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Experience of using CMMI in IT procurement and outsourcing/off-shoring. Andrew Griffiths and Andy Dunham Institute of Directors – April 2005. Objectives. Provide an understanding of trends, lessons learnt and challenges

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experience of using cmmi in it procurement and outsourcing off shoring

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

Andrew Griffiths and Andy Dunham

Institute of Directors – April 2005

objectives
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
the survey
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
about the survey demographic results
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?

about the survey demographic results5
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

question 4
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
question 5
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
survey results
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

question 6
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

survey results10
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?
cmm l5 for marketing offshore providers
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?
slide15

“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

using an off shore contract to drive improvements internally
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

question 7
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

survey results18
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

scope of an off shore contract is difficult to establish

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
scope of an off shore contract is difficult to establish21

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

the off shore contract costs you more than you expect
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

underestimate the internal business process change
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

lack of executive level involvement
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?
suppliers have more experience of off shoring than customers
Suppliers have more experience of off-shoring than customers

Suppliers regularly negotiate these deals you probably do not

cultural issues are more significant than anticipated
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

exploring the communication and culture issues further
Exploring the communication and culture issues further

NativeLanguageDifferences

Culturechanges

Encoding & Decoding

Decode

Receive

Transmit

Encode

lets look at a simple example
Lets look at a simple example

Reproduced with the kind permission of HSBC

an example of the hidden costs of outsourcing off shoring
An example of the hidden costsof outsourcing / off-shoring

Software Product & Services Company

Sales &Marketing

ProductDevelopment

Support

an example of the hidden costs of outsourcing off shoring30
An example of the hidden costsof outsourcing / off-shoring

Software Product & Services Company

Off-shore Provider

Sales &Marketing

ProductDevelopment

Support

an example of the hidden costs of outsourcing off shoring31
An example of the hidden costsof outsourcing / off-shoring

Software Product & Services Company

Off-shore Provider

Sales &Marketing

ProductDevelopment

Support

Sales Leads

misunderstanding what a cmm cmmi level actually means

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

question 8
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

survey results34
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
the lamri view of benefits achieved by clients off shoring
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

question 9
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

survey results37
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?
know your projects

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
know your programme of work

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

however different strategies can change the type of deal you can do
However… different strategies can change the type of deal you can do

Requirements

Analysis &

Design

Build

Test

Operate

know your capabilities
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

know suppliers capabilities
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

remember
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
parting thought
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?

what next
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