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Archive for the ‘Outsourcing’ Category

Outsourcing – the final steps before the engagement starts

Posted by decipherinfosys on August 4, 2008

A while ago, we had posted what were the steps that we had taken to help one of our clients with their outsourcing needs to an off-shore vendor. You can read more about that post over here. In continuation of that post, the final two steps before the engagement starts are:

1) LOI: Letter of Intent. A letter of intent is signed by the client and the off-shore vendor company to get the process started. This LOI is to state that both the parties agree that they will be working with each other and has hard coded dates in the document to make sure that a MSA (Master Services Engagement) is made available within a set period of time. Rates and payment caps are specified in the LOI to protect the interests of both the parties.

2) MSA: Master Services Agreement. Once the LOI is signed and agreed upon by both the parties, the next step in the process is to prepare a MSA and to review it with both the parties. A MSA goes into a lot of details – here are some high level article categories that it covers:

a) MSA Framework: The purpose of the engagement, the master agreement and service agreements are defined in here.

b) Definitions and Interpretation: All terms are defined so that there is no confusion down the line.

c) Terms: MSA, SLAs and renewal terms are defined in this section.

d) Services: This section covers all the service terms like: Nature of work and time-frame (if on a strict T&M basis), Personnel, HR, Turnover, Account Management, Sub-contractors, Services to Competitors, Compliance with Laws etc.

e) SLAs: Service Level Agreements. The service levels, reporting, remedies, exclusions, benchmarking report and adjustments are defined in this portion.

f) Changes in Services or New Services: This section covers the right to make changes as well as any new services that might be needed down the line.

g) Client’s Responsibilities: The responsibilities and the use of the client facilities & resources are defined in this section.

h) Software and Proprietary Rights: This section defines the IPR (Intellectual Property Rights) related to the business and the software.

i) Payment Terms: This section defines the fees, the taxes, any discounts for the duration of the engagement.

j) Confidentiality and Security: The general obligations, exclusions, data protection, publicity conditions are specified in this section.

k) Dispute Resolutions: Steps for dispute resolutions are defined in this section. This covers things like executive review, mediation, arbitration, fees and costs and provisional remedies.

l) Termination: In the event of the termination of the contract, the terms and conditions are listed in this section.

m) Indemnities, Damages and Insurance: This section defines the rules for Insurance, damages (exclusions and limitations & Mitigation) and Indemnification procedures.

n) Miscellaneous Provisions: Any misc. provisions like Nonperformance, Solicitation, Negotiated Terms, Further Assurances, Governing Law etc. are defined in this section.

This is accompanied by a Set of Schedules to support these articles that are mentioned above.

The documents (LOI and the MSA) are typically prepared by the legal team with feedback from the technical team on specific items. In the case of our client, we achieved successful completion of both of these documents within 4 weeks after the final decision on the vendor engagement was made. If you have a need for finding an off-shore outsourcing team to act as an extended arm of your current team, please feel free to reach us at Outsourcing for more information.

Once these legal documents are in place, the final step is to get the IT accounts set up, the servers/VMs ready for the development/qa environments (this also depends upon the mode that you have selected – whether you want everything to be done in your environment through a VPN tunnel or whether you want to go with a separate environment at the offshore location), the documentation to bring the offshore team up to speed on the domain and the architecture & data model of the product(s) etc..  We will do another post on that topic in the coming days.

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Outsourcing to an Off-shore company – finding the right vendor

Posted by decipherinfosys on July 16, 2008

This post is non technical in nature. We are posting it here because recently we helped one of our clients to go through a selection process of choosing an off-shore company for their development and QA activities. This was our third such engagement in which we have helped our clients get the most value from a consulting engagement. Outsourcing to an off shore company has a lot of advantages as well as things to be vary of. A lot of material is available on the internet in that regard so instead of writing a dissertation on it, we will point you to the IAOP (International Association of Outsourcing Professionals) site which has a lot of good whitepapers in this regard. You can access it here.

The process that we took the client through consisted of these steps:

  1. Interviewing the key stakeholders to learn about the needs of the company – short term as well as a long term vision.
  2. Forming the goals statement and matching those goals against a list of outsourcing companies from off-shore locations. A mix of Tier-1, 2 and 3 companies were chosen as well as non-Tiered companies were chosen as well to give the client an opportunity to consider more than one outsourcing off-shore vendor (this has benefits and challenges that we will cover later on in this post).
  3. Having discussions with the client to discuss the different companies and narrowing it down to a list of top 5.
  4. Contacted those 5 companies and established the communication between the client and the representatives from these companies. All of them also had a presence in the US.
  5. Prepared a preliminary agenda for the first conference call between the client and the 5 companies. This was to go over an Agenda that was inline with the client’s needs and to make sure that both sides understood what the goals were.
  6. The next step was to prepare a RFI (Request for Information) document while working with the client (different departments) and send it to the 5 companies.
  7. Collected the RFI responses and had discussions with the clients to narrow it down to the top 3. A rating system was developed in three categories: Technical, Operational and Commercial & Legal. All three had sub-sections against which each reviewer (including us and members from the client team) rated the vendors on a scale of 1-5. Weight measures (how important each category was for the success of the company) was also put in on a scale of 0-5 (0 because some sub-sections in a particular category might not make sense for the goals of the employee – there was only 1 such sub-section in this case which related to hosting. The client wanted to host the systems here (an ASP model is followed by this client).
  8. Next step was to prepare an RFP (Request for Proposal) and to send it to the top 3 vendors. We co-ordinated the questions and helped answer the questions on both sides related to the process and having worked with the client’s IT department, we were aware of the business needs as well.
  9. Upon receipt and review of the completed RFP from the vendors, we sent follow-up questions that were addressed during the face-to-face meetings with each. An agenda with proper targeted questions was prepared for these meetings.
  10. The ratings were done again for the 3 vendors against the RFP responses.
  11. Weight measures were averaged out and where there were significant differences, they were discussed among the team members and normalized.
  12. References were checked to ensure a recommendation was made to go with two outsourcing vendor companies.

This whole process was completed in 2 months time frame and was a very pleasant experience for both the client as well as the outsourcing vendor companies. As far as going with multiple outsourcing vendors is considered, it is a complex process and has risks associated with it but if managed properly, it does provide a lot of benefit as well to the company. Here are the benefits and disadvantages of such an approach:

Benefits:

  1. The big bang outsourcing with a single vendor can lead to issues for the company since if the decision turns out to be not working for the company, down the line it is difficult to recover from it.
  2. By choosing to work with 2 outsourcing off shore vendors, the company can cut costs and also foster a healthy competition between the vendors while taking advantage of vendor specialization and technical expertise. In this client’s case, one of the vendors (a Tier-1 company) was pretty expensive in terms of rates (nearly 3 times the cost prices of the second vendor (a Tier-3 company)) but they did have more business knowledge of the domain.
  3. The second vendor did not have related business domain experience but did have a rich pool of technical resources and was ranked very well as compared to the Tier-1 vendor in the evaluation process.
  4. It mitigates the risk for our client since down the line, they could switch from one vendor to the other if things do not work out with a vendor. Since the vendors would have been already engaged on a T&M basis, that transition for the team would be seamless.
  5. It also gives them an opportunity to engage the Tier-1 vendor with probably a fixed cost project for one of the projects that requires a good amount of domain expertise in order to be successful in a short span of time.

NOTE: As per the Gartner group, multi-sourcing will remain the dominant sourcing model. Organizations like GM, Kodak, P&G have done this quite successfully by managing the relationships better. As per a survey from CIO magazine (from Feb. 2007), here was the break up:

  • 3 or more outsourcing vendors: 42%
  • 2 outsourcing vendors: 36%
  • 1 outsourcing vendor: 22%

Disadvantages/Challenges:

  1. Managing 2 outsourcing off shore vendors is a time consuming and a complex process. It also adds to some cost upfront since the client now needs to have 2 separate resources for managing these 2 relationships. If appropriate governance is in place, then this risk is mitigated.
  2. If not properly managed and explicitly stated in the contracts, this can lead to a blame game. We can mitigate this by explicitly defining the contract terms.
  3. This typically requires some extra legal documentation work.

If you have a need for finding an outsourcing partner company at an off-shore location, please feel free to contact us at: info@decipherinfosys.com

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