230 2004 IRMA International Conference Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. Extreme Outsourcing Jakob H. Iversen College of Business Administration, University of Wisconsin Oshkosh, 800 Algoma Blvd., Oshkosh, WI 54901, iversen@uwosh.edu ABSTRACT As companies are looking at reducing their software development cost, they are increasingly turning to offshore outsourcing to take advantage of lower wages overseas. This paper looks at this and another major trend in software development, agile development methodologies, to determine whether the practices of the most common agile methodology, extreme programming, can support offshore outsourcing. The paper concludes that while some practices are easily implemented, others require a great deal of consideration and may not be feasibly implemented at all. Offshore outsourcing can benefit from extreme programming practices by achieving higher visibility into the development process. INTRODUCTION Even as the IT world finds itself in a severe crisis with high unemployment rates, the second half of this decade may very well hold just the opposite: a severe lack of qualified software developers, database administrators, network administrators, and IT support staff. It has been estimated that by 2010, there will be a gap of 5.1 million skilled workers (Kaihla, 2003). This demographic trend is likely to hit software development companies particularly hard, as enrollments in computer science, engineering, and MIS programs have declined over the past years at the same time as eight of the ten fastest growing job occupations in the US are predicted to be information technology occupations, and three of these are in software development (Table 1). The last decade has been one of continuous and unrelenting global competition in the software industry. A growing lower wage and a highly skilled software engineering labor force in India and other Asian countries has precipitated shifts in software production from Europe and North America to Asia. In response to these challenges senior managers in European and North American software industries are adopting a variety of strategies to stay competitive. For example, some firms are outsourcing software development to India, the Philippines, Russia, and other countries with a skilled work force demanding lower wages (Ebert & Neve, 2001; Thibodeau, 2003). Simultaneously, software companies are faced with more rapidly changing business conditions and requirements to the software they are developing. To deal with this challenge, many software companies are investigating several new ways of organizing and conducting software Table 1: Ten fastest growing job occupations in the US. Employment numbers are in thousands (BLS, 2001). Occupation 2000 2010 Absolute change Percent change 1. Computer software engineers, applications 380 760 380 100 2. Computer support specialists 506 996 490 97 3. Computer software engineers, systems software 317 601 284 90 4. Network and computer systems administrators 229 416 187 82 5. Network systems and data communications analysts 119 211 92 77 6. Desktop publishers 38 63 25 67 7. Database administrators 106 176 70 66 8. Personal and home care aides 414 672 258 62 9. Computer systems analysts 431 689 258 60 10. Medical assistants 329 516 187 57 development, commonly referred to as agile methodologies (Fowler, 2003). One of the most popular of these methods is eXtreme Program- ming (XP) (Beck, 2000), in which a small team of co-located developers and customer representatives work intensively on rapidly developing a solution to a particular situation in the customer organization. The next section describes the history and reasons for offshore development, including some of the problems and opportunities com- panies experience when outsourcing to a foreign entity. Section 3 gives an overview of extreme programming, and section 4 shows how to combine the two trends to support agile development between on-shore and off-shore entities. Finally, section 5 provides a summary and conclusion as well as avenues for further research. OFFSHORE DEVELOPMENT When companies decide to move a portion of their development activities overseas, there are two main underlying reasons: cost savings and access to a larger labor pool (Carmel & Agarwal, 2001). In the current weak economy, the former appears to be the most prevalent reason for outsourcing work (Perez, 2003). It is estimated that compa- nies can save between 20 and 70% of the cost of developing software in the United States by outsourcing to India (Kling, 2003; Vijayan, 2003). So far, most outsourced work has gone to companies in India, where developers have a reputation for high quality work. Indian companies are increasingly competitive with American and European firms, but wages are starting to increase too, causing work to be shifted to former Eastern European countries such as Russia and Romania, as well as less developed Asian nations such as Philippines and China. A recent survey of 252 US IT managers showed that 38% are currently outsourcing IT work to India. The second most popular destination, China, was only used by 6% of respondents (Vijayan, 2003). When selecting a region for outsourcing, companies typically consider the following factors: • Language. The ability to communicate with workers at the outsourcing site is greatly increased with a common language. For US companies, the ability to communicate in English is a great asset when considering where to place outsourcing. Canada and Ireland naturally have an advantage on this point, but India has also gained a reputation for good English language skills among its developers. • Distance. The further separated the on-shore and off-shore sites are, the more difficult it is to visit physically. In some third-world countries, a poor infrastructure may further add to the travel time required to reach the site. Electronic communication may to some extent alleviate these distances, but time zone difference is also a barrier; when developers in India meet for work, their American counterparts will just be ready to leave, giving very little ability to communicate in real time by either phone or video conference. On the other hand, companies can also use time differences around the world in a “follow-the-sun” approach, where teams around the world package their day’s work and pass it on to the team eight time zones to the west that is just getting ready to meet for work. Having development centers in the US, India, and Europe can attain such a scheme (Carmel & Agarwal, 2001). 701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com 162"'! IDEA GROUP PUBLISHING This conference paper appears in the book, Innovations Through Information Technology, edited by Mehdi Khosrow-Pour. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.