Last year ARsystems International was looking to cut software development costs. The Toronto-based firm, which sells services and software to trade-show producers, has an in-house IT staff of 11 developers, says Michael Morton, its chief information officer. But in order to cut costs, Morton decided to send some work offshore.He selected a Chinese company, Shinetech Software Inc. The Beijing firm undertook an initial project for ARsystems — a stand-alone piece of code separate from ARsystems’ core application. Morton developed a prototype and Shinetech took it from there.
The first project was fairly successful. “The quality was good,” says Morton, “but it could have been better.” Morton found he needed to be quite specific about requirements and had to check the final product, as Shinetech’s code sometimes wasn’t quite flexible enough for ARsystems’ needs. But “they came back with very good answers and good ideas,” he says. “They’re consistently on top of us to make sure they get the right answers, and they understand and they’re intelligent — you explain something and they get it.”
outsourcing school of hard knocks
Yet Morton has learned some hard lessons about offshore outsourcing along the way. His next couple of projects with Shinetech were more complex and the offshore programmers needed more guidance from ARsystems. “That’s when things started to grind a little bit and get a little bit more complicated,” he recalls. ARsystems’ staff was too busy to deal with the steady flow of questions from the Shinetech programmers, and both projects took 10 to 15 per cent longer than forecast.
The difficulty in keeping up with Shinetech’s questions was exacerbated by the 12-hour time difference between Toronto and Beijing. Shinetech charges time and a half to work on North American clients’ hours, so the companies opted for a limited overlap in hours each day, with Shinetech developers coming in early and ARsystems people staying late.
Offshore outsourcing, while still not as popular here as in the U.S., is growing in Canada. Paul Lachance, director of Accenture’s Canadian delivery centre and technology solutions group, says financial services companies are the leaders, followed by communications and high-technology companies.
slow approach for canada
But Canadians aren’t embracing either information technology outsourcing or the offshore approach as fast as Americans, says Leslie Rosenblood, senior analyst for outsourcing services at International Data Corp. (Canada) Ltd. in Toronto.
This is partly because the need is not as great. Offshore outsourcing began taking off in the States three or four years ago, says Douglas Colby, chief executive for U.S. technology services at Accenture, because “in the U.S., IT services were getting quite expensive and there was a shortage of some of the resources companies needed.” Here costs are lower, which has resulted in Canada being itself a destination for “near-shore” outsourcing by U.S. companies. Canada “simply didn’t need the offshore support as quickly as the U.S. did,” says Colby.
A survey by polling firm Ipsos-Reid last year found 88 per cent of Canadian firms are reluctant to outsource business processes offshore. Lise Dellazizzo, vice-president of information and communications technology at Ipsos-Reid, says Canadians were affected by a backlash arising out of political rhetoric about job losses from offshore outsourcing during the U.S. federal election last year. She doesn’t expect that nervousness to last.
In many cases, Canadians are choosing a “global sourcing” model, in which an outsourcing contractor provides services from a mix of domestic and offshore locations. Rosenblood says this takes advantage of lower offshore costs while keeping the advantages of a contractor with a significant domestic presence. He attributes the popularity of this approach, in part, to Canadian companies being more conservative than their American counterparts and valuing established relationships with suppliers more. “They want a Canadian presence.”
on and off switch
Montréal-based outsourcing firm CGI Group Inc. has both onshore and offshore facilities and promotes the global sourcing approach to its customers. Doug McCuaig, CGI’s senior vice-president and general manager for the greater Toronto area and Atlantic Canada, says it allows different kinds of work to be done in different places according to what is most appropriate for the task. For instance, he says, the maintenance of relatively stable systems can easily be done offshore, but development that involves considerable dialogue with users is best kept closer to the customer.
Before moving work offshore, Colby says, it’s important to make sure there is a sound business case. “Make sure that you want to succeed and you understand the advantages of having it succeed,” he advises.
Morton says it’s important to “take a little extra care in gathering requirements up front,” and pay attention to managing the relationship on a daily basis. “To break up work and move it around the world,” says McCuaig, “the quality has to be very high and the work has to be well defined.”
Data security is an often-cited concern about offshore outsourcing, particularly when information is subject to privacy requirements. Gerry Vankeeken, technical support service unit manager at the Calgary Board of Education, cites this as a key reason for not considering offshore outsourcing, even though the board has outsourced work to local contractors. “I think we have some issues with our data being stored outside the country,” he says.
Language and culture can be impediments, depending on the type of work. Peter Thompson, president and chief executive of RIS Resource Information Systems Inc., a Toronto- based outsourcer with operations here and in Romania, says language isn’t a serious problem — “English is really the common business language worldwide” — but for work like technical support, it makes a difference for staff to have things like hockey and baseball in common with the people they deal with.
check the sarcasm
At ARsystems, Morton says he has not found cultural and language differences to be serious issues. The staff had to learn a little extra politeness — the occasional irritable or sarcastic remark that most North Americans take in stride in the workplace is less acceptable in China — “they take that very seriously and get offended,” Morton says.
Culture varies not only between countries but between companies, and while this can be a pitfall for any outsourcing relationship it is particularly likely to create trouble when the partners are widely separated. Either you need an outsourcing contractor with a similar corporate culture and way of doing things to your own, says McCuaig, or you should be prepared to make some changes to make the relationship work. For instance, he says, if you choose a partner whose approach is to build strictly to detailed specifications, you will have to produce such specifications.
And to keep the relationship running smoothly, some personal contact may be needed. “You can only do so much over the conference call and the videoconference,” McCuaig says. To maintain an important offshore outsourcing deal, some overseas travel is probably necessary, at least to establish relationships between the companies involved. Thompson says RIS, with teams that are roughly two-thirds in Canada to one-third in Romania, makes sure staff members travel back and forth and meet their remote co-workers personally.
Nor do all the potential headaches lie offshore. One risk in sending work offshore is the effect on morale in your own shop. IT staff may feel they are being replaced by cheap offshore labour.
Morton says using Shinetech created some tension at ARsystems initially. He believes the resistance was partly rooted in unhappiness about the need for developers to stay late at the office in order to work with Shinetech.
A couple of his staff members left soon after the first project began, but Morton says he doesn’t know if the outsourcing contract was a factor. He believes his staff have accepted the idea, not least because the alternative would be heavier workloads for them, and he has tried to keep them involved and informed.