Experience of using CMMI in IT procurement and outsourcing/off-shoring

1. Experience of using CMMI in IT procurement and outsourcing/off-shoring Andrew Griffiths and Andy Dunham Institute of Directors – April 2005

2. Objectives • Provide an understanding of trends, lessons learnt and challenges • Feedback from the recent Lamri out-sourcing and off-shoring survey results • Help you to avoid some of the pitfalls

3. The Survey • To keep you awake…. • We will be asking you a series of questions • This survey is anonymous • We hope you have already completed the company profiling questions • The results you see • Are from a survey conducted at a Lamri Offshoring Seminar • Provided by 32 respondents • The report is available (and free!) from the Lamri stand

4. About the Survey: Demographic Results What is your organisations approx IT expenditure? Which of the following best describes your position within your current organisation? How many employees are in software delivery? How many employees are in your organisation?

5. About the Survey: Demographic Results Which of the following best describes your organisation sector? This survey provides a reasonable spread of results to provide a “temperature check” analysis

6. Question 4 Is your organisation delivering your software projects today: • Entirely in-house • Mix of in-house and UK providers • Mix of in-house and off-shore providers • Mainly on-shore providers • Mainly off-shore

7. Question 5 Does your organisation intend to deliver software within 2 years: • Entirely in-house • Mix of in-house and UK providers • Mix of in-house and off-shore providers • Mainly on-shore providers • Mainly off-shore

8. Survey Results Is your organisation delivering your software projects today? Does your organisation intend to deliver software within two years? There has been a clear move towards using outsourced & off-shore suppliers that is active in industry today. Two sectors have “disappeared”: Mainly on-shore & Entirely In-House

9. Question 6 What has driven your organisation to this view?: • Drive down costs • Increase productivity • Improve quality • Reduce time to market • Provide a flexible resource pool • Provide access to new skills and capabilities • Provide a vehicle to drive improvement • Other Rate 0-5 5 being most highly relevant0 being not relevant

10. Survey Results • The strongest drivers are: • Drive Down Costs • Increase Productivity • Reduce Time to Market • Provide a Flexible Resource Pool • Process and quality oriented drivers were not as strongly indicated • Does this mean that UK industry believes that UK software development is too expensive, slow and inflexible?

11. Trends

12. CMM L5 for marketing offshore providers • Good questions to ask you potential CMM L5 supplier? • Do you have plans to achieve a CMMI level? • When was your last appraisal completed? • What was the scope of the appraisal? • Was it an official appraisal? • Will I be working with the CMM L5 team? • Would you be prepared to be independently assessed for this contract?

13. Blending off-shore, near-shore and on-shore: Usual Approach

14. Blending off-shore, near-shore and on-shore: Blended Approach

15. “Capability Report” “Capability Report” “Capability Report” Using CMMI to assess key suppliers and alter the profile of work given to them to match their capabilities A Ltd B Ltd C PLC CMMI Appraisal CMMI Appraisal CMMI Appraisal New contracts are issued based on identified strengths and weaknessesof the suppliers Dependant upon objectives other appraisal methods could be used ITIL, ISO15504

16. Using an off-shore contract to drive improvements internally Requirements Analysis & Design Build Test Operate As Is Off-Shore to highercapability team Analysis & Design Build Test Requirements Operate To Be Requirements Analysis & Design Build Test Operate Execution of this kind of contract has included the future “in-source” of the off-shore team at contract completion

17. Question 7 Which of these trends have you observed in your organisation? • Identifying potential suppliers based on CMM or CMMI maturity levels • Blending off-shore, near-shore and on-shore • Using CMMI to assess key suppliers and alter the profile of work given to them to match their capabilities • Using an off-shore contract to drive improvements internally Tick all observed

18. Survey Results Blending the use of different types of supplier is a key trend with 60% of attendees identifying this as a trend, CMM/CMMI is a key qualification gate for off-shore suppliers

19. Lessons Learnt& Challenges

20. Process Scope Requirements Analysis & Design Build Test Operate Executive Sales & Marketing Business Operations Finance Internal IT A Ltd B Ltd Organisational Scope Operating Scope Scope of an off-shore contract is difficult to establish

21. Process Scope Requirements Analysis & Design Build Test Operate Executive Sale & Marketing Business Operations Finance Internal IT A Ltd B Ltd Organisational Scope Operating Scope Scope of an off-shore contract is difficult to establish You and your potential supplier will have different ways ofworking, techniques andterminology Often processes areundefined and lack measures There are often no established service levels Often roles and responsibilities are not clearly defined

22. The off-shore contract costs you more than you expect Process Scope • In defining a contract you will define types of delivered services • Given that a clear “as-is” definition of process and service levels is rare (in many organisations) service definition is difficult • “Catchall” time and materials clauses will be introduced to cover the unexpected services • In running the contract for the first time issues with these defined services will become clear (e.g. your way of working in requirements does not “gel” with the supplier) leading to T&M based corrective work Requirements Analysis & Design Build Test Operate Project Delivery SystemTest Services

23. Underestimate the internal business process change Internal Process There is more change here than you think…. The processes to: Initiate a delivery Track deliveries Accept goods Have ALL changed (even if the people remainthe same) Other changes are required in operating scope and organisation scope to make thiswork Internal Process Out-sourced Process

24. Lack of executive level involvement • The executive must be setting the goals, without this initial involvement engaging them in the business change, political and staffing aspects of an off-shore will be difficult • The off-shoring project is often passed to the department that will be most affected to set up the contract. Without executive management engagement driving this how can it hope to be successful? • There are corporate social responsibility and “bad press” implications of an off-shore without the engagement of the executive how can these risks be considered in an appropriate way?

25. Suppliers have more experience of off-shoring than customers Suppliers regularly negotiate these deals you probably do not

26. Cultural issues are more significant than anticipated ManagementStyles Time Zone Language Work Ethic Non-Verbal Communication differences Internal Cultural Issues & VestedInterest BusinessEtiquette Social Values Potential lack ofempathy with domain

27. Exploring the communication and culture issues further NativeLanguageDifferences Culturechanges Encoding & Decoding Decode Receive Transmit Encode

28. Lets look at a simple example Reproduced with the kind permission of HSBC

29. An example of the hidden costsof outsourcing / off-shoring Software Product & Services Company Sales &Marketing ProductDevelopment Support

30. An example of the hidden costsof outsourcing / off-shoring Software Product & Services Company Off-shore Provider Sales &Marketing ProductDevelopment Support

31. An example of the hidden costsof outsourcing / off-shoring Software Product & Services Company Off-shore Provider Sales &Marketing ProductDevelopment Support Sales Leads

32. Remember the questions to ask them! • Good questions to ask you potential CMM L5 supplier? • Do you have plans to achieve a CMMI level? • When was your last appraisal completed? • What was the scope of the appraisal? • Was it an official appraisal? • Will I be working with the CMM L5 team? • Would you be prepared to be independently assessed for this contract? Misunderstanding what a CMM / CMMI level actually means Believing that if they have the badge it will all be alright This ignores the issues of organisational fit,empathy and integration – the things that affect the success of the contract

33. Question 8 • If you have completed an outsource / off-shore contract which of these challenges have affected you? • Establishing the scope of an off-shore contract is difficult • The contract costs more than you expect • Lack of executive level involvement • Suppliers have more experience of off-shoring than customers • Underestimating the internal business process change required • Cultural issues are more significant than anticipated • Misunderstanding what CMM / CMMI actually means • Other Tick all observed

34. Survey Results • 70% attendees have experienced cultural issues in running outsourced/Off-shored contracts • Business change was underestimated in 51% of cases • Contracts cost more than expected for 55% of attendees • Establishing scope was difficult for 51% of attendees • Conclusions • Given the benefits required are mainly cost focused the contract cost increase provides some concern, there is some clear correlation between cost and underestimating the business change required. • Scope, cost and business change are clearly connected and Lamri suspect that insufficient investment is placed in the pre-contract scoping and negotiations

35. The Lamri view of Benefits achieved by clients OFF-SHORING • Many organisations struggle getting beyond using off-shore resource @ their offices • Off-shore in your office usually works well • Resource is much more cost effective the controls on expenditure are often lower • Lower controls can create an organisation that can be more responsive to support issues • However in the end development schedule and effort extends • The successful off-shore relationships require real effort to make them work • Dealing with requirements challenges • Managing cultural differences • Building the right measures into the contract to ensure the right service is delivered • Significant cost reductions are usually attained 20% – 30%: but sometimes at cost to delivery dates • Is this enough? Given the huge difference in Salary and Overhead Costs the savings should be higher! Benefits should be considered at an organisational level as many ofthe implementation risks are realized at this level

36. Question 9 If you have completed an OFF-SHORE deal what benefits have you actually achieved • Lower costs • Increased productivity • Improved quality • Reduced time to market • Working Flexible resource pool • Access to new skills and capabilities • Driven improved capability in your organisation • Other Rate 0-5 5 being exceeding your benefits expectations 3 being meeting your benefits expectations 0 being no realised benefits

37. Survey Results • Given the difference in overheads and salaries in low-cost locations success in most of the key areas should be simple, however the response was weaker than expected this could be because • Underestimation of the off-shore overheads (communication, contract management etc) • Many software projects have large visual and end-user interacting front ends? Cultural issues do come into play strongly here. • Buying on price does not necessarily lead to the right partner • The customers own capability is not considered in scoping and negotiating a deal • Are the actual rates paid too high?

38. Things to consider when outsourcing and off-shoring

39. High C Integration Complexity Number of interface to other systems(outside of project scope) Medium B A Low Requirements “Toughness” Level of direct user interaction requiredto make the project successful coupled withrate of change of requirements Low Medium High Know your projects

40. C B A Know your programme of work Strategic Off-shore deal “sweet spot” RR & FP Long term call offcontract using locallybased resources Long Term View Medium Term View Programme of Work Does your organisation have a: Multi vendor off-shore supplier arrangements Locally basedresources on time andmaterials basis Short Term View A B C Project Type

41. However… different strategies can change the type of deal you can do Requirements Analysis & Design Build Test Operate

42. Know your capabilities Understanding your strengths and weaknesses informs the appropriatescope of an off-shore deal (depending on goals) Requirements Analysis & Design Build Test Operate Get you potential suppliers participate in the appraisal teamThis helps them truly understand you as a client and frame anappropriate deal Dependant upon objectives appropriate appraisal methods can be used CMMI, ITIL, ISO15504

43. Know suppliers capabilities Understanding your potential suppliers strengths and weaknesses informs the appropriate scope of an off-shore deal and will help qualify a supplier in or out If completed by independent appraisal enables you to be trulyinformed and helps create an open procurement environment Our Capabilities Requirements Analysis & Design Build Test Operate Supplier 1 Requirements Analysis & Design Build Test Operate Supplier 2 Requirements Analysis & Design Build Test Operate Dependant upon objectives appropriate appraisal methods can be used CMMI, ITIL, ISO15504

44. Remember…. • Not every situation needs an off-shore solution • Capable organisations are more able to make off-shoring work • Some projects lend themselves to off-shoring some don’t • Consider how you migrate off-shore to manage risk of the change • Understand your true capability – be honest! • In planning the contract consider all three scopes: Process, Organisational and Operational • Your organisation will not remain static: the off-shoring objectives will change, review them every year

45. Parting thought…. • Off-shoring is providing a cost reduction in the region of 30% - 40% • Successful off-shoring requires strong capabilities in: • Requirements Management and Capture • Configuration Management • Supplier Agreement Management • Integrated Planning • Quality assurance and measurement • These capabilities are (generally) key features of CMMI Maturity Level 2 • Organisations reaching CMMI Maturity Level 2 attain a 30% - 40% reduction in their cost base Is doing BOTH the right answer?

46. What Next? • Lamri can provide a copy of their Initial Off-shoring Survey report (which will be updated after this conference), goto the Lamri stand • Lamri can assess you and your supplier against CMMI standards • Lamri can advise and assist you with your off-shoring / outsourcing agenda