Chapter 12 Simulation Offshoring

Decision Point: Splitting the Difference: Genovia Select two arguments that would best support your recommendation to retain some of the QA operations in Genovia.

*The competition for top talent is especially fierce in Baltonia. *The talent pool for workers is stronger in Genovia.

Decision Point: Transition Costs: Your Decision Based on the information you were provided, which of the options is the most accurate statement with respect to the possible transition of the software QA function to Baltonia?

Moving to Baltonia involves greater risks but also potentially greater rewards.

Decision Point: How to Split the Difference You recommend splitting the software QA function between Genovia and Baltonia. How should the work be divided between them?

Baltonia should perform most or all of the functional QA and Genovia should perform most or all of the content QA.

Decision Point: Labor Costs: Your Decision Based on the information you gathered, which of the following options best expresses the difference between software QA labor costs in Genovia and Baltonia?

Baltonian labor costs are approximately one third of Genovian costs.

Genovia or Baltonia

Currently, Holden-Evan's software QA is performed primarily in Genovia, a developed country. The team in Genovia is well-regarded, but the cost of operations in Genovia is much higher than similar operations in other locations. After a worldwide search, Holden-Evan identified the nation of Baltonia over other relocation options, but the company is not convinced that the move should be made. Many believe that the software QA function should stay in Genovia, where Holden-Evan's headquarters is located. A decision needs to be made, and you have been selected to run a task force devoted to the issue. Your key advisors will be the current Director of Software Quality Assurance in Genovia and the business consultant who persuaded Holden-Evan to consider the move to Baltonia. You should meet with them as soon as possible.

Decision Point: Your Recommendation It is time for you to make your recommendation. Should the software QA function stay in Genovia, should it move to Baltonia, or is it best to split the function between the two countries?

The software QA function should be split between Genovia and Baltonia.

Decision Point: Splitting the Difference: Baltonia You recommend splitting the software QA function between Genovia and Baltonia.

*Baltonia has lower labor costs. *Genovian labor costs are more than 25 times higher than Baltonian labor costs.

Decision Point: Evaluating Talent Pools You have decided to learn more about the talent pools in Genovia and Baltonia. Which of the following questions will you investigate?

*Is the population of Baltonia bigger or smaller than the population of Genovia? *What other job opportunities exist for skilled workers in Baltonia and Genovia? *Is Baltonia making progress in improving literacy rates in all sectors of its population?

Decision Point: Facility Costs: Comparison Labor costs are not the only relevant costs. You also ask each of your key advisors about how the costs of facilities compare. Here's what they had to say: Business consultant: "Just as labor costs are lower in Baltonia, so are real estate costs. Overall, the price is about one-fifth what it would be in Genovia: $15 per square foot in Baltonia vs. $80 per square foot in Genovia. Now, I should admit that we'll want our facilities to be better built than the typical building in Baltonia, which will probably raise the cost to about $30 per square foot. We'll also have to pay for things that aren't necessary in Genovia, like extra security and a powerful backup generator. These additional items will add another 20% to facilities costs. Even considering this, you'll still come out ahead if you make the move." Director of Software Quality Assurance: "New construction is expensive in Genovia, but our facilities are already built. We own the land and the buildings. Even better, the Genovian government is likely to give us tax breaks if we stay. Other companies in similar situations have had their real estate taxes lowered by 25% or more. Also, kee

Genovian costs are likely to be lower.

The End for Now: Splitting the Difference

Holden-Evan has followed your recommendation to split the work between Baltonia and Genovia. Your colleagues in Baltonia realize that they got this opportunity in large part because of cost advantages, but they commit to meeting or exceeding the performance standards Holden-Evan expects. The mood in the Genovian facilities is mixed. Many are glad to keep their jobs. Others are excited about new opportunities outside of the software QA function. Others, however, have difficulty adjusting to other kinds of work, and worry about how they will find a place in an increasingly global economy. You remain alert for other possibilities to improve business results by investigating opportunities in Baltonia and elsewhere.

Test Results

Holden-Evan opens a small, temporary office in Baltonia and hires qualified candidates for the QA function. Your preliminary observation is that the Baltonian candidates are just about as good at functional QA as their Genovian counterparts, but they're not as good at content QA. Over the course of a few weeks, you find that they have shown improvement in content QA.

Decision Point: Transition Costs Moving a large operation to another country is a complex challenge. You ask each of your key advisors about the costs of transitioning the software QA function to Baltonia. Here's what they had to say: Business consultant: "It's good that you're asking this question, because this is a real issue. Rest assured that we won't try to transition this function to Baltonia overnight. We'll build this piece by piece, and in the end, we'll be able to keep everything that was good about the Genovian operation and fix what didn't work in Genovia. That operation was functional, but it isn't perfect, and we can do better." Director of Software Quality Assurance: "Well, obviously I have a bit of a bias on this, but we really need to consider the risks. Right now, we have an operation that works. If we move it, the transition won't be seamless, and if quality drops, the money we save on QA will be nothing compared to the money we lose after we produce buggy software. The safer decision is to stay." You need to learn more about transition costs. Which of the following is the best question to ask?

How long will it take for the Baltonian operation to reach a level of performance similar to that of the Genovian operation?

Decision Point: Labor Costs: For How Long? Right now, Baltonian labor costs are lower than Genovian labor costs. But this could change. You need to estimate the rate at which Baltonian wage demands will increase and include this in your analysis. Which of the following options is the best way to investigate this question?

Identify countries where conditions were similar to current Baltonian conditions, and determine the rate at which skilled labor costs changed.

Decision Point: Recruiting Although some the software QA employees could work remotely, Holden-Evan expects the majority of software employees to work out of central offices. For this reason, you have decided to ask your advisors about the talent pools in Genovia and Baltonia. Business consultant: "People start looking at Baltonia because of price advantages, but they stay there because of our people. Baltonian culture is highly supportive of education. Students who get top scores in exams get their pictures in the newspaper here. Although it is true that much of the country is working towards improving basic literacy, the large cities have very well-educated populations, and the competition for those outstanding individuals is less intense than it is in Genovia. We can get the best of the best." Director of Software Quality Assurance: "Genovians are among the best-educated people in the world. While Baltonia is struggling with literacy rates, Genovia has world-renowned universities and a highly sophisticated workforce. Don't take talent for granted. If we move operations to Baltonia, we will be struggling to find people half as good as the ones we already have." Do you have enough in

No, more investigation is required to draw a reliable conclusion.

Decision Point: A Test of Talent You still are not sure whether the Baltonians are likely to perform as well as the Genovians when it comes to the software QA function. You have decided to run some tests to see how the Baltonians do on actual work. Which of the following would be the most effective way to perform the test?

Open a small, temporary office in Baltonia; hire software QA staff; and evaluate the kinds of errors, if any, that exist after their review.

Understanding Quality Assurance

The Director of Software Quality Assurance of Holden-Evan replies: "I'm glad you asked. The goal of software quality assurance is to make sure that software does what it's supposed to do. Most people divide quality assurance into two categories: functional QA, which checks that the code performs the way it is supposed to, and content QA, which makes sure that the information is accurate and otherwise up to standard. Functional QA can be very repetitive, because you need to check everything many times. Still, finding the solutions to the problems uncovered can involve higher-order thinking skills. Content QA is very intellectually demanding. You have to be a real subject matter expert and be comfortable with technology to do it properly."

The Results

The business consultant and Director of Software Quality Assurance collect information from various sources and present the following information to you: Baltonia's population is much larger than Genovia's. Additionally, it is growing at a faster rate than the population of Genovia. The segment of the Genovian workforce with work experience and skills required by Holden-Evan is nearly three times as big as the corresponding segment in Baltonia. Holden-Evan intends to establish operations in Baltonia's capital, which is also the educational hub of the country. Our records indicate that we have employed 25 Baltonian citizens over the years. Most of our employees are Genovian. The strong IT industry in Genovia offers good job opportunities to qualified people. Baltonians have limited options in their home country.

Wage Trends

The business consultant answers your question about trends in wage growth: "This is really complicated, and we have to understand that every country is different. That being said, as countries emerge and join the global economy, wages definitely increase. They tend to increase more quickly among knowledge workers and less quickly in traditional occupations. That being said, I can't find a country similar to Baltonia that took fewer than 10 years to catch up to the wages of developed nations. Usually it takes longer, and often the wages never quite meet the levels of those in developed nations."

Answering Your IT Income Question

The business consultant replies: "Although most Baltonians have low incomes, IT workers do comparatively well, though they earn about a third of what their counterparts in Genovia earn. In Baltonia, the people recognize that education is an essential step on the way to prosperity, and so the strongest students tend to move towards jobs like the ones we can offer."

Decision Point: Talking to the Director of Quality Assurance You meet with the Director of Software Quality Assurance of Holden-Evan. He says: "It's a pleasure to meet you. Look, I know that the company is seriously considering closing down the facilities here, and that would obviously affect me personally. But you have my word that I'll give you my honest opinion to help you make a good decision. If you keep an open mind and consider all the relevant factors, I'm sure you'll agree that we would be better off keeping our operations in Genovia." You thank him for his honesty, and then think about what you want to ask him first. What would be the most relevant information to know at this time?

What is software quality assurance, and what are the key factors to doing it well?

Decision Point: Your Question on Labor Costs You need to learn more about the real difference in labor costs, so you talk to both of your advisors. Here's what they had to say: Business consultant: "I'm glad you asked. Labor costs in Baltonia are much lower than they are in Genovia. The per capita income here is about $1,500. In Genovia, per capita income is closer to $40,000. That's over 25 times as much! Think of the money the company could save by moving to Baltonia." Director of Software Quality Assurance: "Labor costs are definitely higher here in Genovia. But you need to consider all the costs of the operation, not just labor costs. Also, keep in mind that although Genovia is much more expensive now, Baltonia is growing economically. Baltonian GDP is expected to rise by 10 percent or more every year for a long time. Within a few decades, Baltonians will demand just as much in wages as Genovians." What would be the most appropriate follow-up question?

What is the income of typical workers in the information technology (IT) sector in both countries?

Decision Point: Talking to the Business Consultant You meet the business consultant to discuss the pros and cons of moving Holden-Evan's QA functions to Baltonia. She says: "Thanks so much for taking an interest in Baltonia. Of course, I would like to see the company move operations to Baltonia, but I won't let my feelings get in the way of my job, which is to help you sort through the different issues involved in this decision. The team in Baltonia is committed to making this work, and if you choose to make the move, I promise you that you will not be disappointed." The business consultant knows a great deal about the constraints on this decision. What would you want to know about what's possible?

Would Holden-Evan consider moving part of the QA function to Baltonia and leaving part of it in Genovia?

Scenario

You are an advisor in the International Operations Division at Holden-Evan, a multinational corporation with holdings in a wide variety of fields. Holden-Evan is trying to determine the best location for its software quality assurance (QA) function. After investigating the relevant issues, you will recommend either keeping the QA function where it is, in the developed nation of Genovia, or moving it to the emerging nation of Baltonia.

Evaluating Current Operations

You investigate the performance of the Genovian software QA function. Overall, the reaction is positive. The team has a good reputation for improving quality and helping Holden-Evan produce software that meets customer needs. However, some errors have crept through, and post-launch "updates" are sometimes required to fix things that should have been caught. Also, people in the Sales and Marketing departments are likely to feel that the software QA function takes too much time and delays releases unnecessarily. They point to these delays as reasons why some products did not meet their revenue goals. You ask the Director of Software Quality Assurance about the feedback you have gathered. He says: "I think you're seeing the competing goals that we have in software QA. When a mistake gets through, we should have taken longer. When we take longer and catch more bugs, then they complain that we take too long. Sales and marketing people are the worst in this regard. Whenever they don't meet their goals, it needs to be someone else's fault. No matter how fast we are, we could always be faster, so they use us as a punching bag when they have a bad result to explain."