CRITICAL SUCCESS FACTORS OF OFFSHORE SOFTWARE DEVELOPMENT PROJECTS

Efficient internal organizational structure: As a requirement, a company engaging in OSD activities should possess an efficient internal organizational structure. This particularly includes a qualified and professional project organization.

Furthermore, the OSD client should exhibit efficient internal communication structures. Here, the focus is primarily on the comparison and the alignment of information between the strategic and operational levels (for instance, to keep both levels informed about changes and modifications to the project implementation plan).

Comprehensive experience with IT outsourcing projects: A client company’s previously gained know-how in national outsourcing projects as well as software development projects can prove to be helpful in the context of OSD. This applies particularly to companies in German-speaking countries, where the offshoring of software services still holds a significant amount of potential.

Problematical is the fact that, when compared to the United States and the UK, companies in German-speaking countries tend to have little experience with outsourcing projects in general. One indication for this is, for instance, the broad orientation, which German-speaking companies fostered in the 80s and early 90s (e. g., the diversification strategy of the Daimler Benz corporate group at that time).

International corporate culture: The cooperation with foreign company partners within the framework of an OSD project can be considerably simplified through the existence of an internationally orientated corporate culture on the part of the client. In this context, the designation of the English language as the official corporate and document language could be a possible measure, assuming the company’s employees possess sufficient English skills. However, within the conducted interviews, especially offshore providers cooperating with small and medium-sized enterprises in German-speaking companies reported having run into language barriers.

It can be generally noted that companies which have gained experience with foreign partners in the past (e. g., marketing subsidiary overseas) tend to have less trouble cooperating with offshore providers. This applies particularly to international conglomerates (e. g., IBM, Siemens), whose employees are confronted with foreign colleagues on a daily basis.

Standardized and documented processes: A strict process orientation was described by the interview partners as beneficial for the implementation of an OSD project. In order to ensure efficient development processes, the client company should execute an internal process optimization before commencing such a project.

Process standards (especially, CMM and ISO 9000) on the part of the provider also have an effect on the clients. Since many offshore providers are certified according to these quality standards, the client should also pursue the highest possible certification in order to ensure the compatibility of the development processes. As a rule of thumb concerning the CMM levels, a maximum difference of two quality levels between client and provider was suggested.

Appropriate internal technical knowledge: Many a time, the major reason why German-speaking companies engage in OSD projects is solely cost-driven. However, these companies often underestimate the complexity of such a project. Therefore, the successful implementation of an OSD project calls for the understanding or at the least the awareness of the technical complexity of the project on the part of the client.

In addition, an adequate understanding of the technical difficulties can have significant influence on the selection of the appropriate software project. Furthermore, contract negotiations with the offshore provider as well as the definition of the specific project requirements can benefit from a client’s comprehensive technical understanding.

Sustained management support: Like with many other complex, high-risk projects, the success of an OSD project is determined in great deal by the amount of support it receives from the company’s management. In order to define appropriate goals and ensure the support of the operational level, the management should gain a reasonable amount of understanding of the processes by being sustainably integrated into the OSD activities of its company.

The existence of a “project champion” within the management level can prove to be beneficial, especially when problems arise during the implementation of the OSD project. This can be very helpful when attempting to overcome internal resistance on the part of the client. A frequently mentioned example of a project champion is Jack Welch, who was accountable for the establishment and the expansion of offshore activities by the North American conglomerate General Electric in India.

Preparation of a detailed project specification: To prevent misunderstandings and obscurities, the preparation of a detailed project specification is essential. The need for such a measure results primarily from the vast distances between the cooperation partners within an OSD project. In this case, the project specification should include a comprehensive description of responsibilities and interfaces.

In addition, the project specification should pursue a certain balance between required precision and necessary flexibility. Under particular circumstances, it may make sense to split up the project into multiple subprojects, in an effort to gain a better overview of the individual duties and responsibilities.

Creation of a cultural sensibility among employees: Many of the interview partners named the creation of a cultural sensibility among employees a significant CSF for the implementation of an OSD project. In this context, employees involved in the project should be informed at an early stage about cultural differences, for instance, the different perceptions of hierarchy structures. In this way, culturally linked misunderstandings can be prevented or at least weakened.

A general requirement for the creation of a cultural sensibility among employees is the communication of know-how related to the development partner’s foreign culture, for example by means of intercultural trainings. Here, the precise goal should be to establish a certain level of tolerance and respect for the opposite culture.

Development of a comprehensive business case: An OSD project should, in any case, be considered as a well defined business case. Here, cost advantages should not be overestimated and high initial investments should be taken into account (start-up costs). Furthermore, costs of administration, regulatory expenses, as well as “hidden costs” in regard to the project coordination need to be considered.

Within the framework of the business case, the client should already consider possible problems and risks, which may arise from different levels of efficiency. In addition, a feasibility analysis can be applied, in order to verify if the demands, for instance, on the part of the management, can even be realized.

Selection of a suitable software component: Not every software development project can be handed over to an offshore provider smoothly. Therefore, it is of great importance to exercise adequate care when selecting the software component for offshoring. In this context, the planned OSD project itself should exhibit a certain critical project size in the first place, as very small projects often cannot justify the additional investments and efforts which flow into OSD projects on the part of the management.

In order to minimize the complexity of the integration process, it is recommended that only modular components with clearly defined interfaces and consistent system architecture are considered for OSD. This way, the client can ensure that potential upgrades and progressive development tasks as well as a possible change of the offshore provider can be handled more easily.

Definition of clear project goals: In order to execute an evaluation of the success of an OSD project, it is important that the client determines well-defined goals (e. g., cost savings, time-to-market reduction), which he plans to pursue through the respective project. Here, breaking down project objectives into further sub-objectives has been proven to be useful. Another useful measure is the definition of project milestones, which particularly supports the monitoring of the achievement of the defined objectives.

Furthermore, the offshore provider should be informed in detail about the specific goals related to the individual project. Only then, can the development partner align its activities with these goals.

Definition of project standards: The definition of project standards has proven to be of importance when implementing an OSD project. In this context, particularly the specification of standardized interfaces between the project partners’ processes and the determination of project guidelines (regarding the annotation of source code as well as the format of the project documentation) facilitate the implementation of such a project.

In order to create a general understanding of the various standards on the part of both the client and the provider, the relevant standards should be defined conjointly during the beginning of the project. The compiled definitions should then be stored in a project handbook.

Early internal change management: A relocation of software development activities to a foreign country is often linked to the threat of job losses combined with the fear and worries of the company’s employees. In an effort to prevent any negative effects of a forthcoming OSD initiative on the motivation and the commitment of the internal employees, a company should inform their employees at an early stage about current plans, thereby directly aiming to reduce fears on the part of the employees by showing them new perspectives.

Possible measures in this context could be, for instance, personal interviews with the employees involved in the project, the establishment of a website with up-to-date information in regard to the project status, as well as discussion rounds between both employees and management representatives on a regular basis.

Good language abilities of the offshore employees in German and English: In order to ensure an efficient communication between the project partners and minimize loss of information, good English skills on the part of the provider are essential. Poor language skills pose a common threat for the success of OSD projects, as interpersonal barriers are often built up. The interview partners confirmed this, especially in regard to SME providers.

When comparing Eastern Europe and India, it can be stated that, from the point of view of German-speaking companies, the German language skills evident in many eastern European countries are appreciated, while in India particularly the high level of English language skills are viewed positively.

Geographical closeness of the offshore provider: The geographical closeness of the offshore provider can also have a positive effect on the implementation of an OSD project. Several advantages such as short journeys and minor time differences are beneficial to the communication during the course of the project.

Providers situated in Asian regions can make up for their large geographical distances to the clients by establishing a subsidiary in the client’s country and/or forming a interface team located on the client site. For instance, some interview partners mentioned that a number of providers implement software maintenance services exclusively with the support of onsite teams, thereby ensuring a quick intervention as soon as problems arise.

High quality of offshore employees: According to the interview results, the success and the failure of an OSD project is in great deal determined by the quality of the employees on the part of the provider. In this context, the quality standard P-CMM (People Capability Maturity Model) is continuously gaining in importance. This quality standard is linked especially to the administration and the development of employees.

Alongside their technical know-how, the provider’s employees should exhibit reliability and commitment. However, closely related to these qualities, the problem of insufficient performance continuity on the part of the provider can often be observed. Most of the time, this is the result of insufficient labor continuity caused by fluctuation on the provider side.

In addition, it must be noted that the quality of the provider employees can be influenced in part by the selection of the specific offshore destination. In accordance with our interview partners, Russia and India possess a well developed educational system, which generates a considerable amount of highly qualified manpower.

Standardized and documented processes on provider side: The subsistence of standardized and documented processes on the part of the provider can make a significant contribution to the successful execution of an OSD project. In this context, particularly the certification of the provider in compliance with quality standards such as CMM or ISO 9000 plays an important role. Another quality-orientated approach related to process management are ITIL and Six Sigma, which in reference to OSD projects, are becoming more and more important.

Many of the foreign providers are already certified in accordance with the quality standards mentioned above. In India, for example, the ten largest providers all exhibit a CMM Level 5 certification, the highest level of the CMM standard. In addition, all but one of the providers are certified in compliance with ISO 9000 (NASSCOM, 2005).

Comprehensive industry knowledge of the offshore provider: The provider should exhibit comprehensive experience as well as an adequate number of reference projects within the client’s industry. This ensures that the provider possesses industry-specific know-how as well as a reasonable amount of knowledge concerning industry-specific standards, processes, and software applications.

The selection of a provider with comprehensive industry knowledge is intended to bring forth additional economies of scale and scope, thereby contributing to a further increase in efficiency and quality regarding the performance of the offshore provider. For this reason, a multitude of providers have made the move to focus on certain industries.

Legal and political stability in the offshore country: According to the respondents, a sufficient level of political and legal security within the offshore destination country is a further CSF tied to the implementation of an OSD project. In many cases, this particularly influences the selection of the specific offshore project location.

In terms of legal security, the project partners must primarily agree on a location which offers a fair and secure court of justice. This is of particular importance in regard to the possible demand for guarantee claims or the protection of IP and patents.

Financial stability of the offshore provider: In an effort to prevent a termination of the offshore relationship due to bankruptcy on the part of the provider, the client should pay close attention to the financial stability of the offshore provider. This becomes even more important if the client is planning a long-term cooperation with the provider.

In order to gain a better understanding of the provider’s financial stability, it is useful to conduct a comprehensive due diligence at the provider site. Even though, such an examination normally concentrates on technical issues, it can help create a clearer picture of the company’s financial situation.

Suitable company size of the offshore provider: The interview partners generally considered it to be reasonable to select a project partner of a comparable corporate size. In line with our interview results, this is particularly true for SME clients. Such companies receive more attention from the management level of a smaller offshore provider as they would from a larger provider.

On the contrary, representatives of LE clients reacted rather indifferently when asked if they would prefer cooperating with a smaller or a larger provider. According to these respondents, merely the benefit of economies of scale would steer their decision towards the cooperation with a larger provider.

Creation of a partnership-like relationship: In the interviews conducted, the creation of a partnership-like relationship between client and provider proved to be the most important CSF for OSD projects. Based upon the selection of a suitable partner, a long-term cooperation as well as a beneficial win-win-situation for both sides should be pursued.

In order for a partnership-like relationship to function smoothly in the long run, both business partners should be able to handle criticism as well as exhibit candidness and flexibility. In doing so, a certain level of trust can be created between the business partners, which in turn can contribute to risk reduction on both the client and the provider side.

Ensuring of a continuous communication flow: In order to allow a continuous communication flow between the project partners, the various project tasks should not be spread out over too many different locations. Furthermore, client and provider should determine an appropriate communication concept. In doing so, many of the misunderstandings often linked to OSD projects can be prevented in advance. In addition, it was recommended that the project partners define a common communication strategy.

Even though, a great part of the project-related communication takes place on the phone, most of the interview partners prefer the use of e-mail or instant messaging for communication purposes. Primarily, this can be reasoned by the fact that these media automatically document the communicated information.

Face-to-face meetings with the offshore provider on a regular basis: A further CSF, closely related to both the continuous communication flow and the partnership-like relationship between client and provider, is the emphasis on face-to-face contact between the project partners. This can take on a major role, particularly in the beginning of an OSD project, when carrying out a project kickoff event, or in the course of the project, as problems may come up.

The face-to-face contact between internal and external employees particularly allows for experiences to be exchanged more easily as well as technical and cultural discrepancies to be reduced.

Continuous controlling of project results: An integrated quality management is essential for reaching the target results pursued by the OSD project. In this context, the monitoring of the project progress on a regular basis plays a pivotal role. Such continuous control may be supported by the definition of a detailed project plan.

Concerning the adaptation of the project results, the development of a prototype in the early project stages has shown to be of particular value. A prototype allows a timely testing of the specific look and feel of the developed software, thereby preventing misunderstandings in the remaining development process.

Definition of an accurate contract: Regarding the composition of the contract, it is beneficial if the client company already possesses experience with the arrangement of international contracts. However, especially in regard to SME clients, this is often not the case.

With regard to the content of the contract, on the one hand, the specific contents should be formulated in great detail, leaving little room for interpretations. On the other hand, the individual contents need to be adjustable to changing requirements, emerging during the course of the project.

Many of the interview partners addressed the fact that the contract itself should serve as a type of prevention towards possible conflicts. Consequently, the contract can be regarded as a pivotal document which brings forth a certain sense of security and takes on a leading role if problems between the project partners arise.

Ensuring of a bilateral know-how transfer: In order for the offshore provider to be in the position to implement the OSD project, the client must impart the necessary and relevant know-how to the provider in the beginning of the project. Here, for instance, special trainings, both onshore and offshore, can be arranged.

However, to remain independent from the offshore provider, the know-how collected in the course of the project must, in turn, be transferred back to the client. If this is neglected, an advanced development of the software, initially developed offshore, can run into considerable problems.

Establishment of an efficient IT infrastructure: According to our interviews, an identical IT infrastructure on the side of both client and provider can contribute significantly to the successful implementation of an OSD project. As an alternative to an identical infrastructure, the offshore provider can be equipped with a direct network connection to the client’s infrastructure (direct link). This allows the provider to develop the software directly within the client’s infrastructure, simplifying the testing and integration process of the software.

In regard to the software infrastructure, ideally, the same applications are run in the same versions on both provider and client side. If this is not possible, at least the compatibility of the software programs used by the client and the provider should be ensured.

Composition of an appropriate project team: Studies in the field of IT in general (e. g., Esteves, 2004) and OSD in particular (e. g., Mani and Rajkumar, 2001) confirm that the com-position of the project team can have a significant influence on the success of an OSD project. In this context, a suitable project manager, an adequate deployment of consultants, as well as a reasonable combination of offshore and onshore resources need to be determined.

In addition, the efficiency of the project team can be increased by providing project members with the authority to make specifically designated decisions or assigning dedicated re-sources to the OSD project.