THE OFFSHORE FACTOR IN TESTING: TESTING OFFSHORING

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THE OFFSHORE FACTOR IN TESTING:

TESTING OFFSHORING

Johan Oldenburger

S1570730

Master of Science Business Administration Business & ICT

Faculty of Economics and Business

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THE OFFSHORE FACTOR IN TESTING:

TESTING OFFSHORING

August 2008

Author : J. Oldenburger Bsc. Student Number : s1570730 Email : s1570730@student.rug.nl Johanoldenburger@gmail.com Date : 11 August 2008 Version : 1.1 --- --- Organization : Sogeti Netherlands B.V. Program Manager : Dhr. H.C.M. Smits PmP

Unit Manager : Dhr. R. Daniels

Supervisor : Drs. P. Witzand

--- --- Educational Institute : University of Groningen

Study : MScBA Business& ICT

Coordinator : Prof. dr. E. W. Berghout First Examiner : Dr. E. Harison

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Acknowledgements

With the completion of this thesis, my Business Administration study at the University of Groningen is completed. All the hard work for the last three years at the university are coming to an end. It was not easy, but I did not expect that at the beginning. At first some adaptations were necessary to get used to a life at a university, but now it feels like a second home. This thesis obviously wouldn’t be here if it wasn’t for the help of Sogeti. They were willing to help me write this academic thesis. Coming into the organization through a normal application procedure, they swiftly adapted to help set up and write my thesis. Sogeti placed me into a special internship unit, where I got high-quality guidance.

I would like to thank at first Roeland Wamerdam for being open and willing to arrange several meetings with his contacts within Sogeti to construct a thesis subject. Another great help came from Paul Witzand in the form of an excellent supervisor, with great reviewing skills and insight into testing in general. Next to him I would like to thank Henk Smits for giving me admission to the testline, and hereby also the thanks for everyone in the testline “Maranello” who helped with providing information and insight into the offshoring process. I also would like to thank fellow trainee Marc Rabél for providing additional information about testing within Sogeti. I also would like to thank all other Sogeti personnel for their help.

The University of Groningen can of course not be forgotten. I would like to thank Elad Harison for his supervision during the writing of the thesis. His concepts and ideas really helped me in the right direction. His judgment made sure that my thesis went to a higher level. Also all the other teachers and professors at the university were of great help during my entire university period.

The biggest guidance during the entire period as a student were my parents, making sure that I made the right decisions, but also really let me decide for my own. Also my classmates, with whom I have made real friendships, were very supportive and especially Iwan Jager, who was an anchor and friend at all the projects and classes we attended.

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Management summary

Offshoring in IT has grown exponentially. More and more companies see the advantages of offshoring as a means of lowering overall costs, easy access to highly skilled workers and advantages of geographical and strategic nature. But not always is offshoring a successful means to lower costs. Many issues keep arising in working together with the offshore location, and although offshoring exists already for many years, in IT it is relatively new.

This research tries to identify the issues which may be felt when a (part of a) process is offshored to an offshore location. The main question hereby is:

How should the process of offshoring IT testing operations be organized and managed?

This question was divided into several sub questions to answer this main question. To answer these questions a literature study is performed to explore the issues businesses can experience when they apply offshoring in their process. Next to that, a case study will illustrate the issues of an IT organization that offshores a part of its actual testing process. Can these issues be explained by issues in the literature? This case study is performed at Sogeti Netherlands B.V. at its department Software Control. The object of interest was the testline “Maranello”, which offshores parts of its tests for KPN to India.

The case study sets out the current offshore method used for offshoring, the Testing Gateway. This sets out how the workpackages should look like, what the processes are, what the deliveries are, the roles and responsibilities, the communication lines, tools and templates which can be used, and the phasing of the entire testing process. Furthermore the TMAP® method for testing is set out.

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TMAP®, the testing method of Sogeti and used by many other companies, also is affected when testing is offshored. More emphasis on data preparation, the implementation of a Generic Testing Agreement (GTA) and Overall Test Coordination (OTC) and how and who is going to set up the test environment, are all issues TMAP® warns against when offshoring a test process.

Also possible solutions are explored. Generic and testing specific solutions call for example for more coordination and management, understanding of cultural differences, better planning due to differences in time zones and better knowledge preservation and knowledge management. A standard method to work with multiple team members which are located at different geographical locations is virtual teaming. Advantages are a more fluid team, transcendence elements of the team, the infinity of size of a team, anonymity of team members within a team, structural flexibility of the team and supporting the idea that teams are open networks of knowledge and ideas that can be shared more easily and open.

Next the importance of evaluation is discussed. The offshore site has to be evaluated on the basis of technological factors, geopolitical factors, and managerial factors to make sure that success is guaranteed for the future.

Standardization is also important if a team wants to work globally. Making sure that everyone in the team works according to the same method and standard documents is important to together reach the goals. A form in which this can be done is in a Global Software Alliance where continuous standardization is pursued.

The issues in the testline were of broad impact. The testline mentioned that there were issues with regard to language, lacking TMAP® and business knowledge at the offshore side, not fully understanding and using the Testing Gateway, knowledge management issues also due to the quickly changing offshore personnel, assumptions made by and about the offshore location in relation to knowledge, not knowing evaluation metrics and key figures, general difficulties in culture, poor time management, noticeable factors of the caste system and the not reporting of faults in testing. The general conclusion of the testline was that working with an offshore location and India did not bring the advantages just yet.

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Version history

Date Version number

Who changed What was added / changed

29-04 0.1 J. Oldenburger First setup concept, table of contents broadly described, definitions added, overview of current issues added.

05-05 0.1.1 P. Witzand Suggested changes, added version table. “Offshoring” consistently carried through 14-05 0.2 J. Oldenburger Added information concerning Testing

Gateway.

19-05 0.2.1 J. Oldenburger New AAD model testline, added table about issues in testlines, added new information derived from interview with Niels van Delden.

22-05 0.2.2 P. Witzand Chapter 1 and 3 reviewed

22-05 0.2.3 J. Oldenburger Read review remarks and carried out adjustments where necessary Added Virtual teaming

03-06 0.2.4 J. Oldenburger Expanded Virtual teaming, added business view of offshoring, added evaluating offshoring, added new chapter: Chapter 3 Research Methodology. Added front page, title page, head and footline text.

05-06 0.2.5 P. Witzand Review 0.2.4

09-06 0.2.6 J. Oldenburger Put through changes advised by P. Witzand. Chapter 1 written. TMAP® information added. KPN Project Vesuvius added.

13-06 0.2.7 P. Witzand Review 0.2.6 Chapters 1, 4.2 (partly), 4.4 (completely)

16-06 0.2.8 J.Oldenburger Edited review point from review 0.2.7. Refined TMAP® information 4.4. Finished organization information 1.3&1.4. TMAP® and offshoring written. Found information regarding TMAP® and offshoring from book TMAP® Next.

19-06 0.2.8.1 E. Harison & J. Oldenburger

Review version 0.2.8. Small reading changes. 20-06 0.2.9 P. Witzand Review version 0.2.8

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08-07 0.3.2 J. Oldenburger Added changes proposed by P. Witzand. Elaborated on issues from literature and possible solutions from literature.

18-07 0.3.3 P. Witzand Review version 0.3.2.

21-07 0.3.4 J. Oldenburger Added changes proposed by P. Witzand. Rewritten advantages of offshoring, Changed positions of texts regarding Sogeti to chapter 4. Written chapter 5

31-07 0.3.5 P. Witzand Title proposition Reviewed chapter 5 excluding the last 2 pages of that chapter. Concepts send to P. Witzand, H. Smits. E. Harison. 01-08 ‘[CONCEPT] The offshore factor in testing; testing offshoring’

J. Oldenburger Added changes proposed by P. Witzand. Written sub conclusions chapter 4. Added figure list. Written introduction and defining testing From 03-08 to 07-08 [CONCEPT] 0.3.6.1

P. Witzand Review page 1 - 54 of[CONCEPT] The offshore factor in testing; testing offshoring

08-08 [CONCEPT] 0.3.6.1.5

J. Oldenburger Added changes to ‘[CONCEPT] The offshore factor in testing; testing offshoring’

09-08 [CONCEPT] 0.3.6.2

P. Witzand Review of [CONCEPT] 0.3.6.1.5

10-08 0.4 J. Oldenburger Added changes by P. Witzand, E. Harison, H. Smits. Written conclusion and recommendations.

10-08 0.5 J. Oldenburger Written management summary. Added style according to University. Layout adapted to university style.

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1. Introduction

1.1 General introduction

Offshoring, it may be a new observable fact to the IT sector, but it is a long standing phenomenon in the entire world. The textile business, shipping and the manufacturing sector did experience the same type of movement for the last 100 years. One of the important lessons learned from this is that organizations have to be adapted to fit the movement, to ensure the company’s future. Without doubt there are many reasons to not offshore, but basic fact is that if one company doesn’t do it, the other will.

Offshoring in the IT sector has grown a lot in the last years. It has used the possibilities of the growing technical infrastructure and Internet to communicate and work globally. Goal is to achieve the most effective results with the least investments, preferably for longer periods of time. Therefore more and more companies are now exploring whether to offshore parts of their process to India or any other low wage country, or are already doing so.

Expectations of offshoring are high, with lower cost, highly educated personnel and quick communication lines, but managers soon experienced issues which turned out to be worse than ideal (Elmuti & Kathawala 2000). Because of the high expectations, negative issues were overlooked, or simply not anticipated.

Specifically this research explores the issues felt when offshoring parts of a software testing process to India. It tries to develop a framework of issues which can be anticipated for when offshoring is implemented. It first looks at the advantages of offshoring, after which the practical challenges are investigated. The case study tries to illustrate these challenges by linking them to the literature and tries to explain why they happen and with what results. The case study is based on the partly offshore testline “Maranello” of Sogeti Netherlands B.V.

1.2 Introduction to Sogeti

Sogeti = 'Société de Gestion des Entreprises et de Traitement de l'Information'.

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companies were going to be put together in “CAP Gemini Sogeti”. In 1996 this name was simplified to Capgemini. In 2002 the brand name Sogeti was again placed into the market by Capgemini. Since then Sogeti is a sister company of Capgemini.1

Sogeti Netherlands

In the Netherlands, Sogeti Netherlands B.V. is originated after a fusion between the companies of IQUIP Informatica B.V. (IQUIP), Gimbrère and Dohmen Software B.V. (G&D) and Twinac Software B.V. (Twinsoft). Two years later the fusion between Transiciel and Sogeti was established on concern level. This meant for Sogeti that the UCC Group and Flow division were now part of the organization.

Within Sogeti Netherlands B.V. the Test Management Approach (TMAP®), the DYA® architectural method, the infrastructure project method InFraMe® and the implementation approach Regatta were developed and published. The company has its Dutch main office in Vianen, and other offices in Rotterdam, ’s-Hertogenbosch, Diemen, Groningen and Amersfoort.2

Sogeti is specialized in designing, building, implementing and managing ICT solutions. In the area of testing and architecture Sogeti leads the business in The Netherlands3. Sogeti aims its business at the larger companies and organizations of The Netherlands in the sectors finance, government and social security, service provision and industry, telecom and media, trade and transport.

Sogeti Netherlands has the following organization chart:

1

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Figure 1: Sogeti Netherlands organization chart

Divisions within Sogeti

The divisions within Sogeti were already mentioned. In this paragraph it will be explained what each division in further detail does4. Software Control (SC) will be expanded in a separate paragraph, because it is this division where the research is conducted.

Division Enterprise Software Engineering (ESE) delivers ICT services in complex and extensive IT surroundings. The work area of this division stretches from carrying out information analysis to the managing and maintenance of information systems, with the respected services that come with that delivery. The way work is performed, the methods used, and the kind of service providing that is given is tuned to the expected market developments for the coming next years and the actual needs of the customers.

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(enterprise) architecture (with the use of the in-house developed method DYA®), process management, information security, implementation and packaged solutions. These packaged solutions are focused on SAP, Microsoft Business Solutions and Oracle E-Business Suite.

Division Distributed Software Engineering (DSE) helps customers with matters on the ICT area with business and ICT solutions: ICT inspiration. DSE designs, develops and manages technological complex systems on the basis of “leading technology” with the focus on Microsoft-, Java- and Oracle-development platforms. Work is carried out within DSE in the form of projects, consultancy assignments, detaching employees or service level agreements. Examples of projects carried out by DSE are the realization of web applications with linkages to an abundance of systems, constructing distributed systems, formulating and implementing new technical architectures or providing mobile solutions which can be used outside the organization. The ICT knowledge of its employees is the capital of DSE.

Division Managed Delivery (MD) is specialized in system development and management of ICT where the full service is offered in an optimal combination by Sogeti. Besides the guiding of result mandatory assignments, also program management and methodologically budgeting and controlling projects are core competences of this division.

Division Infrastructure Services (IS) aims itself at delivering contributions to the transformation of ICT infrastructures at client locations. For this purpose, IS invests in clients, expertise and methods and strives for the “thought leadership”. In 2006 IS has made three important steps to reach this goal. The method InFraMe®, aiming itself at infrastructure projects, was published. Next, in a collective effort with customers, a new method is being developed to make infrastructure architectures, building on the DYA® method, and also a new method is being developed for testing infrastructures, building forward on the TMAP® method.

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1.3 Software Control

The division Software Control5 (SC) tries to keep the risks that are embedded in software transparent, comprehensible and controllable. SC is providing services in the area of testing and quality assurance thereby giving customers insight into the risks possibly still present in the system and offering resources to handle them in a controlled way.

SC aims its activities at both the quality of the products, as well as on the quality of the processes with which these products come about. The methods and techniques developed by SC cover the entire spectrum of testing and quality assurance and for the most part are developed in-house. Examples of SC in-house developments are Requirement Lifecycle Management, QMAP®, TMAP® and TPI®.

With TMAP® and TPI® Software Control has developed products and services that are being used in many countries worldwide. SC works in ten countries and after the first book published in 1988, “Murphy can be wrong”, there are now multiple books translated in English, German, Spanish, Chinese, Korean and Japanese. The EXIN institute (Examen Instituut Nederland) offers a TMAP®-certificate as an official document (TMAP® Professional Advanced).

The division SC consists of: expertise units, career units, sales, and the solution delivery centre, with supporting departments: support, HRM and strategy & marketing. An organization chart of May 2008 can be seen in figure 2.

Since a year, a development can be seen from on-site testing and outsourcing to offshoring. Now, there are over 50 employees working in India for SC, with a goal set for the end of 2008 for 300.

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Figure 2: Software Control organization chart May 2008

Vision

With ICT-craftsmanship, Sogeti wants to deliver a contribution to the simplicity, reliability, availability and efficiency to make ICT a common good. Software is being transformed into diverse services and products companies can make practical use of. The vision statement of Sogeti is as following6:

“Result by passionate ICT craftsmanship”

This means that Sogeti takes responsibility for all her activities at customers’ sites. She commits herself to the result on the basis of her excellent professionalism and her entrepreneurship. By creating firm and long-lasting relationships with customers, Sogeti puts ICT in such a place that it contributes to the strategic objectives of her customers.

Mission

Sogeti had her vision and vision statement transformed. In these statements it becomes clear where Sogeti stands for7:

- Sogeti helps organizations with the realization, implementation, testing and managing of worth retaining ICT solutions.

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- Sogeti inspires her customers about the possibilities of information- and communication technology.

- Sogeti places the customer in the centre and distinguishes itself by listening very carefully and foremost acting very swiftly.

- Sogeti mandates itself to the result on the basis of her excellent professionalism and her craftsmanship.

- Sogeti guarantees her employees a maximal benefit on the contributed intellectual capital.

- Sogeti chooses for firm and long-lasting relationships with customers, so that ICT can be a part of the strategic objectives.

- Sogeti is building on a network of strategic alliances with partners each providing the best solution in their respected areas.

- Sogeti is always aspiring to exceed the expectations of customers and employees.

Facts & figures

Worldwide the Sogeti-group has around 16.500 employees employed in 10 countries and realized a turnover of 1.2 billion euro in 2006. In total Capgemini has 68.000 employees and the total turnover for 2006 was 7.7 billion euro8.

As of June 2008, Sogeti Netherlands employs around 3300 employees, with 377 starters in 2008 and it is still in negotiations with 420 possible new employees9.

About half of the relative turnover for 2005 and 2006 of Sogeti Netherlands is produced in the finance sector, as can be seen in figure 3 with the rest of the turnover produced in the provision of services and industry sector, government and social sector, telecom and media, and the trade and transport sector.

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Figure 3: Relative turnover segmentation (source: annual report 2006)

The segmentation in employees for 2006, as can be seen in figure 4, was that the main part of the employees worked at the division Software Control (SC), around 25%, then 22% worked at Enterprise Software Engineering (ESE), 17% worked at the division Distributed Software Engineering (DSE). The rest of the employees are located at Architecture & Business Solutions (A&BS), Infrastructure Services (IS), Managed Delivery (MD) and High Tech (HT).

Figure 4: Relative employee segmentation (source: annual report 2006)

1.4 Defining Software Development Testing

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object with a norm. This norm can be expectations, demands, or just correct operation of the object.

The International Organization for Standardization (ISO) and the International Electro Technical Commission (IEC) have defined the following definition10:

“Testing consists of activities which are executed to establish one or more characteristics of a product, process or service according to a specific procedure.”

According to Koomen et al. in their book TMAP® Next (2006: 754) testing is defined as:

“Testing is the process that gives insight into and advises about the quality (of software) and the related risks”

Whittaker (2000) has formulated a similar definition, focusing more on the execution of the software system: “Software testing is the process of executing a software system to determine

whether it matches its specification and executes in its intended environment.”

In other words, testing gives insight into the differences and risks between the actual and the mandatory status of a software object.

Koomen et al. (2006: 43) specifies different ways of testing. There are dynamic explicit tests, which are tests to get information regarding a specific feature. The software object is run to see if the expected results occur. Then there is dynamic implicit testing, which are dynamic tests where no explicit test cases are used. Features like the user friendliness or performance of a system can be tested explicitly. Finally there are the static tests, which are tests without running the software object. This test concerns controlling documentation like security guides, training plans and other manuals and is mostly executed in the form of checklists.

1.5 The structure of the report

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Chapter 3 describes the literature research. It starts with setting out the definitions about outsourcing and offshoring. It then continues with the advantages of offshoring followed by the practical challenges, or negative sides, of offshoring. It then explores the relation between TMAP® and offshoring followed by examples of possible solutions for the practical challenges.

Chapter 4 illustrates the case study part of this research, where a practical view is given on an actual testline with the Sogeti Netherlands B.V. organization. It starts with describing how Sogeti sets up their testlines and which position the testline under investigation, the testline “Maranello”, has in its organization. It then looks at the current way of working with an offshore part in combination with the use of TMAP®. Finally it describes the issues which can be observed in the testline

Chapter 5 discusses the issues observed in the testline and the practical challenges mentioned in the literature. The chapter tries to support the issues found in the testline with the possible issues in the literature, thereby explaining them. Then the issues from the literature are attributed to a TMAP® phases to determine which TMAP® phase needs the most emphasis when offshoring is implemented for the testing process.

Chapter 6 concludes the research by looking back at the results of the discussion and what lessons can be learned from that.

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2. Research methodology

2.1 Problem Definition

Outsourcing and using offshore locations for IT development have been on the rise in the past years (Smith et al., 1996). Driven by falling software and hardware prices, faster communication technology, and the existence of well educated and low paid analysts and programmers in many eastern countries, many businesses have decided to offshore their IT process. But with the positive factors boosting more and more companies to offshore their IT processes, many organizations are insufficiently prepared for this process (Vroon & Koomen, 2005). Many issues and problems may occur when a company does not prepare itself enough. Managers want to lower costs of their process, but not to the expense of lower or delayed productivity or hidden costs. From the above, the problem statement can be defined:

What issues and solutions can be found when companies offshore (a part of) their IT processes?

Many articles are already written about outsourcing (Gonzalez et al., 2006), looking from many possible angles. Next to those articles, many articles go deeper into the issues specifically confronted with a variation of outsourcing namely offshoring (Chen & Lin, 1998; Spencer, 2005: Ravichandran & Ahmed, 2005; Arora et al., 2001). These articles indicate that offshoring may have a negative side that is not seen by many companies at first, but that are experienced when offshoring their IT processes.

The Test Management Approach (TMAP®) is the method used for testing software in many organizations. TMAP® specifies in five phases which activities are needed to perform a structured high-quality Test process (Pol, Teunissen, Van Veenendaal, 1995). TMAP® can also be used for structuring an (partly) offshored IT test process, but some phases specifically may need more emphasis when a company offshores (Vroon, Koomen, 2005).

2.2 Research Question and Sub questions

From this problem statement, the following research questions can be derived.

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I: Literature questions

- How is offshoring defined and what is its relation to outsourcing? - What problems arise in offshoring (IT testing)?

- Do offshoring solutions exist and are they well described? - How is offshoring covered by the TMAP® method?

II: Confrontation and discussion questions

- Does the current method, standard or procedure fulfill its aims in offshoring?

- Does the current method of working correspond to the best practices in the literature? - Which pillars of TMAP® need further stressing when working with an offshore

partner?

III: Recommendations and conclusions

- How to manage communication and testing during offshore cooperation?

- What standards for offshoring IT testing operations should be enforced / applied? (Quality / service level)

- What governance for offshoring IT testing operations structure should be applied? (Organization / procedures)

2.3 Goal

The goal of this research is to provide insight into offshoring testing (IT) actions and to help improving the process. Managers, who are interested or are at the front where decisions have to be made in offshoring activities, can be seen as its goal audience. Those managers should be interested at looking at this research to see the challenges of offshoring testing (IT) activities. It should give them more information for making a proper decision on offshoring IT testing, what aspects need special attention and how to set up and manage an off shored testing process.

2.4 Research Methods

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(2003). Next to those scientific resources, some background information also comes from www.computable.nl and other research done by businesses and universities that have published their research in white papers or smaller articles.

First a theoretical literature framework was developed, where multiple angles and visions concerning offshoring are discussed. Opening by describing the different definitions of outsourcing and offshoring and it concludes with the definitions which will be used in this research. This will give a consistent terminology when discussing offshoring.

Then the advantages of offshoring are discussed. Since offshoring is a practice not only executed in the IT business, advantages from the literature dedicated to other businesses are also explored giving multiple points of view on the advantages of offshoring. After that, the challenges concerning offshoring are discussed, also called the risks or disadvantages. These challenges are derived from scientific articles and form the basis to which the issues in the actual testline are compared with. After the challenges are discussed, the possible solutions are discussed that help concur the challenges. These solutions are derived from scientific journals, and are sometimes directly related to solve specific challenges; others are generic solutions for multiple challenges

After the practical implications are discussed, the possible solutions and frame works are discussed that help to concur the practical implications. These solutions are also derived from scientific journals, and are sometimes directly related to solve specific solutions, other are also generic solutions for multiple implications.

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Information about the process in India will also be derived from interviews with a Sogeti manager who is stationed in India, from Sogeti’s local intranet called Einstein, and the Sogeti ShareNet portal, which links the organization information to both continents.

Third and last, general conclusions about the offshoring of a testing process and specific recommendations for Sogeti will be derived. Both are derived from the interviews and experiences of the testline “Maranello” and of the theoretical views in scientific literature. These recommendations and conclusions can be used by managers which have to make decisions about offshoring IT testing processes. For Sogeti the program manager has to decide which actions he puts into place.

2.5 Research Constraints

For this research a scope is set and some constraints were put in place. The scope is the area on which the research focuses and that keeps the research within set boundaries. The constraints are set by the researcher, and are limitations and restrictions for the total research. In this research the constraints are:

• No costs calculations included

The research is specifically aimed to explore and highlight issues and problems which can arise in testing when it’s offshored. Many issues affect the effectiveness and efficiency of a process and personnel, but in many articles no actual amount or percentage is set for the actual number. Also from preliminary research, it was revealed that no effectiveness numbers were kept of the offshored testing process.

• Subject is only testline “Maranello”

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Although many issues can be focused on the offshore location, the solutions are focused on the on-site location; the testline in the Netherlands. This is done, because many issues which can occur are happening here and then have their impact on the offshore location. To solve the issue, a solution has to be put in place on this side of the process, since the location in the Netherlands is the process owner. The results then also will be seen at and influence the offshore location.

• Issues and solutions have to be linked to the testing method TMAP®

The testing method used for structuring all testlines within Sogeti is TMAP®. TMAP® is divided into 5 phases, which all address different aspects of the testing process. To give a structural advice, the issues have to be linked back to the TMAP® method, so that the solutions can be addressed in the correct phase of the testing process.

2.6 Conclusion

With companies these days offshoring more and more of their IT processes to offshore locations, like India, the question is asked: What issues and solutions can be found when a company offshores their IT process? There can arise many issues that all affect the effectiveness and efficiency of the process. Businesses all want to restrain these effects and want to know which challenges they can expect when they offshore their IT process. Additionally, they want to know what they can do about it.

For this research the following research question is formulated:

“How should the process of offshoring IT testing operations be organized and managed?”

To answer this main question, it is broken down into several sub questions.

Multiple research methods are used, like a literature study and a field research. The literature study is performed to identify common challenging issues in offshore projects, to explain them and to find preventive and/or detective measures.

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Finally all theoretical findings and experiences of the testline were placed into a discussion, and concluded with specific recommendations for the Sogeti testline, as well in general for offshoring IT testing operations.

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3. Literature research

This chapter sets out the concepts of offshoring and outsourcing. It further illustrates the positive implications, advantages and achievements of offshoring. Then it looks at the other side, and illustrates the negative implications offshoring can have on a business, and specifically on IT testing. An overview is given of the most mentioned negative implications from the literature. Also the link between offshoring and TMAP® is explored by attributing offshore issues to the TMAP® pillars. Finally there are several examples given that can help offshoring in IT testing to achieve better results.

3.1 Definition of concepts

Outsourcing and offshoring are very broadly defined in scientific literature. This paragraph gives an overview of the different definitions used, and concludes with the definition which will be used in this research.

3.1.1 Outsourcing

When defining offshoring, also outsourcing has to be taken into account and discussed. The link between offshoring and outsourcing is too great to be neglected. P. Harmon describes outsourcing in the glossary of his book ‘Business Process Change’ (2003) as “Outsourcing

occurs when one company hires another company to manage, maintain and run some portion of its business”. He thereby refers further to another definition of Business Process Outsourcing (BPO). His definition of BPO is when “many companies outsource business

processes to other companies to manage and execute”.

The book ‘Offshoring and employment: trends and impacts’ (2007) written by the Organization for Economic Co-operation and Development (OECD) defines outsourcing to designate “the use of goods and services produced outside the enterprise. Outsourcing can

occur within the country where the enterprise is located (domestic outsourcing) or abroad (outsourcing abroad)”.

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(2005) also see other definitions which focus more on international outsourcing of components, sub systems and completed products. (Bettis et al. 1992; Feenstra and Hanson, 1996). Others see a different spotlight, and see employment as a key point. Perry (1997) defines in that light outsourcing as “another firm’s employees carrying out tasks previously

performed by one’s own employees”, while Sharpe (1997) defined outsourcing as “turning

over to a supplier those activities outside the organization’s chosen core competencies”. Deavers (1997) has a different view on the definitions of outsourcing as he states that it can refer to different business behavior: “all sub-contracting relationships between firms, all

foreign production by US firms, hiring of workers in non-traditional jobs such as contract workers, and temporary and part-time workers, etc.”

3.1.2 Offshoring

The concept of offshoring is well known, but still there are very different interpretations. In an article by the DSDM Consortium (2003) offshore development is described as “A project

whereby a development process, which is the responsibility of one organization, is performed by another organization at a separate location”. They refine this by proclaiming that the work is done significantly remote from the supplying company. This could be done in the same country but at a significant physical or geographic distance.

Other American writers refer to offshoring as something that is best applied to work that is sourced out of the United States because the United States sources most of its work out to India and other Asian country, thereby crossing a “shore” and naming it for that reason (Aspray et al., 2006). They refuse to call work that is repositioned from Germany to Eastern Europe offshoring, because there is no shore crossed.

Some authors don’t even consider the global factor in defining offshoring. Smith et al. (1996) don’t take this global factor into account, but do look at the traditional markets of IT development. For them offshoring means repositioning work to countries other than those that have traditionally dominated the software development industry.

Ramarapu et al. (1997) define offshoring, or foreign outsourcing as they call it, as “In its

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operates from a foreign country. Foreign vendors range from small operators to large multinationals”.

The translation of offshoring into something like work carried out in a globally different place can also be translated the other way around. In an article by Elmuti & Kathawala (2000) the term global outsourcing is used. It is described as the strategic use of outside resources to perform activities that are traditionally handled by internal staff and resources.

Sahay (2003) uses in his article a description on a more strategic level. He describes offshoring as a “Global software alliance” (GSA) and this can be seen a as a relatively long-term inter-organizational relationship established between the outsourcing and outsourced organizations based in different countries to enable software development. He further explains this by stating that the development occurs primarily by shared electronic domains with the personnel being located in their own organizations.

The book offshoring and employment: trends and impacts (2007) by the OECD define offshoring in two different situations. The first definition is: “Production of goods or services

effected or partially or totally transferred abroad within the same group of enterprises (offshore in-house sourcing). This means where an enterprise transfers some of its activities to its foreign affiliates. These affiliates may already exist or have been created from scratch.”

The second definition involves “the partial or total transfer of the production of goods or

services abroad to a non-affiliated enterprise (offshore outsourcing). This operation consists of subcontracting abroad. The non-affiliated foreign enterprise could be either i) a firm controlled by residents of the country, or ii) a foreign affiliate controlled by a third party, or iii) an affiliate of the outsourcing country controlled by another group. The following table summarizes the different situations in which a good or service is produced within an enterprise (or a group of enterprises) in the same country or abroad.”

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Figure 5: Outsourcing / offshoring options for a business

This table gives an overview of the possible outsourcing or offshoring possibilities a business has. From domestic in-house production where activities are reordered only within the company, to domestic outsourcing, where activities are outsourced within the country, and from offshoring in-house, where activities are placed within the company but abroad, to offshore outsourcing, where activities are placed at a dissimilar firm in an abroad location.

Sako (2005) introduces in her paper for the Emerging Markers Forum that not only companies and businesses are offshoring their activities, but also governments are doing so: “Offshoring

happens when private firms or governments decide to import intermediate goods or services from overseas that they had previously obtained domestically. It is therefore about sourcing decisions which involve (a) imports, (b) displacement of domestic production and associated jobs, and sometimes (c) foreign direct investment (FDI) outflows if sourcing happens from overseas affiliates. It is difficult to combine three separate sources of data to measure the precise extent of offshoring defined in this way.”

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Figure 6: Outsourcing decisions for a business (Sako, 2005)

3.1.3 Conclusion & consensus

In conclusion, to indicate where the differences exactly are between outsourcing and offshoring, Hogan (2004) illustrates this by the following statement:

“Outsourcing isn’t offshoring. If you decide to hire a landscaping company to take care of your grounds around your plant, instead of maintaining an in-house crew for that job, you are outsourcing… When Toyota builds a plant in Indiana to produce light trucks for the US market, or Ford puts its Jaguar operations in the UK, that’s neither outsourcing nor offshoring. Offshoring means buying from a vendor in a low-cost labor country instead of a vendor in the US or some other high wage country, or establishing a manufacturing operation in a low-cost labor country that replaces a facility in a high wage country.”

From the definitions and the above mentioned statement, we can conclude that outsourcing is acquiring products or services at lower costs from within another division of the company or another external company, which can be reached with arms length.

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3.2 Positive implications, advantages and achievements of offshoring

Offshoring is a hot issue these days. The Dutch journal Computable reports that a Forrester Research study indicates that a company should “offshore or stay behind” (Slangen, 2005). In their opinion offshoring brings the business 'business edge' to stay successful. But there are many other reasons why a business chooses to offshore (a part of) its process.

One of the most mentioned reasons to offshore, and also for a main part to outsource in general, is (lower) cost (Aspray et al. 2006). Dominguez (2007) states in his article that the reduction in costs is currently seen in synergy terms, that include a wide variety of advantages and gives companies a competitive advantage for the future. Elmuti and Kathawala (2000) argue that although cost reduction is one of the driving forces behind offshoring, really effectively lowering costs is something of traditional offshoring. This is now replaced by productivity, flexibility, speed and innovation in developing business applications, and access to new technologies and skills. Ramarapu et al. (1997) even present a new term affiliated with lower costs: “Body shopping”. Businesses go searching for new “bodies” in low wage offshore countries. A person working in a low wage country earns one-third less then a US professional. It is remarkable that they argue that these savings are including extra expenses made for travel and communications costs. Gopal et al. (2002) argues that with substantially lower costs, the customer is the end benefactor of the offshore effort. Next to that, businesses that go offshore benefit from lower investments in equipment and communication infrastructure as in their home environment, they argue.

Costs in many offshore countries and regions are lower and by offshoring many processes, customers of these businesses can profit from this. Not only personnel costs are lower, also overhead and computer costs usage is significantly lower. Next to those lower costs, some countries, like Ireland, have lowered taxes for companies to establish global operations (Tafti, 2005). Up to 35% cost reduction in the base cost could be reached, up to 50% in total costs when offshoring is implemented (De Man, Hoogendijk, 2005). In a research by Deloitte Consulting (2005) 83% of their participants had costs savings as one of their expected benefits, 70% cited it as one of its drivers, and 43% declared that costs were the primary criteria when selecting a vendor.

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when knowledge cannot be found in-house or if it cannot be acquired within a relative short amount of time. (Gopal et al., 2002; Elmuti & Kathawala, 2000; Brandel, 2007; Ramarapu et al., 1997) Dominguez (2007) also sees a different kind of workforce settling in offshore locations. He states that low wage offshore countries have eased their restrictions referring to the number of highly skilled workers that have settled in their countries, to facilitate the growing demand of work in that country. With this high amount of work being offshored, companies in offshore countries can’t meet the demand.

Other mentioned advantages to offshore are of a geographical and strategical nature (Dominguez, 2007; Elmuti & Kathawala, 2000; Aspray et al., 2006; Ramarapu et al., 1997) such as surrounding markets, the market of the offshore country itself, and its location regarding potential customers and competitors. This can give the company a head start when it wants to enhance responsiveness to customer needs.

In an article by Elmuti & Kathawala (2000) they present an extended overview of why companies globally outsource. 270 respondents from the 544 companies came from different parts of the world and fields of business, such as manufacturing (96), oil / petrochemical (84), banking (89), information technologies (100), financial services (83) and other professional services (92). It should be mentioned that respondents were able to check more than one of the possible reasons that they see for global outsourcing. This can be seen in the figure 7 below.

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The research furthermore explains what goals companies are setting when they globally outsource. What is mentionable is the projected versus the achieved percentage of improvement. Companies in general aim towards higher goals, as can been seen in figure 8 below. But when reviewing the achievements, the results were of lower percentages then expected. Although they are not getting the projected or the promised order of magnitude improvements attributed to global outsourcing, they are achieving significant improvement in their activities.

Figure 8: Specific goals for global outsourcing activities (Elmuti & Kathawala, 2000)

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Figure 9: Factors affecting global sourcing projects success in unsuccessful organizations

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Figure 10: Factors affecting global sourcing projects success in successful organizations

What is remarkable here is that companies that are successful in global sourcing projects rank “fear of job loss and fear of change” now as highest, followed by “poor choices of outsourcing partners” and “not enough training/skills needed to deal with type of global sourcing alternatives”. This may indicate that unclear expectations and unclear objectives don’t play such a big part in successful projects, since they have clearer expectations and better objectives to make the project a success. Fear of change and job loss is more important in successful businesses. Although Elmuti & Kathawala (2000) do not explain this change, it can be reasoned that successful businesses and their employees see it as a threat because of its own success. They think that if the latest project was successful, more and more projects are going to be globally outsourced, reducing work and stability at their own workplace.

The Dynamic Systems Development Method (DSDM) consortium extends these business advantages further in their article, Guidelines for Applying DSDM in an Offshore Environment (2003), by stating that offshore is now not only seen as a cost-, time,- and resource effective approach, but also has to offer some other significant advantages, including:

• More resources for critical functions

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• Increased focus on the market and customers

• Supply of the development skills that the customer needs

• More value for money (lower, very competitive professional charges)

• Extended work hours due to difference in time zones between offshore and on-site locations

• Access to a large development workforce.

3.3 Practical negative challenges when offshoring

Although most of the writers do not specifically aim their research at testing processes, the issues found can also be projected onto the testing process. What's more, many issues are not specific to software development or any other kind of IT process, but are general to any process that is offshored. Next to that many issues have overlapping causes and so can be linked back to a common problem. Some issues which are presented in these articles can be specifically related to IT testing processes. In addition, some issues occur even independent from the field of interest. For this reason these issues and practical challenges are also included in this overview. Where practical challenges are mentioned, also risks or disadvantages can be read.

When the decision is made to offshore (a part of) a process, and the process is moved from the client or on-site location (the organization which is moving out the IT process), to the

host or offshore location (the organization which is receiving the IT process and will be

carrying out the process in the future) negative implications may occur.

There certainly is no sharp distinction between some of the following issues. Issues may be classified under more than one category. A choice for placing an issue at only one category had sometimes to be made rather arbitrarily.

3.3.1 Testing issues

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The points are:

• Unclear specifications of the requirements

• Bad programming and bad testable functional specifications • An unknown, new development tool

• A bad thought through prototype (of a GUI)

Next to the above mentioned points introduced by the client organization, Labruyère (2007) argues that not only the side of the client organization, but also the host organization can

introduce threats when accepting offshore work by: • Underestimating the assignment.

• Not correctly reading the functional specifications • Not asking questions about the specifications

• Frequent, bad managing and coaching trainees, assigned to the project. • The rapid circulation of personnel

All the above issues may lead to difficulties in the project: • Late delivery of the project

• Additional testing efforts

• Increased number of bugs and ultimately • An application which can satisfy nobody

Vroon & Koomen (2005) specifically discuss possible threats when an IT testing process is offshored. They argue that testing processes are often underestimated while at the same time advantages are overrated. They describe a couple of problems not only occurring in offshore testing processes but also in regular on-site testing processes. With offshore processes these problems may be harder to control.

The first point they argue can cause problems, is the theory of “garbage in – garbage out”

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cultural background, such input deficiencies may be confronted with short and quick communication lines.

The second issue is the lack of business knowledge within the host organization, Vroon & Koomen (2005) argue. The client is situated in a different kind of business environment then the host organization. The lack of business knowledge can often be the source of assumptions, which most of the time are wrong. Examples are the notation of postal codes, telephone numbers, in the financial field, the administering of mortgages and the work of notaries. All these processes and services that are normal at the client side might not be so normal and even unknown at the host side.

The third issue is perhaps of the greatest influence on the process of offshoring, but also the least tangible, namely culture. The Dutch culture is often seen as rude and impolite. There is a great gap between the culture in Holland and in India. Saying “no” in India is phrased in a positive package, so that for the ignorant bystander from other cultural background this could be seen as “yes”. Saying “no” is seen as impolite and rude, and is “not done”. Not reporting findings and bugs is also an issue, because a bug may not be seen as a bug per se but as the impotence of the tester to understand the programmers work. Offshore testers may ignore bugs and cause delays when these bugs are found at a recheck or during production when the tested system is implemented.

The fourth issue that Vroon & Koomen (2005) address is the issue of developing and testing at one organization. This “dirty laundry” theory occurs when testers have to report findings of the developers of their own company, their colleagues so to say. Criticizing colleagues with defect reports and making this known to the company is not always an easy thing to do for foreign (offshore) testers.

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3.3.2 Organizational issues

Elmuti & Kathawala (2000) also illustrate in their article some possible downfalls and problems, as they call it.

When a company sources out globally, the control over how certain services are delivered is reduced. A process is no longer executed right next door, but on the other side of the world. Close supervision is not so easy to do anymore. Companies that do outsource globally should constantly monitor the activities and keep tight communication lines (Guterl, 1996).

They also point out that the fear of loosing jobs among client employees is an issue. Personnel fear that even more work is offshored, and their jobs can come into play. In the same line, they refer to Malhotra (1997) who states that outsourcing (globally) can also lead to a “decline in the morale and performance of the remaining employees”. Employees see the outsource site as a threat, because they might feel redundant. Tafti (2005) also acknowledges that there is a risk that these people may feel uncomfortable or threatened by newly signed outsourcing agreements

The authors furthermore refer to a statement by Ramarapu et al. (1997) where he says that different legal and cultural environments may cause problems with confidentiality, security and time schedules. This statement is also acknowledged by Ravichandran & Ahmed (1993) in their article.

Ramarapu et al. (1997) expand the possible risks in their articles some more. They also address and acknowledge the cultural problem when a company sources out a part of its business to a foreign country. Especially the local customs and culture can reduce the productivity and quality of work, like shorter work times or cultural religious rituals by which the pace is decreased.

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Ravichandran & Ahmed (1993) also have another issue which can contribute to problems during an offshored process, but the offshore location can’t do much about this. The local infrastructure can work against time and planning constraints because of frequent power outages. Local infrastructure is often not of such high level as in most western countries. Ramarapu et al. (1997) expands on this by stating that a lack of standards or incompatible standards are a hindering in infrastructure. Also government policies control the selection of communication equipment that is available.

Chen & Lin (1998) present in their article some more managerial implications, as they call them. In their research they present factors which influence a company’s decision to globally outsource, but they also identify possible risk factors. As with the previous articles they also have seen governmental restrictions. Local administrations should make it easier for foreign businesses to start offshore activities by lightening many business restrictions, like reducing taxes and other local contributions for these companies.

Some developing countries where work is offshored to, may have an unstable political environment. It is not under control of the local IT/IS society to ensure a stable environment in offshored countries, but it is their responsibility to give some advice about how to accommodate the political environment due to a volatile economy, or when various transitions take place such as a change of governments or a new release of policies or laws.

Legal uncertainty is another concern, Chen & Lin (1998) address. Local legal systems are mostly primitive and not very transparent, and rarely able to cope with the major disputes that arise between companies and government. Problems between companies are rarely quickly solved. Many rules are not known or change very abruptly. Western businesses find that many rules and regulations are not published or undergo changes without earlier warning. Ramarapu et al. (1997) also claims that constraints or problems in the area of intellectual property can arise. Also rules of commerce vary among countries. A close investigation of those differences is needed before offshore projects are conducted.

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where the outsourced process takes place. Local culture can not be neglected, they argue. Even culture then can have an influence on a political and personal level. For example, some local governments sharply limit the Internet-based information exchange activities, forbidding any engagement in unauthorized activities or ones financed from overseas.

They furthermore stress the importance of high quality English speaking and writing local personnel. The language problem can be fatal in system analysis and design, especially for developing application oriented products.

Protecting intellectual property rights is another big issue, Chen & Lin (1998) address. Intellectual protection by trademarks and copyright is a necessity for many outsourcing companies. Currently it is very easy to digitally copy and reproduce code or other resources. Sound agreements between the host and client organization should be made to make sure that no intellectual property will come into the (competitions) wrong hands.

Dominguez (2007) not only mentions risks and challenges for normal on-site projects, but also when companies intend to offshore their processes. He lists them as following:

• Expenses involving selecting a vendor

• Transitioning work over to the offshore partner • Layoff and retention expenses

• Cultural fit

• Loss of core proprietary business knowledge

• Communication Challenges (If the proper IT infrastructure is not met)

• Organizational Challenges (Poor delegation and diffused specification of tasks) • Bargaining Power loss due to handing over control

Furthermore Dominguez (2007) states that there are additional risks for which companies can hardly protect against. These risks are the loss of intellectual property control and the possibility of technology or strategy risks. These factors can jeopardize the future development of the company. Business knowledge is being transferred to the offshore site, and no real guarantee is given in many cases that information will not be leaking.

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into 4 different castes, or divisions. The top level caste is the “Brahmin” (Priest, teacher), then comes the “Kshatriya” (Landholder, warrior), then the “Vaishhya” or bania (Businessman), and the lowest is the “Shudra” (laborer). Below that, there are several more tribal people and “untouchables”. He concludes, based on his own experiences and that of others, that although the caste system is still noticeable in rural societies, in urban and bigger cities it has a very low impact from day to day. From a foreign observer view, the caste system is not visible at first. When traveling through India however, the effects are clearly shown. The status of a caste decides who gets something, and who doesn’t. On the other hand, the IT development has made great changes in this division. One of his subjects’ mentions that growth in IT and IT enabled outsourcing has had far reaching social consequences for the benefit of accepting different castes. It now does not make any difference in which caste someone is in. If they want to work in IT, it now only depends on education and skills. Since they have to work together the acceptance of caste has increased.

3.3.3 Costs issues

Then there are the additional hidden costs, which are often initially not seen when offshoring. These might be license transfer fees which are charged by software houses. Also costs for traveling to the foreign sites including taxes and taxes on products and services which are bought in locally, might bring a greater overhead then expected.

Low costs in global outsourcing are one of its driving motors. Performing with low cost in a market is a must if a company wants to be competitive. Doing so by global outsourcing is one way of meeting up to that standard. But the cost advantage should not be overestimated, Chen & Lin (1998) argue. The costs the company wants to lower, is costs in business. Hidden costs, on the other hand, should be identified and lowered. These costs should be lowered in a much greater way then the system development costs. High quality products which are delivered on time and within budget are of the highest priority and must be in the focus of foreign clients. Close attention has to be paid to raising wages in low cost areas since they can raise steeper then expected (De Man, Hoogendijk, 2005)

THE OFFSHORE FACTOR IN TESTING: TESTING OFFSHORING

THE OFFSHORE FACTOR IN TESTING:

TESTING OFFSHORING

Johan Oldenburger

S1570730

Master of Science Business Administration Business & ICT

Faculty of Economics and Business

THE OFFSHORE FACTOR IN TESTING:

TESTING OFFSHORING

August 2008

Acknowledgements

Management summary

Version history

Table of contents

1. Introduction

1.1 General introduction

1.2 Introduction to Sogeti

1.3 Software Control

1.4 Defining Software Development Testing

1.5 The structure of the report

2. Research methodology

2.1 Problem Definition

2.2 Research Question and Sub questions

2.3 Goal

2.4 Research Methods

2.5 Research Constraints

2.6 Conclusion

3. Literature research

3.1 Definition of concepts

3.2 Positive implications, advantages and achievements of offshoring

3.3 Practical negative challenges when offshoring