Pendulum swinging back on offshoring?

The NY Times reports on the story of Storability Software, which tried for three years to contract out programming work to India before throwing in the towel and bringing back most of the work to the U.S. where it costs four times as much. It seems that the knowledge that Storability needed was simply stronger among U.S. programmers.

Interesting enough. But, here's the kicker:

If it sounds like "Made in the U.S.A." jingoism, consider this: The entrepreneur, Hemant Kurande, is Indian. He was born and raised near Bombay and received his master's degree from the Indian Institute of Technology in that city, now known as Mumbai. Mr. Kurande is not alone in his views on "outsourcing" technology work to India. As more companies in the United States rush to take advantage of India's ample supply of cheap yet highly trained workers, even some of the most motivated American companies — ones set up or run by executives born and trained in India — are concluding that the cost advantage does not always justify the effort.

Read the whole article, which points also mentions the case of Dev Ittycheria, Indian born CEO of Bladelogic, who found that although the monthly cost differential was three to one in favor of India, the difference in productivity was six to one in favor of the U.S.

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IT decisions that are too important to leave to the IT department

I'm preparing for an IT strategy workshop with a client next week, and I came across an interesting article, Six IT Decisions Your IT People Shouldn't Make, by Jeanne Ross and Peter Weill, in the Harvard Business Review, Nov. 2002. Paraphrasing their main points, there are some decisions that are simply too important to leave to the IT folks:

1. How much should we spend on IT? Too many companies focus on IT spending metrics, without first defining what they expect from IT. Executives must first define the role of IT, then set funding to achieve that objective. If spending decisions are left to the IT group, the company will most likely fail to develop systems that support the business, in spite of high IT spending.



2. Which IT initiatives should be funded? No firm can afford to satisfy every user request for new systems. Executives must decide which IT initiatives will and will not be funded. Otherwise, the IT group will try to do too much, or will do too many low-value projects, or won't focus on the really high-payback initiatives.



3. Which IT capabilities should be firm-wide? Executives must decide which IT capabilities should be centralized and which should left to business units or departments. If the IT group makes this decision, they may insist on too much standardization, limiting flexibility. Or they may not standardize enough, which increases costs and limits company-wide synergies.



4. How good do our IT services need to be? Executives must decide which IT services should be optimized based on costs and benefits. If service level decisions are left to the IT group, the firm may wind up paying for services that aren’t worth the cost, or users may suffer from too much downtime, slow response time, or unreliable network connectivity.



5. What security and privacy risks will we accept? Security and privacy always involve tradeoffs. Executives must decide how much security and privacy they are willing to pay for, and how much they are willing to sacrifice convenience to get it. If left to the IT group, security and privacy may be overemphasized, inconveniencing employees and trading partners. Or, the IT group may underemphasize security and privacy, exposing the firm to liability and loss.



6. Whom do we blame if an IT initiative fails? When a project goes south, it's easy to blame IT. To maximize likelihood of success, executives should assign a business executive to be accountable for each IT project and monitor business metrics before and after implementation. If a business executive is not responsible, the firm will likely not realize the full business value of information systems.

In many companies that I visit, there is a great deal of dissatisfaction with information technology. A recent Computerworld article indicates that the average tenure of a corporate CIO is only 18-36 months, while the CFO averages five years in the position. If Ross and Weill are right, some of the blame lies not with the IT group, but with the fact that senior management abdicates too much of its role in IT decision-making. With information technology now accounting for nearly half of all capital spending, executives cannot afford to continue to manage IT in this way.

Furthermore, it's not as if senior management should only deal with IT at the level of strategy. Careful examination of the six decisions indicates that, while the first three questions focus on IT strategy, the last three focus on execution. Therefore, senior management must collaborate with IT in setting IT strategy; and they must also learn to deal with IT at the level of execution. Just because a decision involves computers does not mean that the IT group should make it. Bringing senior management into IT decision making at the right points will ensure that the IT choices will be aligned with business strategy. Companies will spend enough on IT but not too much, and the right systems will be implemented.

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Epicor making a comeback?

Epicor just posted its Q1 results and it is showing year over year revenue growth of 26%, to $43.4M. License revenue, which is traditionally considered a key measure for future health, is up 34%, to $10.5M. Epicor, like many enterprise system vendors in recent years, now obtains the bulk of its revenue from services, not new license sales. Still, the trend in new license sales is encouraging.

Epicor's results do not include performance of its Scala acquisition, which is not expected to close until June.

Locally, I've seen Epicor in one of those new Q1 deals, which it won in a competitive bid on the overall breadth of its functionality. The deal was for Epicor's Vantage product, which Epicor positions when manufacturing functionality is a key requirement. My firm is assisting in business process improvement around the implementation, so we will be getting a first hand look at current capabilities of the latest release of Vantage.

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IFS flush with success

Sorry, I couldn't resist. A press release on the IFS web site says that they've just closed a deal with Bemis Manufacturing Co, the "world's largest manufacturer of toilet seats."

High tech job market perking up

Job losses in the high tech sector appear to be largely behind us. At least that's the conclusion Challenger, Gray & Christmas. The firm's most recent quarterly survey of telecom, electronics, computer, and e-commerce firms shows that Q1 job cuts were 64% lower than the previous quarter, only 29,513--the lowest figure since the outplacement firm started tracking the number in January 2001.

More generally, my own observations indicate a pick up in IT activity. Most of the IT consultants I talk to these days say that the signs are good--phones ringing, software evaluations underway, and postponed projects now being restarted. One associate tells me that he's had more calls in the past two months than he had in the past two years. The only cautious note comes from a business development manager for an IT staffing firm, who says that he has not yet seen a pick up in demand. But, if new projects are just now in the evaluation/planning phase, it would make sense that increased demand for development resources is still a few months away.

If a recovery in the high tech sector has truly started--and I believe it has--it pretty much ensures that the media focus on offshoring of IT jobs will soon move on to other subjects.

On the other hand, I've been predicting a recovery in the IT sector for almost two years now.

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Sun should shine on enterprise software

Josh Greenbaum has written an open letter to Sun's chairman, Scott McNealy. Rather than focusing on operating systems, development tools, application servers, and systems management tools, which are becoming commoditized, Josh thinks that Sun ought to focus on software: specifically enterprise applications.

The point is that the enterprise software market does a relatively good job of staying ahead of the commodity curve. Enterprise software, when it combines vertical functionality and deep business expertise, is by definition commodity-proof, at least for long enough to make a difference in a vendor's bottom line. And enterprise software does so in part by helping to commoditize other sectors of the software market.

Hence the presence of apps servers, portals, integration services, and the like in SAP's software stack. It's no coincidence that much of what SAP includes as a loss-leader for its applications sales are pieces of technology that Sun has been hoping, vainly, would help it become a software powerhouse.

So, Scott, it's time to get real about enterprise software. Which means getting real about moving out of the commodity stack and into the value-added side of the equation.

I couldn't agree more. As Josh points out, Sun has long had a reputation for providing the most robust, secure, and scalable platform for enterprise applications, although Sun never did a good job of incorporating that as a main theme of its marketing message. Sun ought to push further in the direction of enterprise applications: buy a couple of enterprise software vendors and systems integration firms and offer the whole nine yards, from hardware, operating systems, and development tools to software applications and services. With Sun's newly found cooperation with Microsoft, the difficulties associated with desktop integration ought to be resolved, eliminating one big source of customer frustration in adopting Sun technologies.

Read Datamation for Greenbaum's entire letter.

Justice Department pulls rug out from under itself

Talk about a strange turn of events. The U.S. Department of Justice (DoJ), is suing to block Oracle's hostile takeover of PeopleSoft, in part, on the basis that the market for high end financial systems for large commercial and governmental organizations is served by three main vendors: Oracle, PeopleSoft, and SAP.

So, when DoJ itself went shopping for high end financial systems, did it pick: a) Oracle, b) PeopleSoft, c) SAP, or d) none of the above?

The answer, of course, is (d).

That's right. The DoJ picked American Software's Momentum system, in a deal worth up to $24 million. According to Computerworld,

That price tag places the deal on the high end of the ERP spectrum -- precisely where the Justice Department has argued that customers' choices are limited. In its legal filings, the department refers to Oracle as "one of only three vendors of high-function enterprise software" and argues that other vendors can't match the product quality, scale and support levels available from the market's three leading ERP developers.

A DoJ spokesman was not available for comment.

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Microsoft .NET losing mind-share?

My friend David Harding, who by his own admission is "married to Microsoft," thinks he might be seeing an early indication that Microsoft's .NET technology is losing ground to Linux, Java, and open source developer tools. Recently, he visited his favorite local tech bookstore and was stunned by the shrinking shelf space devoted to Microsoft's .NET technology.

As I was walking through the store, I stopped by the .NET aisle and noticed something very odd. Whereas the Microsoft book section used to be three rows and packed with new titles on all of the latest technology tools (e.g. C++, Visual Basic, SQL Server, etc.), it was down to one row with room to spare on the shelves. As I perused the available titles, I noticed something else: the majority of the books were not on .NET languages, but on their previous versions (i.e. version 6). At quick glance, it appeared there were at least three books to one of the older languages as compared to their .NET counterparts. In looking through the .NET books I saw that at least 25% of them were being sold as used!

Dave then went to the front desk and asked the attendent to run a search for books on Microsoft technologies C# and ASP.NET:

A few keystrokes later and he turned the monitor towards me as page after page of book titles appeared. The problem was that none of them were in stock. Before I could say anything, he told me that most of these books didn't exist! That's right - the books were never published! He told me that the publishers routinely send them electronic catalogs of books that will be printed so that the buyers can get a jump start on what to order. Because of the downturn in book purchases on Microsoft technologies, they had been receiving notices that many of these books, although finished, had been pulled before they ever reached the presses.

I asked him why he thought the demand had dropped and his response was: "We aren't selling as many Microsoft programming books these days. I think that the number of programmers out there has dropped off. Anyway, Linux and Java are our big sellers now."

Dave attributes the decline in interest for Microsoft developer tools to the general decline in tech employment in the U.S., since Microsoft has always viewed developers as its biggest proponents. But that would not explain why demand for books on Linux and Java is increasing.

My theory would be that open source tools are reaching a tipping point. All those unemployed and self-employed software developers are trying to improve their skills by downloading the free open source tools, or are trying out the tools offered on the cheap web hosting sites, which strongly tilt toward open source technologies such as Linux, Apache, MySQL, and JBOSS. Don't believe me? Check out the bundled plans offered by any of the web hosting sites and see how many mentions of .NET there are compared to Linux, Apache, and MySQL. Sure, these tools may not yet offer the same high end features or integration as Microsoft's .NET platform, or Oracle's for that matter. But for many development projects, they are good enough. And it's hard to compete with free.

In a subsequent instant message chat with Dave, I pointed out that I suspect the offshore development trend is also fueling the migration from Microsoft to open source tools. In offshore locations, such as India, China, and Eastern Europe, I believe there is a strong bias toward open source tools, which can be deployed for much less cost than proprietary platforms. The lower hourly rates of offshore developers also negate any advantage that the proprietary tools have in terms of developer productivity.

Whether Dave's theory is correct, or mine--either way, it doesn't look good in the long run for Microsoft's ambitions to win the hearts and minds of developers for .NET. As I pointed out over a year ago, Microsoft's main argument regarding the cost of Linux and open source technologies is that Microsoft's technologies are less expensive to implement because of the larger base of skilled professionals trained in Microsoft's technologies. I said then that this was at best a temporary advantage. If the population of developers is now trending toward open source technologies that argument starts to look less and less tenable.

Check out Dave's entire article on his blog, The Tech Cynic.

Related posts:
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Update, Apr. 6:
My friend Jim Oden offers another reason for the apparent slump in sales of books on Microsoft .NET technology:

There's another possible explanation for why developers aren't buying .NET books. Visual Studio.NET, for example, is not that much different from Visual Studio, (nor is C#.NET, or VB.NET, etc.) to motivate a seasoned developer to buy a book in order to learn it. In fact, most developers don't like to read books anyway on these subjects. They'd rather learn by trial and error. And the documentation available with the .NET product and from the Microsoft web sites is actually more current and robust than what is available from printed versions, which quickly go out of date.

A few months ago, I did purchase several .NET books to get up to speed on the new technology, but this was because I like the structure of following a book, and wanted them for reference.

The company I currently work for, [name withheld], is developing all of their products using the .NET framework. It's hard to know who's really winning the war on development environments, but I can say that so far I'm pretty impressed with .NET ...

So, perhaps the jury is still out.

Barriers to implementing electronic signatures

Software vendors who serve FDA regulated industries like to promote their support for electronic signatures. But I'm starting to think that it will take a lot more than good software to make electronic signatures work. It seems that, even when software supports electronic signatures, many users don't implement them.

Although I've been noticing this problem for some time, it finally became clear to me earlier this week. I gave a presentation on electronic records and signatures at the IFS World conference. After the presentation, I got into a discussion with a user from one company that has implemented IFS Applications in the medical device industry. The company has been quite successful generally with its use of the system. Nevertheless, the firm has still not implemented electronic signatures.

The problem is not IFS functionality. IFS has good support for electronic signatures and is even working on adding an option for biometric signatures to its product offering. The problem, according to this user, is the business processes themselves that involve approvals.

For example, this user pointed to the process of transferring a new product design from engineering to production. This is a key control point in FDA's quality system regulation, which requires formal sign-offs when design changes are transferred to production. This company does have the required approval steps. But, the paperwork flow from approver to approver is not disciplined. One approver may sign off on the design and forward it to the next individual on the sign off list. The second individual may not have reviewed all the paperwork in advance and now finally takes a good look at it and finds some issue. He marks up the design and sends it back to the initiator for re-routing. Multiply this several times for several approvers and you can see the problem. I suppose it is possible to automate such a process with electronic workflow and electronic signatures, but it would likely bog down with all the re-initiation of signatures and re-routing.

A better approach would be to improve the organizational disciplines around the approval process itself. The company should strengthen its practice of design reviews so that all approvers review the design and raise any issues or questions prior to the design transfer process being initiated. Then, when the design transfer is initiated, there should be few if any surprises.

The problem therefore, is not whether the software has electronic signature and workflow routing capabilities. Many of the major vendors now have this functionality. The problem is that the business process to be automated need to be formalized to the extent that they can use the functionality.

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Business changes needed to ensure enterprise system success
Large system implementations require organizational discipline.