizing as software outsourcing destinations for Western Europe markets. As I see the software businesses attracts near sourcing mainly due to reducing the risks of cultural difficulties, legalization issues for onsite work and contractual/ financial terms. Further they benefit with minimized time zone differences. But if someone think Nearsorcing is the solution to avoid all the critical risk factors of outsourcing, it’s a big myth. Sometimes I see Nearsourcing bring more communication problems to the table.
Imagine a company in Norway outsource a project to a development company in Greece. I don’t see many Norwegions fluent in Greek or Many Greeks speak Norwegion. Neither parties don’t use English as their main business language. So these two teams trying to use English as a common language for communication can deliver more risks in Nearsouring than a Norwegion team communicate with a team in South East Asia where English is the main business language to do day to day work.
Nearsorcing seems very attractive for some of the industries such as manufacturing. If you look at the cost factor, Nearsorcing can bring you cost saving specially when it comes to manufacturing simply due to less transportation costs of goods. Hefty ocean fuel surcharges are involved when transportation happens from China to USA compared to Nearsorcing operation from Mexico to USA.
However based on available options in the global outsourcing market its still an argument to decide how much benefit Nearsorucing can bring in to software business which is totally different from manufacturing especially with relatively high labor costs of software professionals of Eastern Europe countries compared to most the SEA countries.
The third tier is what I’m experiencing right now with our current business at Exilesoft development in Sri Lanka and customers located in Norway. The same experience I have had for many years with some companies located in Australia, UK, Germany, Greece and New Zealand. Teams falling to this tier may face almost all the challenges in outsource business but still there is overlapping business hours within the same day where distributed teams can use for collaboration.
By looking at most the SEA software engagements with western countries, its proven that If well managed and well modeled, this tier delivers most the benefits of outsourcing business for the outsourcer as well as the outsourcee due to many reasons. The only difference in the top most tier compared to this tier is that, distributed teams in outsourcing business who are falling to the top most tier has no overlapping business time for collaboration. This increases risk of communication and becomes quite difficult to practice some of the agile methods which need closer and casual communication for projects specially the “Daily scrum” in scrum teams. There are alternatives we may use in such context (But not the Scrum mail :) period!!!) which we will be discussing in the future.
I have used Waterfall and Agile management concepts on such outsourcing projects in almost all these tiers. Compared to all the frameworks and models I have used, I find agile management concepts help to reduce the risks of outsourcing software projects drastically if used wisely.
In the 3rd part of this article we will have a closer look at dealing with culture differences in the project management falling to 3rd and 4th tiers of outsourcing and in the 4th part onward we will have a detailed discussion on other common difficulties and risks we face in outsourcing compared to collocated development while discussing how Agile can be used in each case to reduce the risks by taking Scrum as an example.