During the last several years, there has been a tremendous amount of discussion relating to the offshore outsourcing of software development work to achieve significant cost reductions. This has been an emerging trend for about a dozen years, but one that has been recently accelerated and subject to wild variations in success and efficiency. A Design for Six Sigma (DFSS) approach is one way that software organizations can make better decisions about how, when and how much to deploy offshore.
An Historical Perspective on Offshore Outsourcing
It is often useful to look at history when pursuing the discussion of a trend. While offshore development is a relatively new trend in software, the concept of outsourcing manufacturing and service operations has been going on for more than 50 years. Asian countries, initially Japan, later Korea, and then “The Asian Tigers” (Malaysia, Singapore, Thailand, Taiwan, Hong Kong and The Philippines) took a prominent roll in developing government-led, socio-economic policies to drive economic success through the pursuit of initially low-tech manufacturing work, utilizing their low cost and available labor force.
In many ways, this created a better balance and improved economic parity between East and West, yet these actions also stripped away many good paying jobs from the western economy. This led to extensive layoffs and the downturn of industries, which never recovered. These industries included steel, clothing, certain automotive and appliance segments, electronic components, battery cells, and many others. In the global scheme of things, the West did the right thing in helping to develop the once struggling Asian economy. But to their credit, this core of Asian companies migrated from their government-sponsored status and embraced the market-driven system that the West pulled them into. They began to understand how to differentiate their products and services, and in the last 50 years have become dominant players in the world market. From a global perspective, these countries are a great success.
The western economies, while feeling the pain of the aforementioned job losses, found a new niche in the innovation and manufacture of “higher technology” (communications, Internet, bio-technology, aerospace and software) products. These industries also created a massive service-based economy, which virtually replaced the jobs lost in the first wave of offshore manufacturing and carried the western economy through the bustling 1990s. History’s lessons are valuable since they show that, through these activities, it is possible to create a better balanced global economy, contribute to political stability while reducing costs and improving profitability. But it is not without a consequence of some kind. Leading industrialized nations need to be aware of the short- and long-term consequences of these decisions and plan accordingly to ensure their place in the global scheme of things. Companies also must make good long-term strategic decisions and carefully evaluate the immediate and future costs and risks in pursuing an offshore strategy.
Software Outsourcing – A Lifecycle Cost Decision
Because the West is now heavily reliant on its service-based economy (and the plethora of software that supports it), the recent acceleration of the trend to offshore outsourcing of software and service jobs needs to be carefully considered. Again, countries with an ample supply of highly educated but relatively low-cost labor are eager recipients of western outsourcing efforts. These countries have active government-sponsored socio-economic initiatives and incentives to win our business and grow their segment. Countries actively pursuing this work include India, China, Russia, Ireland and Israel, among others. Again, as history dictates, helping to grow these economies will have strong global benefits and likely will help outsourcing companies to become more profitable.
However, it is easy to get caught up in the offshore groundswell and make a quick, uninformed decision about outsourcing activities in order to show a rapid cost reduction. How, what, why and even if should be considered and quantify if a company wants to be successful in these efforts and realize the advertised benefits. Software companies must make outsourcing a lifecycle cost decision or they could suffer a significant disappointment or perhaps even higher cost in the long run.
A 2003 CIO Magazine article, “The Hidden Costs of Offshore Outsourcing,” noted that as much as 72 percent of stated cost savings of typical offshore projects was lost to the costs of start-up, transition, productivity and maintenance. When considering that a primary objective to going offshore is to trade $100-an-hour development work for $20-an-hour work, it hardly seems worth the trouble. In fact, in many cases, if a company could simply find a way to reduce current costs (through efficiency, quality and cycle time improvements), they might not need to go offshore at all. However, there are cases when offshore outsourcing does make sense. But only when the customer needs, the business needs and the offshore suppliers capabilities are aligned by a clear understanding and are defined in a quantifiable manner. Simply stated, if a company outsources a poorly specified, unstructured, complex project, it can expect in return a cheap but dysfunctional piece of software requiring many person hours of post-release support and perhaps even cancellation.
Most software professionals understand that defects are introduced into the software process at the various stages of development namely – requirements, design, coding, testing and release. Industry data shows that most often defects are inserted early and found late, at the most expensive stage to fix. One of the most common modes of failure in a software project is poor requirements definition and planning including getting requirements into proper context and actionable detail. In most offshore outsourcing scenarios, the requirements phase of a software project is still in the control of, and maintained by, the organization seeking to outsource the development and coding. Just because an offshore company professes to be a CMM Level 3 or 4 company, it does not mean that the project outcome will exhibit Level 3 or 4 performance characteristics. This is especially true if the base companies’ requirements process exhibits less than Level 1 characteristics. Due to communication, language and cultural limitations, the offshore supplier might never administer the requirements phase to everyone’s satisfaction, even if they have the fundamental skills.
How Does DFSS Help?
The tools of software DFSS can greatly reduce the risk of offshore outsourcing failure by rapidly deploying a roadmap, simple tools and behaviors designed to dramatically reduce the rate of requirements failures and the cycle time to complete the requirements phase of a typical software project. DFSS also can help keep projects on schedule and under control through tollgate reviews based on quantitative dashboards. Through one of several accepted DFSS roadmaps, an organization can quickly deploy a measurement-based process to remove the subjectivity of requirements data and dramatically improve the quality of subsequent coding activity. DMADV (Define, Measure, Analyze, Design/Build and Verify) is the roadmap used here, but there are others which are very similar. As teams accumulate cycles of learning with this roadmap, it becomes a highly efficient way to quantitatively establish a baseline for development activities and to continually improve these activities.
As a word of caution, there are offshore companies soliciting business on the premise that they embrace Six Sigma or have significant competency in Six Sigma. In fact, there are few who completely understand or who have demonstrable results in the application of Six Sigma to software development. Many have simply relabeled their CMM efforts as Six Sigma and pass that off as a competitive advantage. The point here is that companies considering offshore outsourcing must do their homework: Do not expect to get a Six Sigma software product from an organization claiming to be Six Sigma-certified without putting something in – especially on the requirements end of the lifecycle and in the management of the effort.
The DFSS Process – DMADV
In the Define and Measure phase, development teams are required to use tools such as KJ’s, context data mining, process models, Kano planning, use cases, analytical hierarchy process (AHP) and critical-to-quality elements (CTQs). These tools must be administered in a specific sequence (in some cases in an iterative manner) to realize the full benefit. Initially, it may take some additional time on the first few projects, but is quickly assimilated as part of the process by participants.
In the Analyze phase, alternatives and tradeoffs are understood. Using industry accepted estimating models, concept selection scorecards, various voice of the business (VOB) metrics and risk measures, the development team develops a full and quantitative profile of the alternatives and tradeoffs available to them. Capability (from a statistical perspective) also is explored as an expression of voice of the customer (VOC) to VOB balance, examining factors including duration, effort, defects, cost and risks. Raleigh curves help to predict staffing requirements and defect discovery distributions.
During the Design phase of DMADV, a translation of the VOC into quantified and prioritized development terms occurs. The main purpose is to convert what was learned in previous phases, through tools such as quality function deployment (QFD) and failure modes and effects analysis (FMEA) into actionable and measurable tasks. Once this occurs, data rich reviews looking at items including total containment effectiveness (TCE), phase containment effectiveness (PCE) and defect containment effectiveness (DCE) provide solid business insight (converted into dollar impact) for ongoing monitoring of project decisions and consequences. Because of the quantitative nature of these measurements, risk can more effectively be managed.
The Verification phase sets up the project for an ongoing, regular, and quantitative review and verification process. Again, because DFSS practitioners now have a metric-driven project culture in place, they have critical metrics, baselines and goals around those items that are critical to project success as defined by both the customer and the business. It also is the opportunity to be sure that processes are under “procedural control” (required actions and metrics are actually fulfilled). Visual dashboards are usually implemented to make out of control situations visually obvious to reviewers for quick and concise action.
Cost Is Not the Driving Metric
The essence of Six Sigma is about measuring and understanding variation in processes and eliminating as much of that variation as possible at the root causes of variations. In successful organizations, this is the key to achieving breakthrough results. Too often when companies look at cost as the only metric to make decisions, they are falling into a trap. Cost is a lagging and dependent variable. By hyperfocusing on it, organizations inherently miss the characteristics driving it. In all cases, what changes cost is a collection of many independent variables (leading indicators) which are not trapped by the typical accounting system in a useful way. The statistical analysis, prioritization, characterization and improvement of the right variables (or combination of variables) at the right time is what gets desired results. In the matter of offshore outsourcing, too many organizations have fallen into the trap of focusing on cost and failing in their primary objective of saving money.
More and more successful organizations are using DFSS for software to either, 1) use as a tool to eliminate risk and manage the offshore outsourcing project, or, 2) save costs onshore when offshore deployment is prohibited by certain environmental factors (confidentiality, sensitive content, etc.) or simply not viewed as an option. Design for Six Sigma provides a structure, a rapid deployment option and, from the early adopters results, an emerging success story to better manage the way ompanies plan for, deploy and succeed in their offshore outsourcing endeavors.