Offshore Moves Can Bring Benefits, but Not Without Pain

Users cite savings potential and better flexibility, warn of internal challenges

NEWTON, Mass. -- At first, offshoring didn't sit well with Dave Andre, chief technology officer at Upromise Inc. But economic realities ultimately forced him to send some IT work overseas.

"Our primary objective was to save money," Andre said during a panel discussion on offshore outsourcing at a Massachusetts Software Council meeting here last week. "We were hoping to have secondary benefits, but if we didn't save money, it wasn't worth going forward."

Upromise offers a free service that lets families earn money for college when they make purchases from affiliated stores, restaurants and online retailers; it also operates a college savings investment fund. In late 2002, the Needham, Mass.-based company began outsourcing some software development and systems administration work to Wipro Ltd., which now has about 30 staffers in Bangalore, India, assigned to Upromise.

Andre wouldn't disclose specific figures, but he said Upromise shaved its IT budget by 10% to 20% in the first year of the offshore contract and expects more savings in the future. "The cost savings are real," he said.

Some of the secondary benefits that Upromise has gotten include a round-the-clock IT operation with "follow the sun" development and quality-assurance capabilities, better internal development processes and increased staffing flexibility, Andre noted.

But he acknowledged that the offshore move has also resulted in some painful experiences, such as the need to lay off IT staffers in the U.S. "Transitions are hard work," Andre said. "If I had it to do again, I would start from Day 1 with an offshore outsource model." In a follow-up interview, he said switching to an offshore approach "causes angst to your employee base, and it causes angst to you."

Upromise also outsourced some call center functions to Daksh eServices Pvt., a business process outsourcing firm in Gurgaon, India, that's being acquired by IBM. Andre said the two deals taught Upromise executives that communicating with employees about offshoring plans is important and that offshore training needs and overhead costs will likely be larger than expected.

Swapnil Shah, the CEO of mValent Inc., a software vendor in Tewksbury, Mass., said his company's approach to offshore outsourcing was to create parallel engineering teams in the U.S. and India. That enables the engineering staff to work an 18-hour day, he said, adding that the offshore strategy has resulted in lower costs and faster time to market.

Choosing a business partner with the requisite technical skills was critical, Shah said.

Sandeep Swadia, head of marketing at Virtusa Corp., a software developer and IT services provider in Westboro, Mass., agreed. "There are different horses for different courses, and you have to pick the right one for the right job," he said. "Make sure their vision matches your vision. The focus just can't be cost."

Copyright © 2004 IDG Communications, Inc.

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