Outsourcing


Outsourcing

With respect to outsourcing, we discuss two related topics: virtual teams and the Capability Maturity Model.

A Common Use for Virtual Teams: Outsourcing

Managers often use virtual teams as part of their outsourcing (moving jobs offshore) strategy. They see that an Indian developer might be paid $5/hour for a job an American developer might get $15/ hour to do [Hayes04]. The choice seems clear: any manager who wants to save funds should send the jobs overseas, where their money will go further.

This concentration on savings hides the reality of the situation: outsourcing is not so profitable. Perhaps only 15 percent to 20 percent is saved by the effective companies. Virtual teams need experienced leadership; they also need collaborative tools. Both are still a cost, even if not a large one. Nevertheless, the idea is spreading. Only about 27,000 jobs were shipped overseas in 2000, but the number is expected to be a half-million by 2015. Many of these jobs will be outsourced to India, which has a large English-speaking population, well-motivated workers, and a good educational system for persons of above-average intelligence. Such jobs are beginning to show up in near shore areas of Mexico and South America.

Many companies rushed into having virtual distributed teams because they thought that they would save money or simply because other companies were doing it. Recently, some companies are bringing back home such things as help centers. The main reason for outsourcing ”that of giving customers better service ”was not accomplished by putting the end of some telephone lines overseas.

Obviously, sending these jobs overseas coincided with the bursting of the dot-com bubble and the inevitable recovery. Growth in outsourcing matches a renewed need for programmers. This, naturally, caused a big backlash among unemployed programmers. How this will all work out is not yet clear, but it is certainly on every company s radar screen.

One final observation: large companies with big IT groups tend to outsource less. We suggest that this is because they already have staff in place, and do not want to suffer morale problems, misplaced costs, or customer dissatisfaction.

Tasks  
  1. Describe the organization of a distributed virtual team.

  2. Where are the most effective places for outsourcing? Why?

The Capability Maturity Model and Its Use for Outsourcing

One generally accepted way of identifying companies with which to outsource is their Capability Maturity Model (CMM) ranking. The thinking is like this: If we compare Maturity Level rankings, and find a company of equal or higher rank, we can successfully outsource to them. It is not this simple.

The CMM was developed at the Software Engineering Institute (SEI) late in the 1980s and early in the 1990s. Its intent was to measure the capability of part of an organization to develop software. There are also SEI maturity models for other fields, like systems engineering. All posit five maturity levels. Most companies have been identified as Level 1 or 2, with the first Level 5 organization ”the Motorola branch in Bangalore, India ”found in software. Since then, many Indian companies have tried for some ranking or another. It is not obvious that they are doing this to increase their chances at getting outsourcing contracts, although that has been among the fallout. The SEI quit supporting the CMM at the end of 2003, although there is some effort on the part of Carnegie-Mellon University, which runs the SEI, to keep the CMM around. This would be a welcome development by those already appraised at some level or those already working toward a ranking.

Why is comparing Maturity Levels not so simple? Because the CMM is a measure of having something, not of how well an organization does something. In other words, an organization can have the worst requirements management system imaginable, but the fact that they have one allows them to check the item off the Level 2 Key Process Area. We observed that a recently assessed near-shore company had many software development life cycle models in their process handbook, and teams in the organization used every one, but there was no guidance as to which life cycle to use in a specific instance.

Therefore, an organization can have a high level of capability , but not a high level of accomplishment. Of course, this can play havoc when working together with a company that tried only to achieve a rating.

Task  

Go to the SEI s Web site at www.sei.cmu.edu and find out why the integrated version of the various CMMs, the CMMI, is supplanting the CMM.