Lamri 2005 Experience of using CMMI in IT procurement and outsourcing/off-shoring Andrew Griffiths...

Lamri 2005

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

Andrew Griffiths and Andy Dunham

Institute of Directors – April 2005

Lamri 2005

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

Lamri 2005

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

Lamri 2005

3

4

4

9

8

21

Exec Management

IT Manager

Quality Assurance

Senior Management

Project Management

Project Delivery

Other

Which of the following best describes your position within your current organisation?

4

9

10

5

3

£0 - £999,999

£1m - £4.9m

£5m - £49m

£50m - £199m

£200m+

What is your organisations approx IT expenditure?

10

6

4

3

6

1

5000+

1500-4999

500-1499

200-499

50-199

<49

How many employees are in your organisation?

04

6

8

5

75000+

1500-4999

500-1499

200-499

50-199

<49

How many employees are in software delivery?

About the Survey: Demographic Results

Lamri 2005

Banking /f inance/ insurance Law /accountancy Distribution/logistics/transport

Government/local authority Public sector agency equp't or softw are Manuf'g/engin'g/ marketing/advertising/broadcasting

Medical/healthcare/pharmaceutical Oil/gas/mining/const/agric Service prov/ASP/w eb host/ISP/w ireless SP

Utilities: energy and w ater Business services/property Computer dealer/reseller/ VAR

Education/training Consultancy Manufacturers of computers/IT

Media/leisure/travel/entertainment/PR Netw ork integ/ systems integ Retail/w holesale services

Telecommunications/cable/satellite Other

Which of the following best describes your organisation sector?

This survey provides a reasonable spread of results to provide a “temperature check” analysis

About the Survey: Demographic Results

Lamri 2005

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

Lamri 2005

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

Lamri 2005

Survey Results

5

7

17

2

2

Entirely in-house

Mix of in-house and UK providers

Mix of in-house and off-shoreproviders

Mainly on-shore providers

Mainly off-shore

There has been a clear move towards using outsourced & off-shore suppliers that is active in industry today.

Is your organisation delivering your software projects today?

05

22

0

6

Entirely in-house

Mix of in-house and UK providers

Mix of in-house and off-shoreproviders

Mainly on-shore providers

Mainly off-shore

Does your organisation intend to deliver software within two years?

Two sectors have “disappeared”: Mainly on-shore & Entirely In-House

Lamri 2005

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 0-55 being most highly relevant0 being not relevant

Lamri 2005

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?

Lamri 2005

Trends

Lamri 2005

CMM L5 for marketing offshore providers

Good questions to ask you potential CMM L5 supplier?1. Do you have plans to achieve a CMMI level?2. When was your last appraisal completed?3. What was the scope of the appraisal? 4. Was it an official appraisal?5. Will I be working with the CMM L5 team?6. Would you be prepared to be independently assessed for this contract?

Lamri 2005

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

Lamri 2005

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

Lamri 2005

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

CM

MI A

ppraisal

Dependant upon objectives other appraisal methods could be used ITIL, ISO15504

“CapabilityReport”



New contracts are issued based on identified strengths and weaknessesof the suppliers

CM

MI A

ppraisal

CM

MI A

ppraisal

Lamri 2005

Using an off-shore contract to drive improvements internally

RequirementsAnalysis &

DesignBuild Test Operate

As Is

To Be



Requirements

Analysis &Design

Build Test

Operate

Off-Shore to highercapability team

Execution of this kind of contract has included the future “in-source” of the off-shore team at contract completion

Lamri 2005

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

Lamri 2005

Survey Results

No of attendees who identified the trends

14

20

54

0

5

10

15

20

25

Identifying potentialsuppliers based on CMMor CMMI maturity levels

Blending off-shore, near-shore and on-shore

Using CMMI to assesskey suppliers and alterprofile of work given to

them to match theircapabs

Using an off-shorecontract to drive

improvements internally

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

Lamri 2005

Lessons Learnt& Challenges

Lamri 2005

Scope of an off-shore contract is difficult to establish



Process Scope

A Ltd B Ltd Internal IT

Operating ScopeOrganisational Scope

Sales & Marketing

Business Operations

Finance

Executive

Lamri 2005

Scope of an off-shore contract is difficult to establish



Process Scope

A Ltd B Ltd Internal IT

Operating ScopeOrganisational Scope

Sale & Marketing

Business Operations

Finance

Executive

Often processes areundefined and lack

measures

There are often no established service levels

Often roles and responsibilities are not

clearly defined

You and your potential supplierwill have different ways ofworking, techniques and

terminology

Lamri 2005

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

Project DeliverySystem

TestServices

Lamri 2005

Underestimate the internal business process change

Internal Process

There is more change herethan you think….

The processes to:Initiate a deliveryTrack deliveriesAccept goodsHave ALL changed(even if the people remainthe same)

Other changes arerequired in operating scope and organisation scope to make thiswork

Internal ProcessOut-sourced Process

Lamri 2005

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?

Lamri 2005

Suppliers have more experience of off-shoring than customers

Suppliers regularly negotiate these deals you probably do not

Lamri 2005

Cultural issues are more significant than anticipated

Language

Social Values

Non-VerbalCommunication

differences

Work Ethic

ManagementStyles

BusinessEtiquette

Potential lack ofempathy with

domain

Time Zone

Internal CulturalIssues & Vested

Interest

Lamri 2005

Exploring the communication and culture issues further

Encode

Decode

Transmit

Receive

NativeLanguage

DifferencesCulturechanges

Encoding & Decoding

Lamri 2005

Lets look at a simple example

Reproduced with the kind permission of HSBC

Lamri 2005

An example of the hidden costsof outsourcing / off-shoring

Software Product & Services Company

Sales &Marketing

ProductDevelopment

Support

Lamri 2005

Off-shore Provider



Sales &Marketing

ProductDevelopment

Support

Lamri 2005

Off-shore Provider



Sales &Marketing

ProductDevelopment

Support

Sales Leads

Lamri 2005

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

Remember the questions to ask them!

Good questions to ask you potential CMM L5 supplier?1. Do you have plans to achieve a CMMI level?2. When was your last appraisal completed?3. What was the scope of the appraisal?4. Was it an official appraisal?5. Will I be working with the CMM L5 team?6. Would you be prepared to be independently assessed for this contract?

Lamri 2005

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

Lamri 2005

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

Lamri 2005

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

Lamri 2005

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 0-55 being exceeding your benefits expectations3 being meeting your benefits expectations0 being no realised benefits

Lamri 2005

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?

Lamri 2005

Things to consider when outsourcing and off-shoring

Lamri 2005

Know your projects

Low Medium High

Lo

wM

ed

ium

Hig

h

Requirements “Toughness”Level of direct user interaction required

to make the project successful coupled withrate of change of requirements

Inte

gra

tio

n C

om

ple

xity

Nu

mb

er o

f in

terf

ace

to o

ther

sys

tem

s(o

uts

ide

of

pro

ject

sco

pe)

C

B

A

Lamri 2005

Know your programme of work

A B C

Sh

ort

Te

rm

Vie

w

Project Type

Pro

gra

mm

e o

f W

ork

Do

es y

ou

r o

rgan

isat

ion

hav

e a:

Me

diu

m

Te

rm V

iew

Lo

ng

Te

rm

Vie

w Strategic Off-shore deal “sweet spot”

RR & FP

Multi vendor off-shore supplier

arrangements

Locally basedresources on time and

materials basis

Long term call offcontract using locally

based resources

C

B

A

Lamri 2005

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



Lamri 2005

Know your capabilities

Understanding your strengths and weaknesses informs the appropriatescope of an off-shore deal (depending on goals)



Get you potential suppliers participate in the appraisal teamThis helps them truly understand you as a client and frame an

appropriate deal

Dependant upon objectives appropriate appraisal methods can be used CMMI, ITIL, ISO15504

Lamri 2005

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



Supplier 1



Supplier 2

Dependant upon objectives appropriate appraisal methods can be used CMMI, ITIL, ISO15504

Lamri 2005

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

Lamri 2005

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?

Lamri 2005

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

Lamri 2005 Experience of using CMMI in IT procurement and outsourcing/off-shoring Andrew Griffiths...

Documents

Transcript of Lamri 2005 Experience of using CMMI in IT procurement and outsourcing/off-shoring Andrew Griffiths...