An article from Norwegian SciTech News at SINTEF
Bad business outsourcing to India
Many Norwegian companies consider developing their software in India or China in order to cut costs. But researchers are critical.
Researchers at SINTEF ICT have for many years been looking into IT companies’ “going global” approach. Several Norwegian companies have already tried this out.
Researchers have interviewed employees in Norwegian companies, and have talked to Indians who have worked in Norway.
”Very little research has been carried out into what happens when small and medium-sized Scandinavian businesses outsource software development in a global market. The basic reason for going global is to save money”, say SINTEF researchers Nils B. Moe and Tore Dybå.
Both emphasise that they are generalising and not referring to specific case studies.
However, their conclusion is clear and concise – software development in low-cost countries does not reduce costs. It costs more than you think. Development takes longer, and quality is often poorer.
To illustrate why things go wrong, SINTEF researchers point to the differences between the flat organisational hierarchies in Norwegian working life and the career ladder systems in India. A career path is an essential element of Indian working life. This means that employees frequently change jobs in order to get higher up the ladder.
”When Norwegian companies arrive with their relatively small projects, other bigger projects are given priority”, say the researchers. A succession of employees quit after a while to work on more prestigious projects. American companies are especially sought-after because Indians regard positions here as springboards for immigration to the USA.
Norwegian companies often work with advanced products which require years of training to develop. Since the Norwegians are constantly encountering new employees when they visit India, this entails problems and additional costs for the projects.
Getting in too deep
Another factor which the researchers have observed is that workers in Norway are used both to specifying and solving problems linked to product development. It is also common for them to ask questions as a means of finding solutions while a project is underway.
Indians are less used to this. They work with their own pre-defined notions of a problem – and don’t ask questions. They keep on working until things come to a halt. This means more expensive distractions and wasted time.
The researchers are finding that it is difficult for many Norwegian companies to accept that it takes longer and is more expensive to develop a product in a low-cost country. Their findings show that as the bills flood in, travel costs increase and the problems begin to pile up, the companies don’t even get finished what they started.
”When you’ve already been standing still too long in one queue watching the line next to you advance, it’s reasonable to expect a company to take some form of action”, says Nils B. Moe. “However, our experience is that the Norwegian companies act as if they were gridlocked”, he says.
Researchers call this “escalation of commitment”. It means that the company has invested so much in a given solution that it becomes difficult to extricate itself. It chooses to close its eyes, sweep the problem under the carpet and hope that everything will turn out right in the end.
”We haven’t come up with any rational reason for this and no-one talks about the blunder while it is actually going on”, conclude the researchers.
”In spite of the problems, investment is rising, billions are being lost and software is being developed that cannot be used”, they say.
The Telenor Project
A year ago SINTEF was commissioned by Telenor to find out what it takes to succeed in a low-cost country. The company has invested a great deal in India in terms of its provision of mobile services and due to its size, has a competitive advantage compared with many other Norwegian companies.
”In Telenor’s case, proximity to the market and access to expertise will be essential”, says Tore Dybå.
He says that they started the project by looking at what could be found in terms of global experience in the field, and if any of this could be applied in Telenor’s case. ”We studied companies such as Siemens, Motorola and Alcatel, and observed that much of their experience was the same as we had encountered among Norwegian companies.
One global trend revealed by the researchers was that the larger companies elected to switch from outsourcing to insourcing. In other words – instead of hiring ”strangers”, foreign companies working in India or China took control by establishing subsidiaries, either by means of acquisitions or by starting from scratch.
Success is possible
”At the same time we are trying to find out the things that Telenor is doing especially well”, says Moe. ”It is entirely possible to succeed in low-cost countries, but it is not possible to operate with cost cutting as the sole objective.”
As the researchers see it, the success criteria, from a Norwegian and global perspective, lie in clearly showing foreign employees the existence of a career path.
Secondly, management must be aware of the phases in which it is vital to maximise collaboration, and thirdly, that both parties must be prepared to move to and work for extended periods in a foreign country.
”A lot also has to do with individual task organisation”, says Moe. ”We see that it isn't a good idea to delegate responsibility for a large project among many employees, but better to structure projects into modules in order to avoid unnecessary coordination and communication problems”, he says.
Time zones and different working hours between the mother country Norway and nations on the other side of the world represent a major challenge, according to Nils B. Moe and Tore Dybå.
”You have to be flexible when scheduling working hours for the teams involved so that they can communicate and work together”, they say and conclude: "The companies which succeed with global development work are those which are willing and able to take these tough decisions.”