IT departments are more squeezed than ever. Funding for new projects is scarce, yet there is the same pressure to support and develop business applications, just this time with fewer resources, less cash and tighter deadlines.

Consequently, more and more organisations are looking at outsourcing application development offshore – a trend that took off in the late 1990s as businesses rushed to build Internet-based applications. Then, the key driver was that organisations had trouble finding the appropriate skills at home. Now, the focus is on driving down development costs and shortening time to market. Organisations are, therefore, outsourcing projects to areas where the required skills are cheaper and can be deployed quickly.

	Matthew Vallance, CustomerAsset: “We provide between a 30% and 40% reduction in costs.”

In terms of cost, offshore outsourcing can certainly help organisations make big savings. Offshore development specialist Cognizant, for example, claims that one of its customers, US insurer Met Life, saved 65% of its development budget or nearly $2.5 million overall using its offshore resources. Another customer, financial services company Royal and SunAlliance, made savings of $16 million or 57% of its development budget over four years.

Most companies look to India, where labour is cheaper (typically, a programmer in an Indian development company would cost around £200 per day, as opposed to £350), but other areas offer similar skills at similar prices, including China and Vietnam.

As a rule, the larger the project, the greater the potential savings, according to Antoine Viale of IT services giant EDS. "For project of five to 15 person-years you will certainly be able to reduce costs by 25% and by around 35% for a 15 to 30 person-year project," he says, adding that development projects that can be carried out almost entirely offshore, tend to be more cost-effective than service projects requiring a significant on-site presence.

For companies such as Racal Instruments (see In practice: Racal Instruments), cheap labour is not the main reason behind their decision to outsource offshore. It is also a way of getting access to skills that are scarce in the UK. Racal was developing testing equipment for the next generation of mobile phones and registered a blank when it looked for the appropriate development skills in the UK.

It is a similar story at UK-based pharmaceuticals research company Current Drugs. It outsourced its Intranet development to Anglo-Indian development consultancy Rave Technologies because it offered greater knowledge of technologies such as Enterprise Java Beans (EJB) and Oracle's 9i application server, than Current Drugs had access to in the UK.

The decision to outsource, it says, was driven by the fact that it wanted to focus on its core competency – producing the content that would populate the intranet.

A key incentive to outsource, according to Stuart Haughton, business development manager at Rave, is that offshore outsourcing teams can quickly perform arduous but necessary tasks that would normally occupy much of the IT department's time, such as accessing and integrating legacy applications.

With this taken care of, says Haughton, organisations can focus on working with more leading edge technologies.

In the same vein, organisations can turn to offshore developers if they want to perform ‘proof of concept' tests – something that would be more expensive in the UK or the US. UK-based systems management software developer Vector Networks, for example, tracked down a number of development teams in the former Soviet Union and asked them to carry out a trial project using Vector's development tools. Vector now uses the group on a wide range of projects in R&D. "They have had a significant impact on the timing and content of new releases," says Colin Bartram, product marketing director at Vector.

Offshore, off limits?
But however skilled a project team may be, how do clients communicate effectively with developers who are more than 1,000 miles away, some of which may not even speak the client's language?

Increasingly, this is not an issue. It is now expected for offshore teams to have at least one liaison person on the customer's site at all times. "We always have someone working on-site so we maximise communication between the customer and ourselves, and minimise the risk of miscommunication," explains Parmenter at Cognizant. Parmenter says Cognizant's teams communicate regularly with offshore developers using audio and video conferencing. They also share project metrics. "We've developed a digital dashboard with key performance indicators within the project, and that's made available to our customers over the Internet," he explains.

Saab Europe, which used another Indian offshore development company, Tata Consultancy Services (TCS), for a customer database project, reports that keeping track of developments in India was never an issue. "We had concerns about control at the outset but they never materialised," says Saab's IT project manager Chris Howse. "There was a large team in Delhi working on the project. We visited them once or twice, they sent a team over here for requirements gathering and so on, and it worked well. We may have had to wait now and again until the evening to phone them up but it was never any great problem – we could sort out any issues by email, and response times were very good. Basically, it was no different from working with an outfit in Manchester."

So are there any limits on the kind of projects that can be carried out offshore? In practice, the potential barriers are as much about cost as logistics. There is a basic overhead involved in setting up the communication links that make offshore services work, and for very small projects this overhead is likely to wipe out any potential cost savings.

For the same reason, say the offshore development companies, it helps to have a well-defined project that can be easily divided up into ‘parcels' of work, without the need for a significant, and more costly, on-site presence.

"The most cost-effective projects to take offshore are those that lend themselves to a high degree of definition," says David West, VP of European operations at offshore outsourcer NIIT. "Rapid application development projects, or those where the customer hasn't defined the requirements are trickier. Once you've pinned down elements of the project, then you can start to use offshore resources."

But Amur Lakshminarayanan, UK country manager for TCS, argues that even this isn't a hard and fast rule. "The common perception is that an offshore project has to have a boundary drawn around it and no-one else has to work on it. We can point to at least half-a-dozen to a dozen projects where that hasn't been the case," he says. "We're now starting to take on business process automation projects that involve high levels of client involvement, but if we get involved at an early stage we're still able to do close to 50% to 60% of the work offshore."

Organisations are also increasingly looking to outsource services, as well as application development, offshore (see Round the clock service). "We have projects where we completely manage the application and service delivery; the application isn't necessarily developed by us, just managed. In those circumstances, once the project gets to a steady state it can be run 20% to 30% on-site, 70% to 80% offshore," says Lakshminarayanan.

Ultimately, the sophistication and global nature of communications technology means that the most significant barriers to offshore projects are probably in the customer's imagination. "Challenges to offshore development? Probably the biggest is getting potential clients' mindset to the point where they're confident it can work," West concludes.

	Round-the-clock service John Trenchard calls travel agent Ebookers. After paying for a dream holiday, John makes a joke about the cold weather in London, and Sarah, Ebookers’ call centre sales agent, says she also “cannot wait for the winter to end”. But outside of Sarah’s call centre it is not cold at all – in fact, it is around 40 degrees Celsius. This is because Sarah, whose real name is not actually Sarah, is working in a call centre in Bangalore, India for offshore contact services supplier CustomerAsset, which started providing services for Ebookers in April 2002. This is not an isolated case. Customer-Asset.com is one of a slew of contact centre suppliers in India. Others include Bangalore-based 24/7Customer.com and New Delhi-based Spectramind. Many have blue-chip clients, based mainly in the US and the UK. Such contact centres are more common in India, since there is a high level of English language skills there, but operations have also been set up in countries such as Sri Lanka, Pakistan and Costa Rica. Offshore outsourcing could be applied to all any IT service – not just a contact centre operation, says David Bradshaw, an analyst at Ovum. A large number of organisations also use Indian IT services for activities such as help desk support, software maintenance for critical systems and back-office tasks such as processing application forms. The recent economic downturn has accelerated the number of organisations choosing the cheaper offshore option, says Bradshaw. “For clients such as Ebookers we provide between a 30% and 40% reduction in [operating] costs,” says Matthew Vallance, managing director at CustomerAsset in the UK. One aspect of customer service that lends itself well to offshore outsourcing is email management, says Bradshaw at Ovum. By this he means that with extra staffing resources – and the additional hours that the time zone difference can bring – contact centre staff can spend more time meticulously checking emails before sending them out. Typically, agents in India will work on tasks including email and human resources (HR) forms in the morning and then switch to taking phone calls later in the day, says Sudhakar Kosaraju, vice president of business development and marketing at 24/7Customer.com. However, using an offshore services supplier raises a myriad of cultural, training, technology and business-related issues. Training for call centre staff is vital if an organisation is to avoid getting a reputation for poor service. “Our staff go through a foundation level training course, including a month spent on accent neutralisation, IT skills and cultural issues,” says Kosaraju. Trainees also receive between two and four weeks training on specific client projects. In addition, language training involves exposing trainees to a broad variety of different US and English accents. This will include trainees watching news programmes such as BBC News 24 or CNN, but it could also be TV drama programmes, such as Eastenders from the UK, or Friends from the US. Despite the potential cost and time benefits, however, few organisations have so far moved all of their call centre services offshore. The vast majority opt to maintain a presence in their own countries. For example, Ebookers uses CustomerAsset to divide calls and email between its call centres in the US, UK and India, according to Vallance. Vallance adds that there is not sufficient demand for organisations to run a global call centre business on a 24 hour, 7days a week basis. Kosaraju concurs: “The concept of ‘following the sun’ is very difficult to implement,” he says. Likewise, organisations do not typically deploy their entire contact centre technology infrastructure offshore. “We do not have [IT] infrastructure in India,” says Kosaraju. Rather 24/7 Customer.com takes phone calls made to its clients and then routes them from its data centre in the US to its call centre in India. CustomerAsset’s agents, meanwhile, use thin client software from Citrix to access the contact centre system – based in a data centre in London – via their browsers in India. Clearly, organisations considering the offshore option are doing so cautiously. “Our customers typically start with a small pilot project. But they gradually move an increasing number of services to India with the ultimate goal of maintaining only a small presence in their country [such as the UK or US],” says Kosaraju. Back