On a recent flight to Phoenix, I sat next to a veteran of afour-year implementation process for a client/server policyadministration system. He and his new bride were heading for Sedonaand some time off. Hed been doing 60-hour weeks for years and thesoftware package his company had licensed from a major vendor wasalmost operational. He estimated theyd spent about $30 million fora regional implementation of personal lines. It almost killed thecarrier and it had virtually no Web element. They had installed anobsolete solution at great cost.

I commiserated with this devoted IT professional. I too had beenthere, done that years ago. It was an awful process and one that,when all was said and done, wasnt worth it. In my case, my team hadcreated software from scratch. But this carrier had bought what wassupposed to be a pre-existing solution. How could it take so longand cost so much misery? Youve heard these stories before andperhaps even lived through them. Package solutions sometimes arentwhat theyre cracked up to be. And, by the time you tune the packageto your unique requirements its an open question as to whether itwould have made more sense to develop what you wanted right fromthe get-go.

But DIY system development is problematic as well. Its difficultto find and keep talent. Projects have a tendency to run overbudget. Management imposes changes along the way. Scope creeps.Good project management intentions give way to crisis management.Its not a pretty picture.

You need that new system. You want to do it yourself. How canyou design, code, test, and deploy a complex system with somecertainty that it will be on time and at or under budget? Oneincreasingly popular solution is to bolt on an offshore developmentteam to your technical staff. Once pure body shops, some offshoredevelopment companies have become sophisticated and successful atproviding specs and developing vertical applications some in thefinancial services/insurance space.

Three Success Stories

In the last few months I interviewed three happy customers ofoffshore development efforts: Bill Gregory, VP at Severan (www.severan.com, toolkit for creatingcomplete policy admin systems); Mike Feroah, president of Zebu(www.zebu.com, life case trackingWeb service); and Robin Raina, CEO of ebix (www.ebix.com, agency software andservices). Though the topic wasnt offshore development, eachvolunteered that their experiences with offshore development hadbeen extremely satisfying and were an important part of theirdevelopment strategies.

Gregory had created specifications and turned them over to ateam in India. He got what he wanted sooner and at a lower costthan would have been possible with local development. Feroah uses ateam in Prague with a member of his staff stationed full-timeon-site to help manage and monitor the process. Raina movedsubstantial development from Boston to India and along the waysaved himself millions per year and got, he says, higher qualitysoftware.

From the Horses Mouth

Offshore development has been part of the technical landscapefor at least 20 years. Early on, these businesses were more bodyshops than true development partners. But in recent years someoffshore services have become sophisticated, domain-savvydevelopment companies in some cases with deeper talent and moredisciplined behavior than their onshore customers. I had anopportunity recently to talk with one such firm, FirstApexTechnologies, about the offshore development process.

After two decades of providing offshore insurance and financialservices development help in Japan, Korea, and the Asian Pacificregion, FirstApex (www.firstapex.com) is trying toestablish a foothold in the U.S. (Dallas). A conversation with NagPao, director, FirstApex, U.S. and two of his colleagues in India,Raj Guttal, vice president, FirstApex India and Juvan Diaz,manager, FirstApex India, helped me understand how the offshoredevelopment process can and should work and how it can benefitdomestic insurance carriers.

So whats so good about offshore development? Is it the costsavings? FirstApex downplays the cost savings dimension. Thesavings are there, especially for American companies opening theirown offices in India. They can save 50 to 60 percent over domesticdevelopment. Software professionals in India are typically paid$500 to $1000 per month, often a 10 to 1 ratio with domesticcounterparts. But when an American company contracts with afull-service partner like FirstApex who provides all theinfrastructure and management the savings are more likely to be inthe 15 to 30 percent range.

According to FirstApex, the significant advantages of offshoredevelopment lie in scalability and quality. India, for instance,has a large, well-educated and fluid population of computerprofessionals. Even large projects can be staffed quickly withtemporary talent. This kind of flexibility simply isnt possible inthe U.S. But it isnt just warm bodies that make for scalability;having an up-to-date technical infrastructure is important, so wellappointed offshore development partners can scale productivityquickly.

And why is scalability important? Time to market. It took thecarrier I mentioned earlier about four years to implement anddeploy strategic technology. If you cant bring a solution to marketin 12 months (maybe 18 at the outside), you probably shouldnt evenbother.

How does quality come into the picture? Offshore servicesprovide a level of discipline and project management that would behard to duplicate with an in-house staff. Part of the reason isthat because their labor costs are much lower, offshore supplierscan afford to fully staff projects. Full staffing what it takes todo the job right just isnt affordable with domesticdevelopment.

How Does the Process Work?

Generally speaking, its not a good idea to create a set ofspecifications and then throw them over the wall to the offshoreteam and hope something useful comes back. A better approach is forthe offshore group to house part of its staff in your shop for theduration of the project. These local people support the continuingcommunication between the carrier and the offshore developmentteam.

FirstApex has found over the years its best to have the localgroup work with the carrier to create the project specifications,get signoff from management, and then bring the specifications tothe offshore development team. Once complete, the system comes backonshore for deployment, again with the help of the localrepresentatives of the offshore team.

Choosing an Offshore Partner

Criteria for choosing the right partner depend on the divisionof labor the carrier envisions. If you intend to house and managethe offshore staff yourself, then what you want is primarily a teamof talented software engineers. On the other hand, if youre lookingfor a partner that can provide infrastructure as well, the firstthing to look for is a track record of success with domainexpertise a close second. And an offshore development partnercandidate should be able to show you specifically how it managesthe development process to insure success.

What about hourly versus fixed-price arrangements? Isnt it bestto choose a supplier who will agree to complete the project for aspecific cost? Not necessarily. Offshore development companies arelikely to be reluctant to agree to fixed prices. Doing so candeprive a client of motivation to restrict the project to what wasoriginally intended.

New technology generally, and the Internet specifically, can beused to make offshore development more like crosstown development.Project management software on the Web can make it possible for allparties to know exactly whats going on at all times. Offshoreprogrammers can check out software from your servers, work on it,and then return it at the end of the day.

Contraindications

When isnt it a good idea to use offshore development partners?Certainly for projects that are too small. The setup overhead isjust too great. But probably the most telling contraindication forusing offshore partners is when your organization isnt sure what itwants in the first place. Hiring someone else to do much of thework doesnt mean theyre the right people to figure out what needsto be done.

According to the folks at FirstApex, the single greatest threatto successful offshore projects is scope creep. So projectcontainment is extremely important from the client side if offshoreprojects are to come in on schedule and under budget.

Is offshore development appropriate for your organization? Ifyou want to develop your own software, you dont have the staff todo it, and your deployment date is near term, then offshoredevelopment is worth consideration.

John Ashenhursts company, Sound Internet Strategy, providesconsulting, Web site evaluation, and seminar services to carriersand their trading partners. He can be reached at johnashenhurst@soundingline.com or (360) 376-1090.