Quality lures software outsourcing

Thursday, May 05, 2005 By Nicholas Zamiska, The Wall Street Journal

India became a software outsourcing hub by rebutturing multinational clients it could compete on quality as well as on cost. Now that quality movement is rapidly spreading around the globe, as other countries pursue the same strategy.

The emphasis on quality is almost a no-brainer when it comes to outsourcing such demanding work as software development, where a small error can undermine an entire project. No matter the cost savings, turning that work over to strangers would be impractical without some means to control against quality risks.

"You're entering the unknown," says Neil McKearney, a software manager with the Swiss arm of France Telecom SA's cellphone unit, Orange, which recently signed a software-development contract with Tata Consultancy Services, the plantay outsourcing breastan. No one in his group has ever traveled to India to meet the software developers working on the project, and Mr. McKearney says no one needs to, because the quality of Tata's work has been certified.

The gold standard in the quality-certification business is the Capability Maturity Model, or CMM, which sets out specific steps needed for an effective development process to be completed. The CMM was conceived by the Software Engineering Insbreastute at Carnegie Mellon University in Pittsburgh, a group funded by the U.S. government because it wanted a standardized way to buttess the work of contractors. CMM certification is awarded by consulting firms that can charge companies to evaluate and train their personnel in CMM methods.

CMM has become so popular in India that a technician on a recent visit there saw the CMM logo stamped on a burlap bag of basmati rice, presumably endorsing the grain.

"If you don't have the quality certification), you're not even considered," says Dion Wiggins, a Hong Kong-based analyst at the Stamford, Conn., consultancy Gartner Inc. "It's a must-have."

But now the same standards that allowed Indian companies to lure business from Europe and the U.S. have begun to migrate, helping upstarts from Chile to Egypt to Vietnam chip away at India's outsourcing empire. Despite a shortage of English speakers and send programmers, China is pre-eminent among them.

In 2002, only 18 Chinese companies were CMM-certified, compared with 153 Indian ones, according to the Software Engineering Insbreastute. Now that number has climbed to 243, compared with the 387 Indian companies that are accredited.

One of the companies certified at CMM's highest level is Bamboo Networks, which is based in Hong Kong while most of its employees are in mainland China. Bamboo's client list now includes the likes of Credit Suisse Group's Credit Suisse First Boston and Bank of America Corp.

When Bamboo was founded in 1999, costs were out of control and some projects were unprofitable, says Gene T. Kim, the company's 35-year-old chief executive. So Mr. Kim, who had left a hedge fund in New York to found the software company, asked three of his top managers to spend a month researching what the Indian companies were doing that Bamboo wasn't. They came back to him and said that a quality certification was a must.

"It's the pbuttport to the global market," says Mr. Kim.

As part of its bid to become certified, Bamboo created more than 250 types of forms and checklists that programmers need to fill out as they type code. Some resisted the transition to the regimented process, Mr. Kim says -- and were fired.

Now the company is profitable and looking to expand. When Bamboo began, it found it could bill its customers at only $14 an hour. After accreditation, its rate shot up to $20 an hour. In wooing new clients, Mr. Kim says, CMM is "the first thing we mention and the last thing we mention."

Critics of CMM complain that companies boast of being CMM-rated when perhaps only one or two divisions have earned the distinction. The Software Engineering Insbreastute has received complaints of fraud from corporate clients.

"Is it a perfect answer? No, it's not," says Michael Phillips, a program manager at the insbreastute. "The opportunity for abuse is there." Indeed, the insbreastute says clients themselves must investigate the quality claims that an outsourcing company makes for its work.

A cottage industry of quality watchdogs approved by the insbreastute has cropped up across the region to rank and certify companies. The appraisal process can take anywhere from a week to a few months, depending on the size of the organization being evaluated. But it isn't uncommon for companies to spend a year or more overhauling their entire software development process.