What in the World Can Go Wrong?

Since the initial popularity of "offshoring" prior to Y2K, much has been learned about communications and staffing. Still, to be successful, insurers must take measured steps in the planning and management of offshore deals.

Searching for 'Level Fives'

Supporting this assertion is The Capability and Maturity Model (CMM), a framework developed by Carnegie Mellon University's (Pittsburgh) Software Engineering Institute (SEI). The CMM measures software development practices on a scale of one to five (see sidebar on this page). According to Sadasivan, more than half of approximately 20 companies in the world that have achieved level five are based in India.

However, although India—which according to HTSC's Gudzunas, gets between 80 and 95 percent of offshore revenue—is most dominant, there are other countries offshore offering quality IT services. Outside of India, according to DataQuest's Ted Kempf, principal analyst, South Korea, the Baltics, Hungary, the Czech Republic, Malaysia, Argentina, Brazil, Chile, South Africa, Poland, China, Mexico and Russia are emerging as attractive countries for outsourcing.

""If you looked at just quality, it could be found in Ireland, Singapore, and Israel, but the cost of labor is high,"" IBM's Sadasivan says. Currently, no one country specializes in any area of technology or type of application/process. However, some countries, such as the Philippines, offer a more westernized culture than India and are emerging as a place for US companies to outsource customer-facing functions such as call centers.

However, HTSC's Gudzunas warns, ""One has to look at a country's political stability or instability as the case may be. If you do work in a developing country, they probably do not have a track record there and that is obvious exposure.""

Consider the Risks

It might also be wise for a CIO to look at the risk that a particular region might have for natural disasters. Farmer's Claudio, who was concerned about the possibility earthquakes in India might impact the insurer's legacy maintenance activities, put a risk mitigation strategy in place. For instance, the maintenance work done for Farmers is not localized to one area of Wipro's facilities, so that if something happens, there will be a better chance of getting things up and running in a short period of time.

One way to get a feel for the country in which technology processes will be handled is by making a visit, not only to get a feel for the culture but to see first hand the facilities and manner in which your company's technology processes will be handled. As part of Progressive's RFP process, each of the four vendors involved was allotted one week to spend at Progressive. A team of Progressive employees dedicated its efforts to helping with analysis and obtaining information needed by each of the four vendor teams during their visits and each vendor team was evaluated on their performance. During the vendor's week-long visits, Laska and the commercial vehicle division's IT manager of maintenance visited each vendor site: Tarrytown, NY, and Halifax, Nova Scotia for Cap/Gemini's and Keane's locations, respectively, while IMRglobal and Covansys brought the two to India.

""We brought vendors to Progressive so we could get some first-hand experience in seeing how they interacted with our groups,"" recalls Laska. ""But I also wanted to see what types of facilities they had, how many employees they had, what types of equipment they used. I wanted to interact with the folks that were going to do this work."" Laska spoke with each vendors' programmers, had them show him code they had written and documentation they had produced, and where they stored it. ""I wanted to validate that what they had said in their RFI was true.""

Eventually, Covansys, the only company with a CMM level-five rating among the contenders, won out. ""It was interesting visiting the different sites because you could tell the difference between level three, four and five organizations as far as the tightness of processes"" says Laska. ""All of the companies could have done the job, but the precision of a level-five organization sold us.""

Another way global outsourcing firms are adding value to the services they offer potential clients is by gaining industry-specific expertise. At CSC (El Segundo, CA), according to Kate Rouse, head of offshore initiatives, IT professionals at the company's Indian operations are CPCU 1 and 5, FLMI 280 and 290 and INS 21, 22 and 23 certified. ""They are not simply technical people, they bring good business skills to the table as well,"" explains Rouse.

Once an outsourcing partner is chosen, the level of management or supervision that an outsourcer provides in its project may determine the venture's success, as well as cost. ""Some companies take an arms-length approach, which is good for outsourcing office stationery, but not IT services,"" says Infosys' Pradham.

Not playing a part in the management of an offshore project can also prove costly. ""If a company doesn't pay attention to work that is being done, they will wind up paying more for the service,"" warns DataQuest's Kempf. ""The anticipated savings will evaporate because they will spend a lot of time trying to communicate with the service provider on how to get the job done right.""

Farmer's Claudio has assigned a full-time program director to oversee the company's offshore work. ""He tracks resources, making sure that we have the right people working on projects. He manages Wipro employees as if they were Farmers' employees,"" she says.

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