Attached is the case study of Dark Energy Software. You are tasked with analyzing and evaluating the outsourcing practices of Dark Energy Software and determining how these practices resulted in the described outcomes and what, if anything, should have been done differently to improve these results.
You are expected to evaluate the case using cultural, geographical, legal and financial means where appropriate. Further evaluation of perceived, marketable and actual value of the product should also be considered.
Grading will consider the professionalism and depth of the assessment. Submissions should be in D2L dropbox no later than Tuesday, May 4th, 9:30 a.m. No late submissions will be accepted. Submissions should be in .doc, .docx, or .pdf format. Any illustrations or charts used for illustrations should be part of the document, not an attached document.
Assessment should follow this format and should include these sections:
Abstract/Introduction – This section should outline the case and explain why the case is being analyzed.
Main Body – This section includes the detailed analysis, comparisons and contrast and evaluation of the overall performance of the company’s endeavor as related to the case.
Conclusion – This section allows for the elaboration of proposed changes or identification of those ideas that were completed correctly.
References – As the title of the section states, this is for any references cited in the paper.
There is no minimal length expected for this assignment. However, grading will be commensurate with the depth of the assessment and the degree to which the information from the semester is applied. Any information not contained in the case study should be considered not available, including financial data and/or industry standards.
Dark Energy Software
Dark Energy Software is a Swedish SME, producing specialized software for the engineering domain. The company sells mass market software and develops customer specific software on a contract basis. China has recently become an important market for their products. Dark Energy Software has a very low staff turnover, less than 10% per year in its software division. Most of the people working in the software development department have been trained as engineers (2/3 of the staff) rather than professional software developers (1/3 of the staff) ; however, the proportion of software developers is increasing. In addition to developing software in the main office in Sweden, the company also develops software in its offices in Eastern Europe and the UK. These offices are wholly owned subsidiaries of Dark Energy Software.
While Dark Energy Software had some experience with global software development, the company had never engaged in outsourcing prior to the situation reported in the case described here.
Outsourcing to Zamunda
The initial decision to outsource to Zamunda was made in 2006 in a fairly ad-hoc way. Outsourcing software development appeared to offer access to a large pool of inexpensive software developers, which tempted Dark Energy Software because it had difficulty recruiting enough software developers in Sweden and already had experience with offshoring. Naïve cost comparisons were made. As one of the executives responsible for the decision said, “the Zamundan thing was part of… something in the air… I think we partly built up a rationale afterwards. I mean it was a sort of curve-fitting… It’s not that very structured.”
Dark Energy Software chose outsourcing to a large Zamundan consulting company. The choice was done based on the size (more than 5000 employees) and the perceived strong focus on quality, which was essential for the company as they had achieved certification and demonstrated compliance to several quality systems (CMMI level 5, ISO 9001:2000, TickIT, ISO 27001 and PCI-DSS 1.2). Three software development projects were included in the collaboration with a development team at the Zamundan consulting company, and Dark Energy Software was very satisfied with the employees of the outsourcing vendor at this stage. After working closely with the Swedish project team for a month, the Zamundan developers returned to Zamunda. Subsequently, the project manager in Sweden mediated the communication between the Zamundan and the Swedish developers. “I talk to them several times a day. I try to be available for them whenever they have questions…And if there is nothing, I’m always saying ‘Hello, how are you?’”
Despite this frequent communication with Zamunda, several problems started to emerge. Dark Energy Software was not obtaining the features or quality that was expected. All agreed that the primary reasons for these issues were related to knowledge and competence problems. The Dark Energy Software’s products represented a specialized engineering domain and were built using a complicated architectural framework. This complexity introduced challenges for the offshore developers because of a lack of domain knowledge.
Additionally, there were misunderstandings and gaps between the offshore and onshore staff. According to the developers in Sweden, the remote developers did not understand or use the coding
conventions that Dark Energy Software developers were used to. Furthermore, Dark Energy Software, with its stable and highly skilled workforce, generally uses informal communication and mutual adjustments during the development process, eschewing other more formal alternatives for achieving coordination. This approach was in stark contrast to the work practices at the offshore vendor where people were used to working under direct supervision, with extensive requirement documents exhaustively and definitively defining the functionality of the software to be developed. These differences in software development practices led to tensions and disappointments.
What made things even worse was turnover. One executive said: “We started out the work with individuals and they have this idea of having one programmer and taking ten from the street and hope that things work out.” People at Dark Energy Software felt that the high turnover among the employees of the outsourcing vendor meant that the offshore developers did not have sufficient time to acquire the needed skills related to the engineering domain and the complicated software architecture, which led to the low quality of the produced code. At the end of the outsourcing relationship, one executive came to recognize that the combination of domain knowledge and software development expertise together with strong interpersonal relationships was one of the company’s sources of competitive advantage. This fact was not considered when the decision was made to outsource development to the Zamundan consultant company.
To address these gaps, Dark Energy Software tried to make more complete specifications and to review and comment on the code developed in Zamunda to give the Zamundan developers feedback about how they could develop code that was more in line with the corporate goals and coding conventions. However, instead of improving the situation, this new approach resulted in considerably more work for the Swedish developers. One team leader commented: “Our people felt like they were spending basically all their time writing work orders and writing code for these guys through [email]”. In 2008, 2 years after initiating the offshore outsourcing relationship, Dark Energy Software made even more drastic changes to the project structure that it hoped would address the coordination problems and problems resulting from a lack of necessary knowledge. The lead developer from one of the teams in Zamunda was brought to work in Sweden and mediated further communication. From both observing her working in the Swedish team and from talking to her and the Swedish team it was clear that the Zamundan team lead quickly obtained the knowledge about the product and developed social ties with the Swedish team. Moving to Sweden seemed to allow her to direct the remote Zamundan developers more effectively.
While this change led to higher satisfaction with the outsourcing relationship, both developers and managers felt that the performance related to the software developed was still insufficient to justify continuing the relationship. The software developed by the outsourcing vendor was of low quality and thus of low value. Most of the code delivered by the offshore vendor over a period of 3 years was not used or had been removed from the final products. At the end of 2008, it became clear that the situation was untenable, and that the outsourcing relationship would have to be terminated. It was decided that the engagement with the Zamundan consultant company would continue for another year however reducing the number of Zamundans working on the projects and not starting any new projects. In 2009 the outsourcing activities were finally terminated.
Transition to Insourcing in China
After deciding to terminate the outsourcing relationship in 2008, the expansion of the Chinese office made switching to China an attractive alternative to the ending engagement with Zamunda. The executive from Dark Energy Software characterized China as a train that was steaming ahead, and it appeared natural to board this train and start doing development work in China instead. Similarly, to the other companies described here, Dark Energy Software approached the new relationship differently. The company incorporated the lessons learned from the failed offshoring attempt. By sending experienced engineers to China, the company facilitated the Chinese developer’s acquisition of the skills. Problems now could be solved onsite by the expatriates, which meant faster problem solving. This approach also allowed transferring more responsibility, and it became easier for Chinese to participate in virtual teams with the Swedish. The Chinese office soon experienced success stories.
Software development in China provided several other advantages such as access to a pool of highly qualified and relatively low-cost workers, in addition to an easier access to the Chinese marked which is important for Dark Energy Software. In China, the company managers aimed to hire highly competent and experienced software developers and, according to an executive, “have up to now been able to hire the top.. the top of the top people”, although the company estimates that, given the current management overhead associated with managing offshored projects (moving experts to China and a lot of travel from both sides, there are no significant staffing cost savings as compared to Sweden.
By controlling employment contracts, working conditions and compensations, Dark Energy Software was able to address some of the staff turnover issues that troubled the Zamundan outsourcing project. Retaining employees for longer periods also ensures that the company can gain a reasonable return on their investment in employee training. The Chinese developers are also offered attractive conditions ensuring low turnover, which made it possible for Dark Energy Software to plan how to further increase the competences of the experienced Chinese developers. This investment in training allows them to develop software for the company more effectively than the Zamundan team was able to.