Outsourcing crisis brewing, warns UK CEO

Offshore development oversights made several years ago are now rising to the surface with potentially cataclysmic implications, one CEO warns.

Software-SI chief executive Phil Brooks, 42, is an international expert on legacy modernisation and was an adviser to the UK Government on Y2K modernisation.

He is an expert on offshore outsourcing with 15 years experience of software development in India and he sits on the board of two Indian software developers.

So when he warns the gold rush to take advantage of the benefits of IT outsourcing offshore is about to have serious potential economic implications around the world, he is in a prime situation with which to make the claim.

"The negative side of outsourcing is beginning to surface and it is all to do with cultural communications," he says.

"It's the one thing the west has really still got going for it in terms of IT workers and it means some roles will or at least, should, never be outsourced to an offshore provider."

Organisations that have opted to take IT operations totally offshore could soon be weakened, he warns.

The communications "interface" between western client and offshore resources provider is the biggest single factor in this success or failure, Mr Brooks says.

"The size of the interface is the crux at the moment. There's going to be perhaps billions of dollars going to be lost over this one simple concept - it's going on behind the scenes at the moment. It's simmering below the surface. Some real humdingers of problems, big ones, and it's all down to this one concept of the interface," he says.

Gartner Group has predicted that offshore outsourcing by Western European countries will rise by 40 per cent during 2003, and will be worth more than $1 billion by 2006, while in the US, 20 per cent of the Top Fortune 100 companies have already outsourced software development to India.

But this is only going to add to a potential crisis amongst clients if the manage of their software outsourcing is not considered from the outset, Mr Brooks says, adding that he has previously been personally damaged by getting it wrong.

"It has come back and hit me in the face where we've overlooked the cultural divide before - our interface has been way too broad," he says.

"The intricacies, the accents the empathy and comprehension mean we always have to be on home ground with some roles," he says. "That makes us feel completely safe."

"We provide offshore services of specialist skills that we think add value from a skills as well as a cost point of view to western companies, we manage that resource from a very small interface, we front it up with a layer of US and UK consultants and a mix of our own architects."

Brooks says a good example of an interface that has been set too wide is the model used by Indian software giant, Wipro Technologies.

"Everyone in Wipro is an Indian and the whole concept of what they're selling is Indian outsourcing that is directly engaged at every level the customer - and that's absolutely flawed," he says.

For every 50 resources in India you must have one UK or US-educated project manager on your own payroll who will articulate with project managers back in the west on the same cultural wavelength, he says.

But Wipro denies it has left itself open to a cultural divide.

Kees Ten Nijenhuis, Vice President for European Enterprise Sales at Wipro Technologies, said: "We have recruited a vast number of European technical and sales staff, consultants and business development managers to encourage local relationships and create and support projects.

"We have developed proximity centres based close to client sites and have consequently employed western consultants and intermediaries. Backing this, Wipro embarks upon the most thorough cultural training for Indian staff working in Europe alongside their European colleagues," he said.

Despite the efforts of some Indian companies to bridge the cultural divide as they act on behalf of hands-free western clients, scare stories remain about others.

"One instance was with a global investment bank which had outsourced its databases. When one that formed the backbone to a trading system went down they put the call in to find out what was going on.

"The data base analyst responsible for the system had gone home and stuck the potential problem on his "to do" list for the next morning, in the meantime the bank was losing millions of pounds and the Indians had no comprehension of the criticality of the situation. We tend to take the level of importance absolutely for granted here," he says.

For this reason, some roles will never be a good idea to outsource offshore and out of work IT contractors left out in the cold by the labour migration have these opportunities if they are willing to reskill, Brooks says.

"Domain consultancy is always going to be done by people on-site or in the client's country as is project management. Most consultancy is always done by US and UK nationals as the interface level required across those two disciplines is massive."

"Our model is totally different from Wipro and Infosys' in that we've narrowed our interface right down in using technical architects in US and India.

"The final gap we contend with is having 1 western manager to every 50 Indian programmers and we rely on them to communicate with the Indian nationals."

Geert Hofstede, the business management guru, pointed out years ago globalisation will never work until the people who are involved in it understand each other at an economic, political and social level.

"Customs, religion, the way they've been taught are totally different to those in the west in some cases and we're different to them. It's nothing other than fact, and you can't change it," Brooks says.

"The trick is to just accept it and make the interface fit," he said.