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Outsourcing Applications to Low Cost Geographies

By Denise Coyne, Former CIO, Global Corporate Functions, Chevron

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Denise Coyne, Former CIO, Global Corporate Functions, Chevron

As pressure to reduce costs continues to drive business, the low cost of outsourcing work to low-cost geographies is appealing. Outsourcing and off shoring can help reduce expenditures, bring diverse thinking to a Global Company, and close a skill-gap by providing niche software skills.  But successful outsourcing requires good project management, excellent communication, exchange of cultural understanding, and clear contractual obligations.

Our first forays into outsourcing and offshoring began when we anticipated upgrading our customized SAP system. In order to retrain our workforce in new SAP modules, we hired Indian IT providers to maintain our legacy systems.  We tested the outsourcing model and upgraded the skills of our loyal employees.

Once the outsource provider was approved, and the pilot successful, we expanded the contract to include niche IT needs.  As cost-pressure increased we outsourced more work.

Initial Outsourcing/Off-Shoring

Initially, we spent a lot of time on our RFP (Request for Proposal). The providers helped us learn. Unfortunately, our first contract was “over specified”, with many metrics that were difficult to track.  As we matured in the process, we learned that general understanding and agreement were more important than detailed metrics.

We originally thought that outsourcing would provide a 1:1 (US:India) “follow the sun” work pattern at half the cost.  We found that the ratio was really 1:1.5 to 1:2. Issues, such as, having to wait till the next day to communicate and added time to the work is there. There were also costs, such as travel to India, that were not anticipated. 

"Outsourcing and off shoring can help reduce expenditures, bring diverse thinking to a Global Company, and close a skill-gap by providing niche software skills"

For any vendor contract, you need to allocate10 percent of the cost of the contact to managing it. Initially we are under-staffed relationship management.  This cost more in mis-communication, re-work, confusion, etc.

Understanding Cultures & Careful Planning

Our original project, legacy systems maintenance, was very straight forward.  We had an on-shore Provider Manager and team, with a larger team off-shore in India. We focused on cultural exchange and understanding.

One cultural issue we were not prepared for was the Asian respect for hierarchy. We found that if we said, “here’s the problem and we think you should fix it this way,” it was viewed as a command. We learned to provide them with the problem, ask how they would solve it, and then discuss the recommended solution.

Another culture misunderstanding was what I called the “head waggling”. The “side-to-side” head movement was interpreted as a “yes,” when it really meant, “I heard you”.

As we moved beyond our legacy systems, we found we had to be very thoughtful on breaking down projects to component parts and tracking assignments. We strove toward “the manufacturing model” – keep strategy, planning, and oversight “on-shore and in-house”; outsource the “manufacturing” or general programming. We had to keep some programming in-house to ensure we had a talent pool for future man power development.

As outsourcing became more popular, we found that our partners in India and Argentina started “chasing the $$”. We had issues with turnover and experiences where a “star” was put forward for a big project, then taken off to attract new business for the provider. We eventually opened an IT office in Manila, staffed with local employees, thus providing a stable work-force.

Bottom Line

We found significant value in outsourcing and off-shoring.  But, like any major project, strategy, planning, and management are of critical importance.

Chevron is an integrated energy company producing specialized in Crude Oil & Natural Gas Production. Headquartered in California, USA, the company has a vast experience of over 38 years in the industry.

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