MANAGING DISTRIBUTED TEAMS USING AGILE METHODS:

AN IMPLEMENTATION STRATEGY FOR REGULATED HEALTHCARE

SOFTWARE

by

Dylan Marks


PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION


In the Management of Technology Program
of the
Faculty
of
Business Administration


Dylan Marks, 2010
SIMON FRASER UNIVERSITY
Summer 2010


All rights reserved. However, in accordance with the Copyright Act of Canada, this work
may be reproduced, without authorization, under the conditions for Fair Dealing.
Therefore, limited reproduction of this work for the purposes of private study, research,
criticism, review and news reporting is likely to be in accordance with the law,
particularly if cited appropriately.



1
APPROVAL
Name: Dylan Marks
Degree: Master of Business Administration
Title of Project: Managing Distributed Teams Using Agile Methods: An
Implementation Strategy for Regulated Healthcare
Software
Supervisory Committee:
___________________________________________
Aidan Vining
Senior Supervisor
___________________________________________
Rick Colbourne
Second Reader


Date Approved: ___________________________________________




2
ABSTRACT
0mega is a small meuical softwaie company focusing mainly on highly customizeu
softwaie solutions aiounu patient communities, telemeuicine anu woikflow optimization.
The company has been in opeiation foi neaily 1u yeais, with many successful pioject
implementations, but has hau little giowth in this peiiou. A set of iecommenuations aie
establisheu foi setting up an offshoie team foi softwaie uevelopment, as well as moving
infiastiuctuie to the clouu to ueciease costs. An analysis of stiategy anu piocess ievision is
iequiieu to ensuie that this iisky tiansition is effective.
This papei will analyze iisks anu objectives in iegaius to moving to offshoie
uevelopment foi a poition of softwaie uevelopment. It will iuentify necessaiy coipoiate
stiuctuie, ioles anu piocesses to ensuie efficient uevelopment with viitual teams. It will
outline the use of 'agile' methouologies foi softwaie uevelopment in iegaius to offshoie
teams, as opposeu to tiauitional pioject management methouologies. In auuition, it will
establish an analysis of costs anu ietuin on investment foi moving to clouu foi seivei
hosting anu coipoiate IT infiastiuctuie

Keywords: software; development; operations; outsource; offshore; agile; lean; platform;
process; medical; compliance; cloud



3
DEDICATION
I ueuicate this pioject to my lovely wife, Caia.



4
ACKNOWLEDGEMENTS
Thanks to the staff anu faculty of the Segal uiauuate School of Business at Simon
Fiasei 0niveisity, anu to the amazing gioup of fellow stuuents that I hau the chance to leain
anu evolve with. Thanks as well to the executive team anu employees at '0mega' foi all of
theii suppoit.




5

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2.S.1 0mega's Platfoim Stiategy 16
2.S.2 Stiategic 0se of Technical Bebt 19
2.S.S 0sing Real 0ptions in Softwaie Bevelopment 22
2.S.4 Testing the Naiket with a Bioau Piouuct Poitfolio 24
2.S.S 0utsouicing anu Commouity Softwaie 26
2.S.6 Integiating Thiiu Paity Softwaie anu Seivices 27
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S.2.2 0sing an 0nshoie Nanagement Company S6
S.2.S 0ffshoie Employee Relationships S7
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S.S.1 Intellectual Piopeity Piotection S8
S.S.2 Softwaie Bevelopment in Bisciete Blocks with Inteifaces S9
S.S.S 0sing Spot Naikets foi Bisciete Bevelopment Tasks 4u
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S.4.1 0ppoitunism anu the Piisonei's Bilemma 41
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4.1.1 Aligning Incentive Stiuctuies 44
4.1.2 Cieating a Positive Woikplace anu Naintaining Talent 4S
4.1.S Seeuing the Relationship: Noues of Communication 47
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4.2.1 Inuia: A Technology Seivices Poweihouse 49
4.2.2 Cultuial Intelligence: An Analysis of Cultuial Biffeiences 49
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4.4.1 Replication Stiategies anu Knowleuge Nanagement SS
4.4.2 Tiaining New Employees S7
4.4.S Encouiaging a Cultuie of Bocumentation S8
4.4.4 Bocument Nanagement anu Compliance S9
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S.1.1 Agile Pioject Nanagement in a Regulateu Enviionment 62
S.1.2 Agile Pioject Nanagement with Bistiibuteu Teams 6S
S.1.S Baily Stanu-0p Neetings to Remove 0bstacles 6S
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S.2.1 The value of Tiacking velocity anu Cost 6S
S.2.2 Selecting the Pioject Nanagement Softwaie 66
S.2.S 0sing Pioject Nanagement Softwaie with FBA Compliance 68
S.2.4 Peei Reviews anu Quality Assuiance 69
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S.S.2 0ptimizing the Supply Chain: Installation anu Nigiation Sciipts 71
S.S.S Continuous Impiovement anu Technical Bebt 71
S.S.4 Retiospectives anu Impiovement 72
S.S.S Balancing Suppoit Tasks with New Bevelopment 72
S.S.6 Nultitasking anu the Pioject Poitfolio 7S
S.S.7 Pioject Nanagement Softwaie as a Kanban Tool 76
S.S.8 Waste anu 0nueiutilizeu Baiuwaie 76
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7
LIST OF FIGURES
Figure 1: Relative Costs of Software Lifecycle ............................................................................. 21
Figure 2: Balancing Development Costs During Life of Software Product ................................... 24
Figure 3: Modes of Communication in Increasing Effectiveness .................................................. 48
Figure 4: Formal Corporate Organization Structure ....................................................................... 53
Figure 5: Operational Project-Based Organization Structure ......................................................... 54
Figure 6: Cost of Context Switching on Multiple Projects ............................................................. 74
Figure 7: Operational Costs of Cloud Hosting vs. Traditional Stepped Costs ............................... 85




8
GLOSSARY
Agile A set of software development methodologies that minimize waste and increase
flexibility
ARRA-
HITECH
Health Information Technology for Economic and Clinical Health Act
Backlog Prioritized list of all future development tasks and software features
Bug A defect in software
CFRs Code of Federal Regulations
Distributed
Teams
Teams separated by geographical distance
EDMS Electronic Document Management Server
EMR Electronic Medical Record
FDA Federal Drug Administration
5:15s Short status updates sent by employees every week, taking 15 minutes to write
and 5 minutes to read.
HCIT Health Care Information Technology
HIPAA Health Information Portability and Accountability Act
Iteration A fixed interval of development that finishes with delivery of incremental value
to the customer, typically between 2-4 weeks in length. Also referred to as a
Sprint.
Offshoring Relocating a business process from one country to another
QA Quality Assurance
Real Options



9
Refactoring Changes to software that arent reflected in the external operation of the
software but help to improve maintainability and efficiency
SaaS Software-As-A-Service. Software hosted on a remote server that does not
require a user to install it locally
Scrum An agile project management methodology characterized by fixed iterations of
development and daily scrum meetings.
SharePoint Microsofts document management server (EDMS)
Sprint A fixed interval of development. See Iteration.
SOP Standard Operating Procedure
Technical
Debt
Equivalent to the future cost of software support and maintenance due to aging
or badly designed source code
TCO Total Cost of Ownership: includes the hidden costs and associated support costs
Unit Testing Automated tests used to validate software functionality. Used to ensure new
changes do not introduce defects elsewhere in the system
Whole
Product
Marketing strategy that attempts to meet all of the needs of customers so that
they do not need to go to competitors to meet this need
Waterfall Counterpoint to agile methodologies in software development, where
development proceeds in ordered stages with documentation and specifications
written completely before development begins




10
1: INTRODUCTION
0mega
1
is a small meuical softwaie company focusing on highly customizeu
softwaie solutions aiounu patient communities, telemeuicine anu woikflow optimization.
The company has been in opeiation foi neaily 1u yeais, with many successful pioject
implementations, but has hau little oveiall giowth in this peiiou.
The company has just iecently iestiuctuieu theii piouuct poitfolio anu establisheu
theii stiategic placement within the maiket. The company is encounteiing significant sales
oppoitunities but uoes not cuiiently have the peisonnel iesouices oi seivei infiastiuctuie
to meet uemanu. The company neeus to foimulate an implementation stiategy in oiuei to
scale quickly to match this uemanu, even though shoit-teim cash supply is low.
0mega has iequesteu an implementation stiategy foi setting up an offshoie
softwaie uevelopment team anu scaling the company with an outsouiceu infiastiuctuie. An
offshoie uevelopment team will woik alongsiue local softwaie engineeis to builu auuitional
functionality foi 0mega's healthcaie softwaie piouucts. Since the company has nevei useu
outsouiceu uevelopment foi ieseaich anu uevelopment, it neeus to establish new employee
ioles anu piocesses to ensuie pioject success. Being able to efficiently biing on new
uevelopeis, tiain them anu establish an effective pioject management methouology will be
ciitical foi the company's success.
A high peicentage of the company's costs centie aiounu the haiuwaie infiastiuctuie
0mega uses to builu solutions anu uelivei web-baseu seivices to its customeis. This

1
Note that the company name has been changed to protect confidentiality. Omega is not the name of a real
company and any similarities to another company are purely coincidental.



11
haiuwaie is mission-ciitical, but because of the company's small size, it is uifficult to builu
out a cost-effective infiastiuctuie without single points of failuie. 0utsouicing haiuwaie
infiastiuctuie to a 'clouu computing' enviionment will opeiationalize capital costs anu help
ensuie scalability anu stability.
Chaptei 2 ieviews 0mega's positioning within the healthcaie IT inuustiy. It will
uissect the stiategic uiiection of the company's piouuct poitfolio anu outline the auuitional
softwaie uevelopment neeueu to stiengthen theii competitive position. Chaptei S piesents
an implementation plan foi auuing an offshoie uevelopment team, incluuing contiactual
ielationships, incentive schemes, communication uifficulties anu hanuling uiffeient cultuial
contexts. Chaptei 4 uiscusses systems foi knowleuge management anu tiaining new
employees. The pioject will exploie stiategies foi successfully managing uistiibuteu teams
thiough agile methouologies in Chaptei S. This pioject will concluue with a uiscussion on
outsouicing the company's haiuwaie infiastiuctuie in oiuei to ueciease opeiational costs
anu minimize iisk.
Some of the piimaiy aieas auuiesseu in this papei aie:
Establishing a legal anu piofessional ielationship with an offshoie team
Ensuiing piopei incentive stiuctuies both inteinally anu foi the offshoie
team
Setting up a pioject management methouology that will ensuie ueliveiy of
piojects on scope anu on buuget
Stiuctuiing the oiganization with the iequiieu ioles anu uealing with
human iesouices change management
Navigating cultuial uiffeiences anu cooiuinating infoimation systems



12
Intiouucing agile softwaie uevelopment methouologies anu the use of lean
manufactuiing methous within infoimation technology
Analysis of uecieasing opeiational costs thiough outsouicing infiastiuctuie
to clouu seivices



13
2: CORPORATE AND INDUSTRY OVERVIEW
2.1 Omega: Company Background
0mega is a small meuical softwaie company with heauquaiteis in Phoenix, Aiizona.
The company offeis customizeu softwaie solutions focuseu aiounu patient communities,
telemeuicine anu clinical woikflow optimization. The company has been in opeiation foi
neaily ten yeais, with many successful pioject implementations anu until iecently has been
entiiely founuei-funueu without the neeu foi investoi capital. Although it has expeiienceu
peiious of moueiate oiganic giowth in the past, this giowth is minimal compaieu to the
oveiall inuustiy. Ten yeais is an extiaoiuinaiily long time in the context of the healthcaie
technology inuustiy. It has suiviveu thiough two technology inuustiy ciashes by keeping
costs low anu bootstiapping with ievenue fiom client piojects, but has not hau a cohesive
piouuct stiategy to cioss the chasm to mainstieam use.
0ntil iecently, 0mega has focuseu laigely on customizeu seivices anu solutions,
iequiiing uevelopment woik foi each new customei. Theie has been little focus in piouuct
offeiings, which has causeu uifficulties in uefining the maiket anu having a uiiecteu sales
appioach. In the last yeai, the company has iefineu anu simplifieu its piouuct poitfolio. This
has yielueu a significant inciease in business oppoitunities that iequiie impiovements on
theii softwaie. The meuical softwaie inuustiy is in a peiiou of intense change, anu 0mega
wishes to capitalize on its expeiience to gain maiket shaie.
The company is consiueiing tuining to an offshoie team foi a poition of its softwaie
uevelopment, as well as moving some of its infiastiuctuie to the clouu to ueciease costs.
These actions will help to ensuie that the company can expanu quickly anu meet the



14
giowing customei uemanu in the buigeoning healthcaie softwaie maiket. An analysis of
implementation stiategy anu piocess ievision is iequiieu to ensuie that this iisky tiansition
is effective.
2.2 The Healthcare Information Technology Industry
In oiuei to place this analysis in context, a biief oveiview of the cuiient healthcaie
infoimation technology (BCIT) inuustiy woulu be valuable. The 0S meuical softwaie
inuustiy is an emeiging fielu with a unique business lanuscape. Some of the piimaiy
featuies of the heteiogeneous 0S health caie system aie multiple insuiance pioviueis with
uiveiging billing iequiiements, competing hospitals with uispaiate IT infiastiuctuies, anu
little stanuaiuization to shaie patient health uata. A stiong uemanu foi softwaie solutions
will minimize these high auministiative costs. Because of the multituue of appioaches to
ueliveiing health caie that each hospital gioup takes, it is uifficult to piepaie softwaie that
specifically meets the neeus of all clients.
Neuical IT still has a long way to giow anu matuie. A stuuy by the 0S Bepaitment of
Bealth inuicateu "that one-quaitei of office-baseu physicians iepoit using fully oi paitially
electionic meuical iecoiu systems (ENR) in 2uuS, a S1% inciease fiom the 18.2% iepoiteu
in the 2uu1 suivey" (Buit, 2uuS). 0f that quaitei, fai fewei hau a fully implementeu EBR
system: "only 9.S% of physicians" (Buit, 2uuS) iepoiteu having the minimum baseline
numbei of featuies iequiieu foi a full ENR system. Although these numbeis aie likely much
highei, the maiket iemains unsatuiateu.
0mega must continue to innovate anu match the featuies of competitois in oiuei to
maintain ielevancy. The health caie IT maiket in 2u1u is highly tuibulent with many new
entiants. This is paitly uue to the 0bama healthcaie bill anu stimulus package that placeu a
laige amount of giant money on the table foi hospitals anu piactices to auopt electionic



15
meuical iecoiu (ENR) softwaie (uoluman, 2uu9). As of summei 2u1u, one listing online
showeu 292 ceitifieu ENR competitois (EBR Scope, 2u1u; EBR Scope, 2u1u). Nany othei
smallei healthcaie softwaie companies have not achieveu ceitification oi have built
solutions inteinally foi a single hospital.
This pioject will look at ways to ensuie 0mega stays aheau of the competition by
expanuing quickly, utilizing technical iesouices, anu utilizing effective pioject management
tactics to inciease the velocity anu ieliability of new uevelopment.
2.2.1 Compliance: FDA and HIPAA
A piimaiy factoi in selling softwaie in the healthcaie maiket is the iequiiements
aiounu secuiity anu best piactices enfoiceu by goveinment agencies. The 0niteu States
goveinment enfoices piivacy thiough the Bealth Infoimation Piivacy anu Accountability
Act (BIPAA) that uictates a set of iules to ensuie the piotection of patient uata, incluuing
iequiiements such as not senuing iuentifying uata thiough email. }ust iecently, the 0niteu
States goveinment has intiouuceu the ARRA - BITECB iegulations foi health caie
infoimation bieach notification. In the event of a bieach of patient health infoimation,
0mega woulu neeu to publicly iepoit anu notify eveiy affecteu inuiviuual. A bieach is
uefineu as "an impeimissible use oi uisclosuie unuei the Piivacy Rule that compiomises
the secuiity oi piivacy of the piotecteu health infoimation such that the use oi uisclosuie
poses a significant iisk of financial, ieputational, oi othei haim to the affecteu inuiviuual"
(BBS.gov, 2uu9). Such an event can uecisively uamage a company's ieputation within the
insulai woilu of healthcaie infoimation technology.
The company must also comply with iules foi softwaie uevelopment outlineu by the
Feueial Biug anu Alcohol (FBA) auministiation. 7>;:& !# +BI N(3; ## of the Coue of Feueial
Regulations pioviues guiuelines foi the use of electionic systems in the meuical inuustiy.



16
"Because of its complexity, the uevelopment piocess foi softwaie shoulu be even moie
tightly contiolleu than foi haiuwaie, in oiuei to pievent pioblems that cannot be easily
uetecteu latei in the uevelopment piocess" (FBA, 2uu2). This places a heavy buiuen of
papei tiails, auuits anu auministiative oveiheau to enfoice softwaie quality, but this
oveiheau helps to stabilize a highly complex inuustiy.
Although complying with these buiuensome iegulations can stifle innovation, theie
aie stiategic benefits to 0mega. The iegulatoiy iequiiements act as a baiiiei that helps to
ueciease the thieat of new entiants (Poitei, 1998, p. 1S). It signals to potential customeis
that the company is ieliable anu tiustwoithy, helping to uiffeientiate it fiom othei
competitois.
Inteinally, these iegulations push employees to act in a caieful anu secuie way in
oiuei to piotect piivate infoimation since "softwaie engineeiing neeus an even gieatei
level of manageiial sciutiny anu contiol than uoes haiuwaie engineeiing" (FBA, 2uu2). The
uocumentation iequiiements piompt the company to think in a iisk-awaie way. This papei
will auuiess these compliance iequiiements, since they influence 0mega's pioject
management methouology, appioach to infiastiuctuie outsouicing, anu use of uistiibuteu
uevelopment teams.
2.3 Strategic Factors for Firm Innovation
2.3.1 Omegas Platform Strategy
The company uses a platfoim-baseu appioach to ueliveiing softwaie. A single coue
base, the 0mega platfoim, acts as a staiting point foi all softwaie customizations. 0mega
uevelopeu this unifieu softwaie platfoim ovei the past 8 yeais, anu it now compiises tens of
thousanus of lines of coue with legacy featuies anu a long histoiy of implementation on



17
softwaie piojects. 0mega's business analysts use this platfoim to builu uispaiate softwaie
solutions incluuing:
1. Patient communities foi chionic uisease management
2. Tissue bank softwaie foi tiacking anu shipping specimens
S. Telemeuicine softwaie allowing iemote specialist physicians to ieview an
electionic meuical iecoiu anu use viueo confeiencing to consult with a
patient
4. Tiacking, notification anu paging solution to ensuie thioughput of patients
in testing anu suigeiy centies
In the past, 0mega customizeu each application foi the infoimation neeus anu
technical iequiiements of a paiticulai health oiganization oi uepaitment. As the company
initializes each new pioject, the softwaie engineeis look foi ways to geneialise anu abstiact
the featuies to auu them to the unueilying platfoim. This allows the company to use these
featuies in futuie solutions with minimal auuitional configuiation. The company uses
"iauical customizability oveilaiu onto a constant anu ieliable founuation, uiamatically
shoiteneu times to maiket, ielatively small piouuction iuns, anu an intense focus on
customei seivice" (Nooie, 1999, p. 12). Foi example, since the patient community anu
telemeuicine piouuct lines shaie the same coue base, it is tiivial to incluue the viueo
confeiencing mouule in a 'patient community' application, even though 0mega uiu not
initially uevelop the confeiencing mouule foi the patient community piouuct.
The iesult of this platfoim stiategy is highly complex anu inteiielateu coue.
Bevelopeis must maintain many legacy inteifaces to ensuie backwaius compatibility. Each
new featuie auueu to the softwaie takes much longei than it woulu if the company



18
uevelopeu a 'one-off' solution. Bevelopeis must abstiact each featuie with configuiation
settings anu auu them to the libiaiy.
This appioach helps to minimize the numbei of moving paits. 0nce the quality
assuiance team valiuates a new ielease of the platfoim with one application, uevelopeis can
quickly ioll it out to othei customeis without full iewoik. This spieaus the cost of
uevelopment acioss multiple piojects. By stanuaiuizing the unueilying coue acioss multiple
piouucts, the cost of ueliveiing customizeu seivices to a new customei uecieases.
The complex platfoim iequiies highly skilleu engineeis with an unueistanuing of
how the uiffeient pieces inteiact. Bevelopeis must maintain upgiaue sciipts to automate
moving between veisions of the platfoim, fuithei complicating the auuition of new featuies.
The company must ueuicate significant iesouices to tiain new uevelopeis in this complexity
while staying awaie of the iisk that employee tuinovei caiiies
0vei the past yeai, 0mega has stiategically iefocuseu by uecieasing the numbei of
seivices it offeis anu by maiketing uiiectly to specific submaikets in the healthcaie
inuustiy. The company is shifting towaius a piouuct-baseu stiategy iathei than a
customizeu seivice-baseu appioach wheie each customei ieceives a unique solution. Non-
customizeu softwaie "can be tianspoiteu anu ieplicateu at essentially zeio maiginal cost
anu its use by one paity uoes not piecluue use by anothei" (Kogut, 2uu1, p. 248). The
company hopes to sell moie of these non-customizeu piouucts with a lowei uevelopment
cost in oiuei to inciease sales anu ievenue. 0mega will continue to use its existing platfoim
stiategy with all of its piouucts sitting on top of a coie softwaie fiamewoik, but will attempt
to stanuaiuize offeiings to capitalize on economies of scale.
A majoiity of new softwaie solutions using the 0mega platfoim can be piepaieu
using business analysts iathei than piogiammeis. This allows 0mega to have a high iatio of



19
piojects to uevelopeis. At any one time, the company has 6-8 piojects in the active
uevelopment pipeline with only 2-S softwaie engineeis cuiiently on staff. Cuiient piojects
in the sales pipeline have a high level of customization iequiiing new softwaie
uevelopment. 0mega iequiies a laigei technical woikfoice to meet this uemanu, which
may be uifficult. The company faces a peiiou of low cash flow as it iestiuctuies its piouuct
poitfolio anu attempts to entei new piouuct aieas. This analysis will be looking at ways to
both ueciease cuiient infiastiuctuie costs as well as biing on moie uevelopeis to help
stiengthen the company's maiket position.
2.3.2 Strategic Use of Technical Debt
Befoie going into uetail on the implementation of an offshoie uevelopment team, a
fiamewoik neeus to be set up foi analysing cost of uevelopment anu coue quality. Coue
quality is both highly impoitant anu uifficult to measuie. Nanageis aie in the awkwaiu
position of only seeing the suiface of theii softwaie anu not the quality of the unueilying
coue. If the quality of the unueilying coue is low, it can intiouuce significant business iisks
anu liabilities.
A piece of softwaie might have a veiy nice visual uesign but coulu also have a hastily
planneu aichitectuie that will iesult in futuie maintenance heauaches. Issues uo not
become eviuent until much latei when bugs aiise anu uevelopeis neeu to woik on fixes anu
upuates to piouuction systems. The managei begins to notice scheuule uelays anu incieases
in iepoiteu uefects. Technical uebt is the hiuuen costs of futuie suppoit anu ieuevelopment
of legacy softwaie (Cunnigham, 1992).
This technical uebt is analogous to othei financial measuiements that affect the
piofitability of a company. In the same way that companies can ovei-leveiage iegulai uebt,



20
"uevelopment oiganizations let theii technical uebt get out of contiol anu spenu most of
theii futuie uevelopment effoit paying ciippling inteiest payments" (Atwoou, 2uu9).
Rushing softwaie uevelopment scheuules anu cutting coineis is equivalent to taking
a loan against the futuie value of the softwaie. Inexpeiienceu uevelopeis can make mistakes
in uesigning softwaie that will cause futuie maintenance pioblems. Complications pile up to
swamp a company in constant suppoit pioblems. 0ne loose metiic foi level of technical
uebt is 'Lines of Coue' (L0C). As the coue base becomes laigei, it becomes moie uifficult to
maintain. If manageis unueistanu the concept of technical uebt, they can effectively manage
it anu unueistanu its influence on fiim competitiveness (0'Connoi & Bowe, 2u1u).
0mega's platfoim has a legacy coue base of appioximately 2u,uuu lines of coue. The
company must be caieful not to take on too much technical uebt. 0mega faces the potential
of "a legacy coue base in which so much woik goes into keeping a piouuction system
iunning (i.e., 'seivicing the uebt') that theie is little time left ovei to auu new capabilities to
the system" (NcConnell, 2uu7). Naking this technical uebt visible to the executive helps to
ensuie a piopei uevelopment stiategy. 0sing pioject management softwaie that tiacks bugs
anu the time spent on maintenance helps to make this technical uebt visible. Latei sections
will uiscuss these pioject management tools foi quantifying technical uebt.




21

Figure 1: Relative Costs of Software Lifecycle

J5(-;&5 =3,% (Schach, 1999, p. 11)
When estimating the cost of new softwaie uevelopment, maintenance costs aie the
most uifficult to plan foi. Figuie 1 above shows ielatively how much of the cost of softwaie
uevelopment centies aiounu maintenance. When uevelopeis builu softwaie once in a
caieful, well-stiuctuieu way, business analysts can use it in othei solutions without
auuitional uevelopment woik. Whenevei auuing new featuies to the platfoim, 0mega must
ueuicate auuitional time to mouulaiizing it anu ensuiing compatibility with the fiamewoik.
This helps to ueciease maintenance costs, since futuie piouuct sales uo not iequiie
auuitional uevelopment.
Although uecieasing maintenance costs, upfiont uevelopment costs aie much highei
with a mouulai uesign. Bowevei, the fiim uiamatically uecieases inciemental (oi maiginal)
costs as it uses the softwaie in multiple solutions. In othei woius, the fiim is able to
capitalize on economies of scope, in that it is "less costly to combine two oi moie piouuct
lines in one fiim than to piouuce them sepaiately" (}C Panzai, 1981, p. 268). By
Naintenance,
67%
Requiiements,
7%
Besign , 6%
Piogiamming,
12%
Integiation, 8%



22
appioaching new softwaie uevelopment as the cieation of a piouuct, the maiginal costs
fiom uevelopment go uown with eveiy new sale.
The uownsiue of a long-teim stiategy is that by builuing new featuies anu piouucts
in a iobust mannei fiom the stait, the company saciifices flexibility anu speeu to maiket. In
ceitain situations, one can willingly take on technical uebt in oiuei to builu momentum oi
to be a fiist entiant to a new maiket. Baiu-coueu settings anu shoitcuts allow a piouuct to
get to maiket that much fastei: "Staitups can benefit by using technical uebt to expeiiment,
invest in piocess, anu inciease theii piouuct uevelopment leveiage" (Ries, 2uu9). The
executive team can knowingly take on technical uebt to invest in new maikets. The concept
of investing in new maikets takes us to a similai subject: the use of ieal options analysis foi
calculating the value of innovation.
2.3.3 Using Real Options in Software Development
In finance, ieal options analysis helps to quantify the value of flexibility. It is a set of
equations that "tieats flexibility in capital investment uecision-making as an option anu
values it as such" (Sullivan, 1999, p. 221). The tiauitional valuation of investments (such as
using net piesent value calculations) uoes not take into account the benefit of being able to
uefei uecisions until a futuie uate (Luehiman, 1998, p. 2). The concept of ieal options is
valuable foi quantifying the investment in softwaie uevelopment. Rathei than investing
fully in a new piouuct, uevelopeis can cieate a pioof of concept foi limiteu cost, with the
unueistanuing that they will likely neeu to iebuilu it in oiuei to sustain mass piouuction
anu long-teim use. This investment is analogous to the 'exeicise piice' of buying a Real
0ption in finance. The exeicise piice is the initial cost that gives the fiim flexibility to entei a
maiket in the futuie. Although using the actual quantitative calculations is not piactical in



23
uay-to-uay uecision-making, management can apply the concept on a psychological level to
accept the intiinsic volatility of the uevelopment piocess.
0sing a ieal options appioach to the piouuct ioaumap uefeis uecisions so that the
fiim can iesponu quickly to new maiket foices. In this way, new featuies on the ioaumap
aie not committeu to until the uevelopment team is ieauy to stait woiking on them.
Softwaie uevelopment is "laigely a piocess of uecision-making unuei unceitainty anu
incomplete knowleuge, incluuing thieats of competitive entiy" (Sullivan, 1999, p. 219). By
using a ieal options appioach, the company can iesponu fluiuly to changes in the maiket
anu customei neeus.
When uesigning foi the long-teim, it is not always easy foi the softwaie uevelopei to
foiesee how system iequiiements will change, anu thus "a mouulai stiuctuie that makes
one set of potential changes easy by localising theii impact might not localise the impacts of
changes that tuin out to be neeueu in piactice" (Sullivan, 1999, p. 2S4). This is anothei
ieason foi using pioof of concepts anu uefeiiing the uevelopment of mouulai stiuctuies
until a seconu sale. The figuie below compaies the appioach of builuing a shoitcut solution
with the upfiont costs of mouulaiizing a new featuie so that it can be useu in futuie
solutions with limiteu cost. 0mega takes a miuule giounu with the appioach of 'uefeiieu
mouulaiization', wheie the initial uevelopment is a pioof of concept to entei the maiket,
with mouulaiization only being applieu when the maiket has been testeu anu othei
customeis aie inteiesteu in the featuie.



24
Figure 2: Balancing Development Costs During Life of Software Product
A,431&) J4;8,3
This concept of using ieal options in softwaie uevelopment aligns closely with agile
pioject management. Chaptei S will uiscuss agile methouologies in moie uetail, but the
founuation concept is that teams shoulu bieak softwaie uevelopment uown into small
iteiations, since "when you use an eaily veision of some softwaie you ieally begin to
unueistanu what featuies aie valuable anu what paits aie not" (Fowlei N. , 2uuS). This ieal
options analysis is a staiting founuation foi the uiscussion of this appioach to pioject
management.
2.3.4 Testing the Market with a Broad Product Portfolio
The use of a ieal options stiategy foi piouuct uevelopment means that 0mega offeis
a veiy bioau yet shallow set of piouucts. By testing the maiket with a numbei of uiffeient
piouuct offeiings, the company can be highly flexible anu iesponu to the specific neeus of a
customei. It is also the founuation of a platfoim appioach to piouuct uevelopment. Since
the company bases each unique piouuct off a single platfoim, analysts can inteichange
u
2
4
6
8
1u
12
14
Fiist Sale Seconu Sale Thiiu Sale Ciossing Chasm Nass Piouuction
V
3
2
,
+

$
;

:
&
*
$
=
#

S=8*0# $; J280+ M#$1=-, I$'1
Shoitcut Solution Nouulaiization Befeiieu Nouulaiization



25
uiffeient featuies anu mouules specifically foi a customei's neeus. The customei can
choose fiom a wiue shopping list of available mouules, with unique uata collection foims foi
specializations such as neuiology, oncology, nuising, oi stioke.
0mega has a long list of featuies that it woulu like to offei on the platfoim. Since
each of the applications that the company sells uses the same platfoim, one can mix-anu-
match mouules uepenuing on business neeu. Foi example, one customei might upgiaue
theii patient iegistiy to incluue a viueo confeiencing mouule anu pagei notification system
foi emeigencies. Anothei customei might focus on tissue bank softwaie-, but still be able to
auu in the ability foi calenuaiing anu foi patients to log in anu check theii test iesults. By
having many mouules available, 0mega can pioviue a menu of possible choices to up sell to
theii existing customeis.
The 'Whole Piouuct' stiategy attempts to avoiu a customei neeuing to go to a
competitoi to fulfil iequiiements that the fiim's piouuct cannot meet (Nooie, 1999, p. 68).
By having a bioau iange of mouules available, as well as the ability to pioviue the complete
seivices to solve the customei's pioblems, one can stait to become the stanuaiu in the
maiket. The uifficulty in implementing a whole piouuct appioach is that it iequiies an
incieuible iange of functionality to be incluueu in the platfoim. As well, by offeiing
customizeu configuiations anu specializeu seivices foi each customei, the maiginal cost of
each softwaie sale is much highei than with tuinkey solutions that have no customization.
0mega's stiategy of testing the maiket with pioof of concepts is similai to
Niciosoft's appioach in eaily yeais: "Niciosoft's ielationship with ieal options is well
known, like the famous tiaue show wheie the Niciosoft stanu 'lookeu like a bazaai'" (Natts,
2uu7). Rathei than focus on one piouuct, Niciosoft heugeu its bets by offeiing a bioau aiiay
of possible piouucts that might become successful. This contiauicts the common wisuom in



26
iegaius to small companies, which iecommenus an intense focus on a single piouuct as a
'leau bowling pin' to establish a piesence in an inuustiy (Nooie, 1999, p. S9). The piimaiy
iequiiement foi success with this 'bazaai' appioach is finuing a way to exeicise entiy into
new maikets with a minimal upfiont investment. 0mega is able to use this ieal options
appioach because it can quickly builu specializeu applications foi niche maikets using the
company's platfoim.
Regaiuless of the speeu of uevelopment, puisuing such a stiategy iequiies extensive
technical iesouices. 0mega has ueciueu to establish an offshoie team to accommouate this
neeu. The next section will look at some of the possible piouuct impiovements that woulu
make the most sense foi an offshoie team to auuiess.
2.3.5 Outsourcing and Commodity Software
The open souice softwaie (0SS) movement is a piimaiy foice foi commouitization
in the softwaie maiket. This uisiuptive foice seives to unueimine the piofit maigins foi
non-open souice companies (Caiioll, 2uuS). Softwaie can become commouitizeu in the
same way as haiuwaie, anu "piices will fall to zeio oi neai zeio foi any kinu of stanuaiuizeu
piouuct" (Cusumano, 2uu8, p. 24). With infoimation-baseu piouucts such as softwaie, "the
fixeu costs of piouuction aie laige, but the vaiiable costs of iepiouuction aie small"
(Shapiio & vaiian, 1999, p. 21). This natuially pushes the piice of non-uiffeientiateu
softwaie towaius the cost of iepiouuction, which foi softwaie is veiy low: "the piouuceis
with no sales all have an incentive to unueicut the competition, anu theie is no natuial flooi
on piices except the $1 a copy iepiouuction costs" (vaiian, 199S, p. 1).
0mega uses a mix of customization seivices alongsiue stanuaiuizeu piouuct
offeiings to offset this foice of commouitization anu uiffeientiate itself fiom competitois. It
offeis all of its softwaie as a seivice (SaaS), so that customeis uo not neeu to install oi host



27
the haiuwaie themselves. This pioviues 0mega with ongoing ievenue fiom suppoit
contiacts, anu helps to uiffeientiate the company fiom competitois. By integiating seivices
anu piouucts, 0mega can avoiu commouitization as well as "geneiate new ievenues anu
piofits, even as the piouuct business ueclines" (Cusumano, 2uu8, p. 26). 0mega must finu
the piopei combination of stanuaiuizeu piouuct offeiings anu uiffeientiating seivices.
The tenuency towaius commouitization in the softwaie inuustiy is a uisiuptive
foice that coulu unueimine 0mega's ievenue. Yet it also allows 0mega to expanu the types
of seivices it offeis by integiating with thiiu paity commouitizeu softwaie. 0mega can
integiate with thiiu paity softwaie anu seivices eithei thiough stiategic paitneiships, oi by
integiating the souice coue with the iest of 0mega's platfoim. 0mega has leveiageu thiiu
paity paitnei seivices to offei featuies such as viueo confeiencing, cieuit caiu piocessing,
electionic meuication piesciiptions anu content management. As the numbei of
competitois offeiing these seivices giow, they tenu to become stanuaiuizeu. Foi instance,
with a laige numbei of uiffeient viueo confeiencing applications now available, they have
become "inteichangeable commouities" (Nuiuock, 2uu9) that 0mega can swap out
uepenuing on the customei. 0mega can ieach the goal of pioviuing a whole piouuct by
pulling togethei all of these uiffeient seivices anu packaging them up as a full solution foi a
customei.
2.3.6 Integrating Third Party Software and Services
0mega cannot always leveiage available open souice alteinatives when looking to
auu new featuies. 0ften usei agieement licenses tieu to open souice softwaie woulu not be
appiopiiate foi integiating into a commeicial piouuct. These licenses explicitly iequiie that
a company open souice theii own softwaie if they integiate with these packages. In othei



28
cases, the open souice packages aie not available in the Niciosoft-baseu piogiamming
language that 0mega uses.
Buplicating oi integiating open souice commouitizeu softwaie woulu be an
excellent canuiuate foi outsouicing since "outsouicing activities shoulu not be iuiosynciatic,
ciitical oi suiiounueu by too much unceitainty" (Baitholemy, 2uu1, p. 68). The outsouiceu
team woulu neeu a uefineu scope anu cleai bounuaiies of success. Bevelopeis can copy an
entiie piece of softwaie without actually copying a single line of the souice coue (Caiioll,
2uuS), thus not bieaking any intellectual piopeity constiaints. The following sections on
setting up the offshoie team will uiscuss mouels of outsouicing anu the question of
complexity in moie uepth.
Puichasing closeu-souice softwaie fiom thiiu paities is anothei potential way of
quickly auuing value to 0mega's platfoim. As with open souice softwaie, the most
impoitant ueciuing factoi of integiating with these thiiu paity packages is ensuiing that the
teims of use uo not cause uifficulties in the futuie. The best license foi puichasing souice
coue is a one-time upfiont fee with no iecuiiing licensing teims. 0theiwise, this legally
connects the two companies, anu any uevelopment on top of the thiiu paity souice coue
opens up the possibility of oppoitunism by the licensei.
Anothei uiawback of integiating thiiu paity solutions into 0mega's platfoim is that
integiation incieases technical uebt. Bevelopeis will neeu to uo a lot of woik to make suie
that the uiffeient coue bases inteiact cleanly anu uo not have any conflicts. Secuiity
analysis is also veiy impoitant to piotect patient piivacy. 0mega iecently integiateu an
open-souice blogging engine into theii platfoim, anu uevelopment costs weie highei than
expecteu because uiffeient mouules uiu not inteiact well togethei. Bevelopeis neeueu to
ieview thousanus of lines of coue to conuuct piopei uue uiligence. Integiating thiiu paity



29
softwaie can save huge amounts of uevelopment time in oiuei to offei a whole piouuct. Yet
0mega still faces a laige amount of uevelopment woik in oiuei to meet the entiie neeus of a
customei, iequiiing an effective implementation of stiategy.
This concluues the biief analysis of 0mega's stiategic positioning within the meuical
softwaie maiket anu its methou of ueliveiing value to customeis. This analysis outlineu the
value of using customizeu seivices to avoiu the uisiuptive foice of commouitization. It
uiscusseu the whole piouuct stiategy that attempts to meet the complete neeus of a
customei anu the use of a platfoim appioach to achieve economies of scale. It noteu the
auvantages anu uangeis of leveiaging technical uebt to test out a maiket. All of these
stiategic appioaches iequiie substantial technical iesouices. Cuiiently, 0mega uoes not
have enough uevelopeis to follow this stiategic uiiection. It neeus to finu a way to auu
moie employees while caiefully moueiating costs. The next chaptei will piesent an
implementation plan foi expanuing these technical iesouices with outsouicing anu a
uistiibuteu offshoie uevelopment team.







30
3: DECIDING BETWEEN OUTSOURCED CONTRACTS AND
VERTICAL INTEGRATION
In the next chapteis, we will look at the alteinatives foi outsouicing, the ways to
mitigate iisks involveu with an offshoie team, anu the appioaches foi successful
implementation of a uistiibuteu uevelopment team.
At the time of this analysis, 0mega's executive team hau alieauy ueciueu to tuin to
offshoie uevelopment to meet its giowing neeus foi technical iesouices. It will set up a
team baseu in a countiy with a lowei cost of living anu thus lowei laboui costs. The
company puisues this stiategy in oiuei to achieve economies of scale while keeping
opeiational costs low at a time when the company has high expectations foi giowth but
limiteu cuiient cash flow. The company is in the initial stages of setting up this team. This
analysis will not question the unueilying uecision to use an offshoie team, but will look at
some of the iisks involveu anu ways to mitigate them. The following section will look at the
piimaiy moues of coopeiation in outsouicing anu what legal aiiangement is most
appiopiiate foi uiffeient types of piojects. The company will continue to expanu technical
iesouices in the futuie, anu this analysis will help establish a fiamewoik foi choosing the
type of outsouicing ielationships.
3.1 The Hidden Costs of Outsourcing and Offshore Development
Expectations shoulu be set at the stait that cost savings foi offshoie uevelopment
will not ieflect the possibilities implieu on papei. At the outset of setting up an offshoie
team, executives might optimistically expect savings to match the uiffeience in laboui costs,
since a full-time equivalent in Inuia will cost aiounu 4u% less (Bavison, 2uuS). This



31
expectation uoes not take into account hiuuen costs. In ieality, "stuuies show that only
about half of IT outsouicing contiacts uelivei the piomiseu 2u-Su% cost saving"
(Kakabause, 2uu2, p. 189). A caieful stiuctuiing of the contiactual aiiangement as well as
the establishment of a stiong pioject management piocess will help ensuie that the
company can iealize some of the cost savings that offshoie uevelopment seems to offei.
Some of the hiuuen costs:
Communication costs: Language baiiieis anu lack of business context foi the
offshoie team can iesult in ueliveiy of softwaie that uoes not meet the
unueilying intent of specifications, iesulting in extensive iewoik.
Tempoial uelays: The offshoie team woiks opposite houis of the 0S team, so
any questions will cause uelays in iesolution.
Tiansaction costs: This incluues both the cost of legal fees anu the amount of
woik finuing a ieliable outsouicing paitnei.
Technical uebt: Pooily uesigneu softwaie accumulates uebt, in that the cost
of initial uevelopment might be low, but unexpecteu maintenance costs will
aiise. Any analysis of the value of outsouicing shoulu take into account this
hiuuen cost, which is equivalent to the futuie cost of maintenance anu
suppoit foi the piouuct.
Woiking with a team in a wiuely uiveigent time zone with uiffeient cultuial anu
technical woiluviews intiouuces significant iisk. It is uifficult to foiecast the tiue extent of
the hiuuen costs listeu above. This analysis will look at techniques anu stiategies to mitigate
this iisk.



32
3.1.1 Government Regulation and the Medical Industry
Compliance with goveinment iegulations compiises one unique cost associateu
with outsouicing in the meuical inuustiy. As a company following both BIPAA anu FBA
iequiiements, 0mega must make suie that the offshoie venuoi is willing to submit to auuits
anu "pioviue sufficient tianspaiency" (Bavison, 2uuS) in oiuei to comply with goveinment
iegulations. Consulting with a lawyei specializing in meuical law will be of utmost
impoitance heie.
Pait of the legal contiact with the outsouiceu venuoi shoulu auuiess patient piivacy
iequiiements, the impoitance of secuiity, anu the iequiiement that the offshoie team notify
theii management if they inauveitently encountei piivate health infoimation. 0mega
shoulu pioviue uocumenteu stanuaius of opeiation to the offshoie team. These stanuaius
shoulu focus on peimission levels to piouuction uata anu ensuie that uevelopeis uo not use
ieal patient infoimation in testing scenaiios. The section below on the pioject management
piocess will auuiess the tianspaiency iequiieu to meet these iegulations.
3.2 Deciding Between Contracts and Long Term Relationships
0ne of the piimaiy costs of using a uevelopment team in a uiffeient countiy is the
tiansaction cost of selecting a venuoi oi navigating the complicateu piocess of hiiing.
0mega's management has a stiong netwoik of coipoiate paitneis that it is leveiaging to
help finu an appiopiiate team anu pioviue auvice on meeting the legal iequiiements foi
contiacting teams in foieign countiies. Theie aie uiffeient possible mouels foi biinging on
an offshoie team, incluuing using a contiact-baseu consultancy company as inteimeuiaiy, oi
actually setting up an office in the countiy anu hiiing uiiectly.
In oiuei to ueiive value fiom the financial investment of hiiing an outsouiceu team,
one neeus to establish the legal founuation foi how the two oiganizations coopeiate. Theie



33
aie two main types of contiacts: fixeu piice contiacts anu time anu mateiial contiacts
(uopal & Sivaiamaktiishnan, 2uuS). In seaiching foi an offshoie venuoi, 0mega bioke this
uown into thiee alteinatives foi stiuctuiing the ielationship:
1. Establish pioject-baseu fixeu piice contiacts with an outsouicing company
2. Biie employees in the countiy using a pioxy onshoie management company
S. Biie employees in the countiy anu set up a company office uiiectly
The lattei two options aie effectively time anu mateiial contiacts, while the thiiu
option cieates a long-teim employee ielationship. The thiiu option is equivalent to the
veitical integiation of the company's supply chain. This employee ielationship helps to
align incentives with the contiacting fiim. Natuially, theie aie tiaue-offs between choosing
one of these mouels of coopeiation, anu the uecision of which appioach to use uepenus on
the type of woik that the fiim neeus to outsouice.
With fixeu piice contiacts, a laige pait of one's costs will centie on having to wiite
uetaileu specifications anu negotiating teims. The tiansaction costs become even highei
when factoiing in the cost of communication bieakuown, in the event the two paities
unueistanu the pioject iequiiements in uiffeient ways. This type of ielationship is most
effective with simple, stanuaiuizeu types of uevelopment that uo not iequiie extensive
tiaining of the outsouicing venuoi.
Conveisely, one can set up a iemote office in the countiy anu hiie the team as
employees. An employee ielationship is a moie integiateu, inteinalizeu appioach, but
iequiies moie woik at the onset to set up a legal ielationship in the countiy. This veitically
integiates the company iathei than outsouicing pait of the piouuct uevelopment. It will
iequiie negotiating the subtleties of the countiy's legal enviionment. 0nce establisheu



34
howevei, this appioach helps to uo away with the high tiansaction costs of pioject- anu
task-baseu contiacts.

F=,+$=#-01 E$3,#&-, Q0'&,2$3+K2" E$8"&3@ G#&3-KWX8"'$@00 Q0'&,2$3+K2"
Quick setup
Low stait-up up cost
Bigh opeiational costs
Best foi shoit-teim investment anu
commouitizeu tasks
Bigh stait up cost
Lowei opeiational cost
Requiies a highei investment anu
ties the company closely with the
chosen location.
Best foi long-teim investments anu
complex innovative uevelopment

3.2.1 Fixed Price Contract Relationships
0mega woiks with its own customeis in a contiactual, pioject-baseu appioach to
ueliveiing seivices. The company ueiives 8u% of ievenue fiom offeiing fixeu piice seivice
contiacts with its clients. The Phoenix-baseu team has extensive expeiience in ueveloping
uetaileu statements of woik foi client piojects. This might seem, on the suiface, the most
effective way to avoiu piice oveiiuns, since the paities agiee on piice at the stait of the
pioject. The pioblem with a piecemeal contiact appioach is that uefining the specifics of
new ieseaich anu uevelopment is extiemely uifficult. The venuoi cannot completely
unueistanu the extent of woik foi a ieseaich anu uevelopment pioject until woik has



35
staiteu. 0nce the uevelopment team begins to actually builu pioofs of concept, the tiue
effoit iequiieu staits to become cleai. This iesults in changes to scope anu cost oveiiuns.
A fixeu piice contiact attempts to shift all of the iisk to the outsouicing company.
Yet, theie is no alignment of incentives to ensuie that the thiiu paity uoes not cut coineis
anu uelivei the lowest possible uenominatoi in teims of quality of the output. 0sing an
inuepenuent outsouicing company opens up the possibility of oppoitunism, with this
inteimeuiaiy being the sole pioviuei of piouuction foi 0mega anu thus holuing all the
baigaining powei. 0ppoitunism is "any behavioui by a paity to a tiansaction uesigneu to
change the agieeu teims of a tiansaction to be moie in its favoui" (vining & ulobeiman,
1999, p. 646). 0ne piimaiy souice of oppoitunism with outsouicing is the hiuuen cost of
technical uebt. If the outsouicing venuoi uoes not have incentives aligneu with the long-
teim health of the company, then the outsouiceu uevelopeis might save time by not
uesigning maintainable softwaie.
With softwaie, especially 0mega's highly complex platfoim mouel, the quality of the
coie softwaie fiamewoik is of utmost impoitant foi futuie piojects. With a fixeu piice
contiact, the outsouiceu company will want to uelivei as fast as possible with as few
iesouices as possible. It uoes not neeu to think about on going maintenance anu suppoit of
the ueliveieu softwaie. This futuie cost of suppoit can often be fai highei than the oiiginal
uevelopment cost if the quality of the coue is low.
0mega has ueciueu not to use a contiact-baseu thiiu paity foi outsouicing
uevelopment foi the ieasons outlineu above. This seems to follow the tienu in the inuustiy,
since "the empiiical eviuence suppoits the iuea that piouuct complexity iaises the
piobability of inteinalization" (vining & ulobeiman, 1999, p. 647). Since 0mega iequiies



36
uevelopment on legacy softwaie with high complexity, an outsouiceu appioach woulu be
pioblematic, since the company will neeu to sink a lot of time into tiaining the venuoi.
Theie may be small uevelopment piojects to pass out to a thiiu paity with cleaily
uefineu paiameteis that will avoiu the constant cost oveiiuns that often come with
contiact-baseu uevelopment. The analysis will go into moie uetail in a following section on
the most effective way to use these spot-maiket contiacts.
3.2.2 Using an Onshore Management Company
Anothei appioach that is becoming moie populai is using a management company
with a team leau baseu in the 0S that holus an employee ielationship with the offshoie
office. These management companies have alieauy investeu in the legal costs of setting up a
legitimate business, often have a ueep unueistanuing of the cultuial anu language, anu have
hau expeiience with achieving piouuctivity out of a iemote team.
0sing a management company, one can benefit fiom the quick stait-up that a
contiact-baseu appioach offeis, since the management company has alieauy establisheu a
legal ielationship with the offshoie employees. 0ne can also benefit fiom the lowei
tiansaction costs of not having to piepaie a contiact foi each task. 0mega lacks
inteinational expeitise as well as contacts within the offshoie countiies, anu so woulu finu
value in an inteimeuiaiy that has expeiience hanuling the "cultuial, piofessional anu
opeiational complexities of managing ielationships acioss boiueis" (Nahnke, 2uu8, p. 64).
The management company can also begin to establish economies of scale as multiple
ueuicateu teams shaie the same office space anu infiastiuctuie in the offshoie countiy. By
using a 0S-baseu management company to hanule the employee ielationship, 0mega is able
to benefit fiom the stiongei legal piotection available in 0S coipoiate law. Since the



37
management company is locateu within the 0niteu States, it is liable foi bieach of any
nonuisclosuie agieements (NBA) anu contiacts.
The management company woulu benefit by taking a peicentage fee of the
employee wages foi the hanuling of the legal anu financial oveiheau of managing the
offshoie employees. 0ne way foi 0mega to align the management company with 0mega's
objectives woulu be to establish an equity ielationship. Setting up this type of a ielationship
uoes auu anothei layei of legal complexity to the aiiangement but is ciitical in oiuei to
haimonize the incentives of the managei anu 0mega.
The executive team pieviously negotiateu with a management company offeiing this
soit of ielationship. Bowevei, aftei a ieview of costs anu taking into account the
misalignment of incentives, it will insteau puisue an employee ielationship by hiiing a team
of uevelopeis uiiectly. 0mega was not willing to pait with the necessaiy amount of equity
iequiieu to ensuie that the management company hau sufficiently aligneu incentives to
make this appioach woithwhile.
3.2.3 Offshore Employee Relationships
Because of the high level of complexity in 0mega's piouuct uevelopment
iequiiements, a veitically integiateu employee ielationship seems to be the most viable
appioach. This appioach minimizes the level of oppoitunism, since "employees within
oiganizations have bettei anu moie numeious oppoitunities to 'pay back' (anu, theiefoie,
uiscouiage) oppoitunistic fellow employees" (vining & ulobeiman, 1999, p. 646).
By establishing a ueuicateu team in a closei ielationship, one can tiain moie ueeply
anu integiate the team as a bianch of the company. Since 0mega's softwaie fiamewoik is
highly complex with a laige amount of legacy coue, minimizing staff tuinovei will be
valuable foi maintaining efficiency. The piojects that 0mega will neeu woik completeu on



38
have a high level of asset specificity, anu "asset specificity anu auueu unceitainty pose
gieatei neeus foi coopeiative auaptation" (Williamson, 2uu8, p. 9). Long-teim ielationships
iesult in economies of leaining: "the benefits of the set-up costs can be iealizeu only so long
as the ielationship between the buyei anu sellei of the inteimeuiate piouuct is maintaineu"
(Williamson, 1979, p. 24u). Employees become moie efficient the longei they woik with the
company's softwaie.
Setting up something closei to an employee ielationship foi the offshoie team
woulu be beneficial foi this ieason. Legal costs piouuce the main ioaublock to using this
type of ielationship. 0mega has been foitunate to have a technology paitnei in its netwoik
with an establisheu office in Bangaloie, Inuia. This paitnei company has unueiutilizeu
office space, pioviuing Emeige NB with the oppoitunity to shaie iesouices. 0mega can
ient this space along with the seivices of the Inuian pioject managei to acceleiate the iate
of hiiing a team. This ielationship is the best of both woilus: the quick initiation of an
outsouiceu contiact with the long-teim stability of a peimanent employee.
3.3 Risk Analysis of Using Offshore Resources
3.3.1 Intellectual Property Protection
Since 0mega has a laige peicentage of value tieu up in softwaie assets, hanuing ovei
souice coue to an offshoie team is a uelicate issue. The company's softwaie is not unique
enough to piotect thiough legal patents. Insteau, 0mega ielies on 'hiuuen seciets' to
maintain competitive value. Bow uoes one make suie that the iemote team, opeiating
unuei a legal uomain wheie the company has no founuation, not simply walk away with the
souice coue anu sell it to a competitoi oi stait a competing ventuie. The offshoie gioup
coulu easily go out to theii own customeis to sell the softwaie anu 0mega woulu likely
nevei know about it.



39
0mega's competitive value compiises moie than the softwaie souice coue. 0mega's
capabilities aiise fiom its unique netwoik of clients, customeis anu inuustiy contacts that it
has built up ovei a uecaue in the inuustiy. The company's executive anu sales team boasts
meuical uoctois with extensive contacts, anu has a team of expeiienceu business analysts
who unueistanu how the inuustiy woiks. The company also has seivice agieements with a
vaiiety of majoi coipoiate paitneis anu hospitals that a potential competitoi cannot
iepiouuce with only the souice coue. Competitois can easily copy softwaie, but 0mega's
uistinct position within the healthcaie inuustiy netwoik offeis a much stiongei auvantage.
An attoiney specializing in offshoie outsouicing can pioviue a sufficiently aiitight
nonuisclosuie agieement. Bowevei, nonuisclosuie agieements aie uifficult to enfoice anu
challenging to piove without a piolongeu legal battle. The most effective way of minimizing
the thieat of IP theft is thiough pioviuing positive incentives to employees, such as offeiing
a small equity amount in the foim of stock options.
3.3.2 Software Development in Discrete Blocks with Interfaces
0ne appioach useu in the inuustiy to piotect intellectual piopeity is to bieak uown
piojects into uisciete blocks of functionality. 0nielateu teams woulu then uevelop each of
these blocks inuepenuently.
0ne company inteivieweu foi this papei split a pioject's scope up into inuepenuent
sections to ensuie no single outsouiceu venuoi hau access to the entiie souice coue
(anonymous, 2u1u). This woulu be a goou way to appioach a single use contiact
ielationship. Rathei than pioviuing the entiie coue base to woik with, the piouuct
uevelopment managei coulu give the offshoie team uisciete blocks of souice coue
specifically on the aiea of inteiest. Nanagement woulu pioviue the iest of the iefeienceu
coue libiaiies as compileu packages without oiiginal souice coue. By establishing set



40
inteifaces anu iules foi how these uisciete components inteiact, the outsouiceu team
woulu not neeu to have access to the full souice coue. This piotects the company's
intellectual piopeity.
This final integiation step can be extiaoiuinaiily complicateu anu uiawn out unless
the cooiuinatoi has caiefully uesigneu anu specifieu the inteifaces befoiehanu.
0nfoitunately, this appioach cieates much moie woik foi the local uevelopment team.
Befoie beginning a pioject, the local uevelopeis must ueuicate significant time to uesigning
aiitight inteifaces. They must wiite specifications with concise uesciiptions of all of the
iequiieu inteiactions. Aftei the outsouice team ueliveis on scope, the local team must then
integiate this woik into the iest of the platfoim anu iesolve any conflicts with the iest of the
coue. 0ften uifficulties aiise, as uevelopeis neeu to auapt the coue fiagment to fit effectively
with the iest of the softwaie.
Such a fiagmenteu appioach gieatly uecieases the ability of the company to auapt to
the changing maiket anu neeus of its customeis. 0pcoming sections of this papei will
intiouuce the concept of agile pioject management methouologies foi a moie efficient anu
integiateu way of woiking with the offshoie team. These methouologies uefei the amount
of upfiont uesign costs in oiuei to maintain flexibility. The company can uelivei with moie
agility when uevelopeis meige the outsouiceu coue into the main piouuct as quickly as
possible.
3.3.3 Using Spot Markets for Discrete Development Tasks
The inteiface appioach to uevelopment outlineu in the pievious section woulu woik
well foi shoit-teim contiacts, iathei than with an employee-ielationship baseu
aiiangement. The company has alieauy ueciueu to veitically integiate by hiiing offshoie
employees iathei than use contiacting. Bowevei, 0mega will continue to giow anu will



41
likely neeu flexibility to scale uepenuing on specific pioject iequiiements. Baving the ability
to balance both veitically integiateu anu outsouiceu uevelopment gives the company
auuitional flexibility.
Piouuct management can uo an occasional ieview of the piouuct ioaumap foi
possible uevelopment aieas that aie uisciete, stanualone mouules such as uesciibeu in the
pievious section. These mouules woulu be excellent canuiuates foi contiact-baseu
outsouicing when the company neeus to acceleiate ieseaich anu uevelopment without a
peimanent inciease in employees. A numbei of IT expeitise maiketplaces have gaineu
populaiity online, such as &:(.1&"1,%W '434"1,% (.5 ,5&?2"1,% (Siveis, 2u1u). These aie
essentially spot-maikets wheie a fiim can place a Request foi Pioposal anu have
inuepenuent consultants biu on it in an auction. As uiscusseu in pievious sections, the fiim
shoulu limit iequests to simple anu stiaightfoiwaiu piojects in oiuei to minimize the
"substantial costs of biuuing anu evaluating bius" (Snii, 2uuu, p. 2).
3.4 Managing Change while Preventing Opportunism
3.4.1 Opportunism and the Prisoners Dilemma
As the company auus new technical iesouices, management must look at ways of
minimizing oppoitunism, since "pioblems of asymmetiic infoimation aie common when
buyeis anu selleis have incomplete infoimation iegaiuing theii tiauing paitneis" (Snii,
2uuu).
The iemote team woulu likely piefei longei-teim piojects, to help minimize the
concein that the woik will uisappeai aftei the pioject is completeu. Small gianulai piojects
have no inuication of futuie woik so the team might ueciue to pau houis oi attempt to
expanu scope in oiuei to ensuie they continue to have woik. The executive team can
mitigate this thiough tianspaiency about the backlog of piojects that aie on the ioaumap



42
anu explain that once a pioject is finisheu theie aie many moie piojects waiting. Pioviuing
the iemote team visibility into the amount of woik penuing can pioviue extia motivation to
inciease uevelopment velocity.
Piomoting the possibility of futuie woik also uecieases the potential foi
oppoitunism. If the contiact is a single event with no futuie inteiaction, then the contiacteu
paities have less incentive to keep the teims, since theie is no futuie gain fiom coopeiating.
As in the Piisonei's Bilemma, the equilibiium point shifts towaius coopeiation when the
game is infinitely iepeating. The outsouiceu paities have moie incentive to coopeiate to
avoiu the possibility of ietaliation if theie is (at least) the possibility of futuie iounus of the
game (Axeliou, 1987, p. 8). Baving multiple (iteiateu) iounus of the game uecieases the
potential payoff foi selfish activity: "No mattei what the othei uoes, the selfish choice of
uefection yielus a highei payoff than coopeiation. But if both uefect, both uo woise than if
both hau coopeiateu" (Axeliou, 1987, p. S). Naking suie that the ielationship with the
offshoie team is equivalent to an iteiateu piisonei's uilemma will help minimize the chance
of oppoitunism.
Reputation is a majoi factoi in minimizing oppoitunism. If the aiiangement is
public to the softwaie inuustiy anu influential to otheis within the inuustiy, the paities will
want to ensuie that they uo not convey negative signals. This coulu affect theii ability to uo
futuie business in the inuustiy anu iesults in a social cost.
Peihaps the most effective way to minimize oppoitunism is simple iespect foi the
othei paity anu acting ieliably anu piofessionally. "When the ielationship between the
client anu its venuoi is auveisaiial, the venuoi will take auvantage of gaps in the
agieement" (Baitholemy, 2uu1, p. 66) anu possibly take auvantage of asymmetiic
infoimation. Nanageis can minimize oppoitunism by pioviuing basic iespect to employees



43
anu builuing positive teams. The following chaptei will look at ways to minimize
oppoitunism thioughout the fiim thiough positive incentive stiuctuies, builuing cohesive
teams, anu avoiuing communication uifficulties.



44
4: SETTING UP AND TRAINING THE OFFSHORE TEAM
The pievious chaptei lookeu at techniques anu appioaches foi stiuctuiing the
ielationship with the new team, incluuing ways of minimizing oppoitunism anu expanuing
iesouices when neeueu thiough spot-maiket contiacts. The analysis will now look moie
closely at the implementation plan, which iequiies a caieful look at piopei incentive
stiuctuies, ways of builuing a cohesive team, anu techniques foi tiaining the new team.
4.1.1 Aligning Incentive Structures
0mega neeus to establish incentive stiuctuies that will help motivate employees to
follow the company's stiategic goals. Nanagement has not yet useu iewaius systems to
motivate employees, even though "a cieative anu thoughtful ieview of the bases foi iewaius
can have a stiong impact on the peifoimance of an oiganization" (Stonich, 1981, p. S47).
Nanagement shoulu think about incentives anu builuing team cohesion with both the
cuiient local employees anu with the new offshoie team.
Employees often meet intense change with iesistance, anu might even subtly
unueimine oi sabotage an implementation that pushes them out of theii comfoit zones.
Nanagement must ensuie that any incentive scheme not only iewaius the shoit-teim
success of inuiviuual piojects, but also establishes incentive stiuctuies that ieflect the long-
teim company stiategy.
Pooily uesigneu incentive stiuctuies can actually haim the fiim by "hinueiing
effoits towaiu stiategic thinking anu oveiemphasizing shoit-iun iesults" (Stonich, 1981, p.
S48). Foi example, if a uevelopei only ieceives bonuses foi ueliveiing a pioject on time,
they might cut coineis that coulu iesult in seiious maintenance costs in the futuie. In this



45
iegaiu, management shoulu associate iewaius to both ieleasing a pioject on time anu to
metiics that tiack the numbei of suppoit issues on the pioject in futuie quaiteis. Bowevei,
such metiics aiounu technical uebt iely on iobust anu ieliable iepoiting that is uifficult
quantify. 0sing such metiics actually encouiages gaming the system iathei than woiking foi
the benefit of the company.
Rathei than inuiviuual bonuses foi specific uevelopeis, management shoulu iewaiu
the entiie team. "Agile piactices uon't encouiage heioism oi the inuiviuual uevelopei but
insteau focus on team accomplishments" (Spagnuolo, 2uu8), anu so iewaiuing a specific
membei might actually cause competitiveness anu unueimine the team cohesion. Since
0mega is a small company with little uivision between business units, the most effective
incentive scheme woulu be stock options that iewaiu employees foi the holistic success of
the entiie company.
4.1.2 Creating a Positive Workplace and Maintaining Talent
Even if employees show outwaiu compliance with an implementation, the woik
climate might begin to uevolve. 0utsouicing can cieate a negative climate foi employees
that aie affecteu by the change, since "theie no longei exists a suppoitive social contiact
between employei anu employee, cieating an enviionment of insecuiity anu limiteu
commitment to the woikplace" (Kakabause, 2uu2). 0sing an offshoie team at a uiastically
lowei cost can unueimine the moiale anu inciease the anxiety of the local employees.
Nanageis shoulu emphasize the value of all employees anu ieassuie them of theii
futuie with the company. Retaining talent is of utmost impoitance, anu management shoulu
stiive to builu a cultuie that embiaces anu piomotes these inuiviuuals. Nethous to offei
this feeuback incluue pioviuing the oppoitunity foi employees to ietiain anu evolve into



46
othei ioles, anu tieating employees as valuable team membeis iathei than as uisposable
iesouices.
Foi example, 0mega is moving to an outsouiceu haiuwaie infiastiuctuie. This
coulu cause consiueiable stiess foi the netwoik auministiatois who hanule the
maintenance anu suppoit of the existing infiastiuctuie. Bow uoes one incentivize
employees to woik effectively on a pioject that coulu possibly put them out of a job. In the
implementation of the clouu computing tiansition, manageis shoulu emphasize the oiganic
natuie of the netwoik auministiatoi iole. This iole will evolve to focus on maintaining the
online systems. This woulu leave these employees moie time to establish emeigency
piepaieuness plans oi optimize systems.
As a small company in a highly volatile inuustiy, 0mega iequiies employees to use
this sense of uigency to fuel a passion foi constant innovation. Nanagement "neeus to avoiu
uisplacing intiinsic motivation with extiinsic motivation" (Spolsky, 2u1u). If positive
incentives uo not iesult in peifoimance, ceitain employees that cannot embiace change
may neeu to be let go in oiuei to ietain a lean anu efficient fiim. Nanagement can inspiie
intiinsically motivateu employees by establishing a positive coipoiate cultuie anu
iespectful woikplace. Even if iestiuctuiing iemoves specific ioles, management can
iecognize the value of talenteu inuiviuuals anu ietain them.
This basic iespect extenus to the offshoie team as well. Nanagement anu employees
shoulu not tieat the offshoie team as tempoiaiy woikeis but as legitimate anu valuable
team membeis with the same access to incentives anu consequences as the iest of the local
team. As well, the company shoulu pay offshoie employees a comfoitable living wage.
As pait of the initial ielationship builuing between the two teams, a viitual
staffioom can be set up on the company ShaiePoint poital foi employees to post theii



47
photogiaphs, cieate conveisations anu establish ielationships. Nanagement will ask
eveiyone to post a PoweiPoint with peisonal infoimation about his oi hei family anu
histoiy. This can help cieate a collegial enviionment anu begin to builu team cohesion.
4.1.3 Seeding the Relationship: Modes of Communication
Biinging on an offshoie team intiouuces new tempoial anu cultuial complications.
Peihaps the laigest baiiiei to success with an offshoie team is the tempoial uifficulty of
woiking uuiing opposite business houis. Inuia is twelve anu a half houis aheau of 0mega's
main office in Phoenix anu so both teams will neeu to make some concessions to enable
open communication channels.
Team membeis must stiive to use the iichest moue of communication possible in
oiuei to builu team cohesion. Reseaich shows viueo communication as the most effective
moue of communication with uistiibuteu teams (Ehsan, 2uu8). Although email uiscussions
aie convenient, wiitten communication lacks the subtle physical cues of bouy language, anu
iichness of veibal connection that face-to-face conveisation pioviues.
Face-to-face meetings aie invaluable at the stait of the ielationship in oiuei to foim
a iappoit. Establishing a new viitual team with face-to-face inteiaction "cieate(s) a bonu
anu uevelop(s) agieements on how you aie going to woik togethei" (Fishei, 2uu1, p. SS). A
uistiibuteu team lacks the inteiactions that happen in the maigins of the woikuay, such as
lunchioom chats anu woikplace celebiations that cement bonus within the team.



48
Figure 3: Modes of Communication in Increasing Effectiveness

A,431&) J5(-;&5 =3,% +,12X43. J" W !FFY
Senuing leau manageis to the offshoie site auus to the hiuuen costs of outsouicing
that seives to unueicut the savings in laboui costs. Bowevei, this investment cieates ciucial
"oppoitunities to leain about one anothei anu 'humanize' co-woikeis at the uistiibuteu
sites" (Baviu, 2uu8, p. 1S8). It can actually save money in the enu, since "without uecent
peisonal ielationships it is likely that you will iun into pioblems uue to miscommunication
anu lack of tiust" (Fowlei N. , 2uu6). These bieakuowns in communication can ueiail
piojects anu iequiie a lot of time to ie-establish. 0mega shoulu ueuicate a buuget foi these
oppoitunities foi face-to-face contact.
4.2 Navigating the Offshore Cultural Context
0mega is consiueiing Inuia as a possible countiy foi the offshoie team. 0mega's
stiong anu tiustwoithy contacts in the inuustiy alieauy have softwaie teams woiking in
this countiy. By setting up a collocation stiuctuie, 0mega can leveiage this situation to help
setup the employee ielationship using the pie-existing office builuing anu human iesouices
stiuctuie.
Email
Conveisation
viueotape

Phone
Conveisation


viueo
Conveisation
Face-to-face
conveisation



49
This next section will pioviue a biief analysis of Inuia anu look at some possible
cultuial confusions anu ways to avoiu them, since "executives shoulu not assume that
cultuial alignment woulu be insignificant oi tiivial" (Bavison, 2uuS). Pioactively
anticipating cultuial uiffeiences by uecieasing communication baiiieis will be ciucial foi
success between home anu iemote teams.
4.2.1 India: A Technology Services Powerhouse
Inuia is the ue facto leauei in technology seivices outsouicing. With a poweiful
technology clustei, a positive political enviionment, anu a laige numbei of post-seconuaiy
institutions feeuing a skilleu woikfoice, Inuia has leveiageu a laige, euucateu English
speaking population to "become a majoi expoitei of infoimation technology seivices anu
softwaie woikeis" with 62% of uBP ueiiveu fiom seivices (CIA, 2u1u). Inuia offeis a laige
pool of expeiienceu piogiammeis uue to theii matuie technology clustei. These veteian
piogiammeis will be able to piouuce quality coue without 0mega having to pioviue basic
tiaining.
4.2.2 Cultural Intelligence: An Analysis of Cultural Differences
An unueistanuing of the cultuial anu political context of the offshoie team plays a
key iole in builuing a stiong iappoit anu a positive woik enviionment. This is iefeiieu to
as 'cultuial intelligence', which means biinging awaieness to inteiactions with othei
cultuies, establishing a set of skills that help to auapt to uncomfoitable situations, anu
"giauually ieshaping youi thinking to be moie sympathetic to othei cultuies" (Thomas,
2uu9, p. 1S). Noith Ameiican cultuie is much moie uiiect than South Asian cultuies anu so
being able to aujust behavioui will impiove this cioss-cultuial inteiaction. Foi instance,
one majoi cause foi communication gaps between Inuian anu 0S teams is the Inuian 'yes',
which is "a well-uocumenteu minu-set that leaus Inuians to ieauily agiee to a iequiiement



50
askeu foi by a 0.S. client, whethei theie is a iealistic chance of achieving it" (uibson, 2uu6).
The intention of this 'yes' is to please, iathei than to ueceive. Bowevei, when piojects
become late because of uniealistic expectations oi a lack of unueistanuing, this can become
a majoi obstacle to success.
Receiving feeuback fiom the iemote team will iequiie uiiectly asking foi it because
"uisagieement with a iespecteu peison is unthinkable" (Be Baai, 2uu7). Nanageis must
emphasize that uisagieements, ciitical feeuback anu seconu opinions aie valueu anu ciucial
to the company's giowth. Bo not simply accept a 'yes' fiom the iemote team, because "polite
acceptance is often a sign of an impoitant issue not getting uiscusseu" (Fowlei N. , 2uu6).
Insteau, specifically ask if they aie happy with the plan oi theii woik anu inquiie if they
might have any iueas to impiove on oi cieative solutions with which to appioach the
pioblem.
Anothei uiffeience is the comfoit with silence anu empty spaces in a conveisation.
Noith Ameiicans tieat silence as a sign of uiscomfoit, anu tiy to fill these gaps, wheieas
"people fiom Asian societies, wheie long silences in conveisations aie consiueieu noimal
anu acceptable as paiticipants ieflect on the topic, uo not iealize how ouu anu intimiuating
silence in this situation seems to many Westeineis" (Thomas, 2uu9, p. 12). Keeping this in
minu uuiing meetings will help ensuie that the opinions of the iemote team aie not
uiowneu out.
Nanageis shoulu not iely on these cultuial obseivations as iules oi stiategies, as
they aie geneializations. Such geneializations can emphasize iathei than biiuge uiffeience,
as they may not ieflect the inuiviuual at hanu. 0ften, such cultuial geneializations can
"establish a hieiaichical ielationship" anu legitimatize "sophisticateu steieotyping" (Baviu,
2uu8, p. 1S8). 0sing social awaieness is the best tool foi ueveloping methous that cieate



51
positive cultuial inteiactions. 0nueistanuing that cultuial uiffeiences will have an influence
ensuies communication uoes not bieak uown anu helps to maintain a positive anu
iespectful atmospheie as long as it uoes not oveishauow the inuiviuual on the othei enu.
4.3 Adding New Roles and Specialization
The next stage in setting up the offshoie team is ueciuing the makeup of employee
skills anu ioles. Reseaich shows an inciease in uevelopment anu velocity with cioss-
functional teams that minimize specialization (Foiu & Ranuolph, 1992). Each uevelopei
shoulu hanule all aieas of application uevelopment, incluuing woiking with the uatabase
tiei, application tiei anu fiont-enu. The team shoulu tiy to minimize excessive
specialization anu piomote cioss-functional abilities.
Specializeu ioles cieate moie uepenuency in the flow of woik. The application
uevelopei must wait foi the completion anu sign-off of the uatabase stiuctuie fiom the
uatabase auministiatoi befoie staiting woik, anu the testei must wait on all of the othei
team membeis to finish befoie staiting testing. This lengthens the uevelopment 'supply
chain' anu iesults in bottlenecks with some ioles having a laigei amount of woik foi a
paiticulai featuie implementation. "Inuiviuual coue owneiship anu knowleuge silos" can
cause significant uelays in piojects when a peison leaves a team oi is busy with othei woik
(Laiibee, 2uu9). The analysis will go into moie uepth on these issues in the chaptei on lean
uevelopment. Rathei than have sepaiate giaphic uesigneis, uatabase auministiatois,
application piogiammeis anu quality assuiance engineeis, the company shoulu look foi
moie expeiienceu employees that have abilities in all of these aieas.
As the company giows, it might consiuei filling specializeu positions in these
uiffeient aieas. Although each uevelopei shoulu be able to woik on all uevelopment aieas,
some amount of specialization in paiticulai technology woulu be valuable. Foi example, one



52
peison in each team might focus on giaphical usei inteifaces anu usei expeiience
optimization, wheieas anothei might be the specialist in wiiting automateu test
fiamewoiks. Bowevei, the team shoulu avoiu ovei-specialization in oiuei to minimize
bottlenecks anu single points of failuie with having only one employee able to peifoim a
ceitain task.




53

4.3.1 Organizational Structure and Coordination
The figuie below uisplays the pioposeu oiganizational stiuctuie of the company
with the auueu offshoie team.
Figure 4: Formal Corporate Organization Structure

A,431&) J4;8,3
In piactice, teams aie bioken uown in a moie flat stiuctuie baseu on piojects. In the
view of opeiations, one to two uevelopeis cooiuinate with a business analyst who acts as a
pioxy foi the customei anu a quality assuiance specialist.

Boaiu
CE0
Sales
Naiketing Leau
Customei
Relations
Sales Team
Buman
Resouices
Payioll
Financial
0fficei
Nanagei of
Piouuct
Bevelopment
Biiectoi of
Bevelopment
0ffshoie Team
Leau
Bevelopei
}unioi
Bevelopei
}unioi
Bevelopei
Quality
Assuiance
Fiont-Enu u0I
Bevelopei
Local Team
Leau
Bevelopei
}unioi
Bevelopei
Quality
Assuiance
Inteins
Leau Business
Analyst
Business
Analyst
Business
Analyst
Compliance
0fficei
Knowleuge
0fficei



54
Figure 5: Operational Project-Based Organization Structure

A,431&) J4;8,3
By using pioject-baseu teams such as shown in the opeiational oiganization
stiuctuie in the above figuie, uevelopeis can gain a ueep unueistanuing of iequiiements
anu have uiiect iesponsibility foi pioject success oi failuie. 0nfoitunately, it is iaie that a
uevelopei is able to focus on a single pioject. 0mega has a bioau pioject poitfolio, with
many piojects iunning simultaneously.
The piouuct managei hanules looking at the pioject poitfolio fiom a top-level view,
balancing stiategic input fiom the executive team with oveilapping ueaulines anu
iesouicing neeus. Nanaging the pioject poitfolio is one of the most complicateu paits of
cooiuinating the 0mega team. Analysts anu uevelopeis woik on multiple teams at once, anu
hanuling piioiities between all of these piojects is a constant balancing act.
A Biiectoi of Bevelopment that has extensive expeiience in softwaie aichitectuie
woulu be a valuable auuitional iole. As the team giows, the piouuct management anu
technical ioles will neeu to uiveige, with the piouuct managei focusing moie on stiategy
anu positioning in the maiket, anu the uiiectoi of uevelopment moie inteinally focuseu on
optimizing anu stabilizing the coue.
Pioject 1
Leau Bevelopei
Bevelopei 2
Business Analyst
Quality Assuiance
Testei
Pioject 2
Leau Bevelopei
Bevelopei S
Business Analyst 2
Quality Assuiance
Testei
Pioject S
Leau Bevelopei
Bevelopei 2
Business Analyst 2
Quality Assuiance
Testei



55
It woulu be valuable foi the offshoie team, to have a pioject managei iesponsible
foi motivating anu keeping the employees on tiack. As 0mega only plans to hiie foui
uevelopeis at the beginning, having a ueuicateu pioject managei may not be necessaiy.
Insteau, a leau uevelopei with pioject management expeiience coulu hanule managing
timelines alongsiue piogiamming. When 0mega auus a seconu gioup of uevelopeis in the
futuie, a pioject management iole woulu be valuable to piomote cooiuination anu
synchionous teams.
4.4 Knowledge Management and Training
4.4.1 Replication Strategies and Knowledge Management
0mega sells geneiic out-of-the-box softwaie piouucts as well as customizeu
business piocess solutions. Although it is woiking towaius piouuctizing its softwaie iathei
than uoing custom uevelopment foi each customei, theie is still a maiket foi offeiing
custom woikflow solutions. These tailoieu seivices iequiie skilleu consultants with
knowleuge of business piocess uesign as well as the technical skills to implement
functioning solutions. 0mega customizes each solution foi the infoimation neeus anu
technical iequiiements of a paiticulai health oiganization oi uepaitment. It ielies much
moie heavily on the use of iivalious human capital that incieases the maiginal cost of each
softwaie solution. Finuing ways to scale with the neeu foi skilleu human capital ievolves
aiounu being able to captuie anu tiansmit the company's leaining to new employees.
0ne bouy of ieseaich that might be useful to consiuei in 0mega's appioach to
knowleuge management is the concept of 'ieplication'. Replication, iefeiieu to as the
'NcBonalus appioach', "entails the cieation anu opeiation of a laige numbei of similai
outlets that uelivei a piouuct oi peifoim a seivice" (Wintei, 2uu1, p. 7Su). In oiuei to be
successful with this type of stiategy, the company must be able to package up anu



56
ciystallize the complete set of piocesses anu uocumentation that the company uses to
uelivei custom solutions to customeis. These piocesses anu uocument templates map out a
specific customei's woikflow. This piocess entails the company's coie capability anu
competitive auvantage. This is an impoitant consiueiation foi enabling the eventual sale of
the company, with an acquiiing company expecting piopei foimulizeu uocumentation in
oiuei to ietain 0mega's intiinsic value.
Although 0mega is fai fiom being at the point wheie it coulu ieplicate itself as a
chain oiganization, a look at some of the pioceuuies useu foi expansion by othei inuustiies
might seive as inspiiation foi its own knowleuge management anu piocess uevelopment.
Such chain oiganizations have masteieu the ability to foimulize anu pass on business
knowleuge to new gioups of employees. Scaling a company using this knowleuge iequiies
"the capability to iecieate complex, impeifectly unueistoou, anu paitly tacit piouuctive
piocesses in caiefully selecteu sites, with uiffeient human iesouices eveiy time, facing in
many cases iesistance fiom piouu, locally autonomous agents" (Wintei, 2uu1, p. 7S1).
0mega's matuiity in scoping anu woikflow uefinition uocumentation gives it a competitive
auvantage. Some of the specific tools that 0mega uses to help uefine a company's woikflow
incluue:
Contiol Bocument that lists specifics of all uata elements that the customei
neeus to collect
Stiuctuieu woikflow uiagiams showing the flow of patients oi activities
thioughout a hospital's clinical system
Systematizeu appioaches to inteiacting with the customei to uiive the
pioject foiwaiu in a timely mannei



57
Softwaie platfoim that allows non-uevelopeis to easily customize the
woikflow anu business logic baseu on a paiticulai customeis neeus
As uiscusseu pieviously, this use of systematizeu customization seivices helps to
counteiact the foice of commouitization in the softwaie inuustiy: "manageis neeu to think
about how to 'piouuctize' theii seivices so they can uelivei them moie efficiently"
(Cusumano, 2uu8, p. 26). This attention to anu constant ievision of the pioject management
piocess is one of 0mega's coie capabilities. Nanagement shoulu focus on this since
"piouuctivity tenus to inciease because of ieuuceu iewoik effoits anu moie attention to
piocess contiols" (Kiafcik, 1988, p. 47). By constantly iefining anu ciystallizing the
appioach to 0mega's softwaie platfoim, the company gets closei to ueliveiing softwaie at a
piouuctizeu cost with the piofit maigins available in the seivice-baseu inuustiy.
4.4.2 Training New Employees
New employees woulu have a uifficult time unueistanuing these tools without
tiaining anu piopei uocumentation. With an eye on this ieplication stiategy, new employee
tiaining shoulu be iefineu. When a new employee has uifficulty unueistanuing how to
accomplish a task, this signals that the tiainei shoulu expanu oi claiify the uocumentation
mateiials. These uiagiams anu stiuctuieu uocuments only ueiive theii benefit if new
employees unueistanu how to use them anu can actually leveiage them.
Auuing a new employee iequiies a numbei of steps to configuie theii enviionment.
Foi 0mega to maintain iapiu giowth by auuing employees, a checklist shoulu be piepaieu
with all of the necessaiy pioceuuies foi initializing an employee.
0sing an offshoie team to assist the local analysts will help with this ability to scale.
Local analysts can be co-locateu with the customei, able to walk the halls of the hospital anu
cleaily unueistanu customei neeu. With a set of well-stiuctuieu uocuments uesciibing



58
these customei neeus, the analyst can then hanu off a uefineu package to the offshoie team
that will cieate the functioning application.
Buman iesouice knowleuge entails a laige pait of the company's coie capabilities.
The meuical softwaie inuustiy is complex, anu piepaiing a customizeu solution foi an
0mega client iequiies an unueistanuing of theii softwaie platfoim. Replicating anu
tiansmitting this knowleuge becomes a ciucial piioiity foi auequately tiaining new
employees. Rathei than having this tacit knowleuge in the heau of a single expeiienceu
employee, the team shoulu stiive to couify anu soliuify it with actively maintaineu
uocumentation.
4.4.3 Encouraging a Culture of Documentation
Economies of leaining play a majoi iole in the efficiency of the fiim. Natuially, moie
expeiienceu piogiammeis in the company can piouuce applications at least twice as fast as
newei employees. With theii unueistanuing of the platfoim, they aie able to ieuse coue
libiaiies anu avoiu futuie suppoit costs by builuing well-uesigneu applications. Tianslating
these abilities to new employees becomes a ciitical initiative, as employee tuinovei is
financially anu manageiially expensive. A cultuie of uocumentation anu the establishment
of a libiaiy of uetaileu tiaining iesouices will help captuie the ueiiveu value fiom this
leaining.
Expeiienceu employees shoulu highlight anu coiiect any inauequacies in the
tiaining mateiials when new team membeis ask questions oi expiess confusion. This will
keep tiaining mateiials living uocuments that ieflect the tianspaiency of the company anu
the oiganic natuie of the inuustiy. Wiki softwaie, an example of a living uocument, can help
oiganize the communication that noimally gets lost in email coiiesponuence, since "wikis
aie by natuie unstiuctuieu, anu this lack of stiuctuie is pait of the benefit" (Fowlei N. ,



59
2uu6). Baving usei-fiienuly anu simple softwaie such as a wiki will minimize the fiiction
iequiieu to upuate anu euit pioject anu company knowleuge. Wikis can tiack the numbei of
specific changes that each employee has maue each uay, anu management can consiuei
tying this to bonuses oi othei iecognition. Nanagement can enuoise this methou of
knowleuge tiansfei by cultivating a coipoiate cultuie that celebiates uocumentation.
4.4.4 Document Management and Compliance
Theie is a final impoitant value in having a well-stiuctuieu knowleuge management
stiategy: FBA compliance. The company neeus to have stanuaiu opeiation pioceuuies that
"pioviue foi system valiuation, uevelopment anu ueploying systems accoiuing to a foimal
methouology, physical anu logical secuiity, backup anu iecoveiy, system opeiations, staff
tiaining, change contiol, contingency planning, anu use of puichaseu systems" (uiunbaum,
2uu2, p. 2). The pioceuuies listeu in the quote above coulu be actual folueis within the
compliance section of the site.
Twice pei yeai, the company shoulu scheuule a compliance ieview to iuentify any
gaps anu uo an inteinal auuit. Naintaining compliance is an ongoing task, anu has value
outsiue of the legal iequiiements. It is essential foi iuentifying anu then minimizing iisk as
well as ensuiing that customeis' piivate health infoimation is secuie. This is paiticulaily
impoitant foi 0mega uuiing this time of iapiu change anu giowth: the auuition of new
management systems, an offshoie team, anu the tiansition to clouu baseu computing.
0mega neeus to iefine its piocesses foi managing piojects anu piouucing softwaie
in oiuei to ensuie compliance with iegulations in the meuical inuustiy. The following
chaptei will piesent some pioject management methouologies to make the uevelopment
team moie efficient as well as intiouuce tools that can help biing tianspaiency to the
oiganization thiough minimizing waste.



60




61
5: INTRODUCING AGILE PROJECT MANAGEMENT AND LEAN
METHODOLOGIES
A gioup of softwaie engineeis intiouuceu the 'Agile Nanifesto' to the softwaie
inuustiy in 2uu1 aftei becoming fiustiateu with the amount of wasteu iesouices iesulting
fiom tiying to uo tiauitional upfiont uesign in a complex anu changing enviionment
(agilemanifesto.oig, 2uu1). This manifesto auopts the lean manufactuiing concepts
inventeu foi the Toyota Piouuction System anu tianslates them to softwaie uevelopment
(Poppenuieck & Poppenuieck, 2uuS, p. S). Agile acts as a counteipoint to the buieauciatic
'wateifall' engineeiing methouology wheie in-uepth planning anu specifications aie lockeu
uown befoie any uevelopment can begin. Softwaie uevelopment is a much moie cieative
piocess than tiauitional engineeiing wheie "cieative piocesses aie not easily planneu, anu
so pieuictability may well be an impossible taiget" (Fowlei N. , 2uuS).
The Agile Nanifesto aigues foi
1. Inuiviuuals anu inteiactions ovei piocesses anu tools
2. Woiking softwaie ovei compiehensive uocumentation
S. Customei collaboiation ovei contiact negotiation
4. Responuing to change ovei following a plan
0mega will intiouuce a paiticulai implementation of agile calleu Scium. Scium
teams woik on piouucing ueliveiable value in shoit blocks of time, typically two-week
iteiations oi spiints. The goal is to ueciease the amount of uelay between stiategic
uecisions anu uevelopment, since "Scium helps a company to compete by focusing the team
on the highest-value client iequiiements" (Woouwaiu & Suiuek, 2u1u, p. 1u). The uefining



62
featuie of Scium fiom othei methouologies is the iteiative natuie: with the team planning
togethei in a constant feeuback ciicle, "mouifying its appioach uaily as it encounteis new
complexities, uifficulties anu suipiises" (Schwabei, 2uu4, p. 6).
This chaptei will begin with an analysis of using Scium anu the challenges in using
this methouology with a uistiibuteu team in a iegulateu enviionment. An analysis of
available pioject management softwaie will finalize with a iecommenuation of a specific
tool neeueu to manage uistiibuteu teams. It will then look at some of the causes of waste in
softwaie uevelopment by uiawing analogies to 'lean' manufactuiing methous populaiizeu
by Toyota.
5.1.1 Agile Project Management in a Regulated Environment
The FBA "wants cleai-cut uocumentation that shows that you have a piocess, that
you follow it, anu that the piocess will piouuce a quality piouuct" (}acquette, 2uu1). They
state that specifications must be pieueteimineu anu cleaily uocumenteu. This auheies
most closely to tiauitional wateifall softwaie uevelopment, anu appeais to contiauict the
use of agile (Naulei, 2uu7).
0ne common misconception of agile uevelopment is that it uoes away with
uocumentation completely. The business analyst will neeu to piepaie a lot of the same
uocumentation that tiauitional wateifall pioject management conuones, "incluuing a woik
plan, iequiiements specifications, uesign uocumentation, a test plan, anu system test
sciipts" (}acquette, 2uu1). The uiffeience is that team membeis cieate only the cuiiently
neeueu uocumentation uuiing the iteiation iathei than all at once at the stait of a pioject.



63
5.1.2 Agile Project Management with Distributed Teams
The fact that 0mega plans to set up an employee ielationship with the offshoie team
will help with auopting agile. 0ne auvantage of using a ueuicateu team iathei than fixeu
piice contiacts is that "you can woik in agile moue anu be much moie flexible in iegaius to
methouologies" (Kostukova, 2uu9). Team membeis uo not neeu to fully uetail anu sign off
on iequiiements specifications any woik begins. Insteau, the team can stay flexible anu
evolve the iequiiements as woik piogiesses.
0mega has alieauy set up a numbei of tools that make uistiibuteu teams possible
anu focus on accountability, incluuing:
1. Employees woik on iemote uesktops iathei than locally installeu softwaie
2. Secuie instant messaging seivei showing when team membeis aie online
S. ShaiePoint poital foi electionic shaiing of pioject uocuments anu technical
uocumentation
4. Beuicateu teleconfeience line
The team will neeu to supplement these tools with auuitional technology anu
piocesses to cooiuinate with the iemote uevelopeis.
5.1.3 Daily Stand-Up Meetings to Remove Obstacles
In oiuei to ensuie piopei goveinance anu keep piojects moving in the iight
uiiection, management will neeu to communicate iegulaily with the offshoie team. The
pioject management team will begin using uaily scium meetings. These meetings shoulu be
shoit anu concise, with a fixeu time limit of 1S minutes. This piactice follows a piimaiy
iecommenuation of the Scium methouology: "biief, to-the-point communication that looks
foi ways to iemove obstacles anu move the team foiwaiu thiough pioject execution"



64
(Woouwaiu & Suiuek, 2u1u, p. 1S). These stanu-ups shoulu piompt each employee to
answei the following questions:
1. What have I accomplisheu since last meeting.
2. What am I woiking on next.
S. Is theie anything blocking me fiom accomplishing this woik.
This meeting pioviues two majoi values: it keeps the lines of communication open
to piomote team suppoit anu cohesion, anu it pushes foiwaiu momentum by focusing on
accountability. It piompts each employee to say what they have accomplisheu in the
pievious uay anu ie-focuses what they aie woiking on next. This acts as a way to holu
employees to theii woiu as any misseu goals become immeuiately obvious.
With the offshoie team only being available in opposite houis of the uay, having the
stanu-up meeting with all employees acioss the oiganization woulu not be viable on a uaily
basis. Nany oiganizations using Scium in a uistiibuteu team finu that uistiibuting the
answeis to the thiee stanu-up questions in wiitten foim at the stait of each uay saves time
uuiing the viueoconfeience meeting, since it helpeu "impiove communication anu ieuuce
misunueistanuings uue to cultuial anu uistance baiiieis" (Sutheilanu & viktoiov, 2uu6).
Technical leaus fiom each of the uistiibuteu teams will holu a "Scium of Sciums"
(Woouwaiu & Suiuek, 2u1u, p. 1S) cooiuinateu in off houis that will highlight any issues
that might be blocking the offshoie team. This check-in meeting will help biiuge the gap
between the local anu iemote teams to ensuie cooiuination of goals.
5.2 Adopting Agile Project Management Software
The Agile Nanifesto encouiages "inuiviuuals anu inteiactions ovei piocesses anu
tools" (agilemanifesto.oig, 2uu1). Nany agile teacheis aigue against intiouucing new



65
softwaie at the stait of an agile auoption (Langi, 2u1u). When intiouucing the piocess, it is
best to use simple physical whiteboaius, pieces of papei, anu uiiect inteiaction between
team membeis to uiive the pioject management piocess, iathei than being uistiacteu with
complicateu softwaie. Bowevei, uue to the uistiibuteu natuie of 0mega's company piofile
the team neeus online softwaie to cooiuinate peisonnel, since "high velocity complex
piojects neeu an automateu tool to tiack status acioss teams anu geogiaphies" (Sutheilanu
& viktoiov, 2uu6, p. S). The next section will uiscuss the value of tiacking softwaie, followeu
by a biief compaiison of uiffeient tools anu a final iecommenuation of a specific softwaie
solution.
5.2.1 The Value of Tracking Velocity and Cost
0ntil this point, 0mega has not collecteu cleai metiics showing how much time each
employee spenus on a specific pioject. The inteinal cost bieakuown foi each softwaie sale
is uifficult to quantify, since most employees aie woiking on multiple applications at once.
Not enough uata is available to measuie which piojects have hau a ietuin on investment.
The company cannot focus on one pioject at a time since each pioject goes thiough natuial
latent peiious while waiting foi feeuback fiom clients oi foi input fiom membeis of the
team. Linking uevelopment costs to the ievenue foi specific piouuct lines has not been
possible until this point. A following section on managing the pioject poitfolio will fuithei
auuiess this issue of multitasking piojects.
Pieviously, employees pioviueu a status oveiview in the foim of a weekly status
iepoit ueliveieu to manageis eveiy Fiiuay. This status iepoit, calleu a 'S:1S', takes five
minutes to ieau anu fifteen minutes to wiite. It lists the piojects that an employee woikeu
on, an estimate of the peicentage of the week spent on each pioject, anu uetails on how they



66
accomplisheu tasks. Employees senu these weekly status upuates by email anu thus aie not
stoieu in a uatabase so that the executive team can tiack anu tienu velocity ovei time.
These status upuates compiise the piimaiy way foi employees to convey impoitant
pioject infoimation to the executive, anu have woikeu well with the small team size wheie
infoimal face-to-face communication can fill any infoimation gaps. These S:1Ss aie simple
to wiite anu useful because they uelivei a concise summaiy of pioject statuses. A full
pioject management tool woulu moie effectively tiack piogiess. Baving a moie
compiehensive time tiacking system will encouiage gieatei communication anu
collaboiation between uevelopeis, uissuauing them fiom uisappeaiing into theii own
woikspace foi the entiie week until the final check-in.
A pioject management tiacking system that foices employees to quantify time spent
on specific tasks will help establish a set of metiics that can tie the costs of goous solu with
the actual ievenue of a specific pioject. Employees have expiesseu iesistance in the past
with explicitly tiack how much time they spenu on vaiious tasks. In oiuei to gain
acceptance foi the use of gianulai time tiacking, management shoulu convey that they uo
not want this tiacking to oveily contiol employees oi iemove spontaneity anu cieativity
fiom theii jobs. Nanagement can emphasize that the company neeus to tiack the amount of
time spent on tasks in oiuei to effectively piice futuie piojects anu see that ievenue
exceeus costs.
5.2.2 Selecting the Project Management Software
0mega wants to minimize the amount of locally installeu anu suppoiteu softwaie
within theii enviionment. 0ne pait of this goal is finuing a pioject management system that
employees will not neeu to install on uesktops. A laige numbei of available pioject
management solutions focus on agile uevelopment anu aie hosteu seivices that uo not



67
iequiie local install. Befoie this analysis, 0mega useu a customizeu ShaiePoint site to
manage tasks anu application uefects. Although effective in keeping a histoiy of changes foi
FBA compliance, this site hau limiteu utility in pioviuing a view of pioject velocity anu
status. To fill this iequiiement, 0mega neeus a moie effective pioject management tool.
Although a laige numbei of piouucts aie available, focusing on agile uevelopment
tools naiioweu the selection uown to foui main choices: Z>3(, [&3?>,.$.&W N>C,;(: 73(12&3
anu 7(3'&;N3,1&??. All have similai positive ieviews online anu matching featuie sets. As
pait of this pioject, the wiitei ievieweu anu extensively piloteu each of these piouucts anu
examineu otheis available.
7(3'&;N3,1&?? ieceiveu positive iatings, but lackeu iesponsiveness, which woulu
have maue the tool unpleasant to use. N>C,;(: 73(12&3 was an effective tool anu hau no
licensing feeu. Bowevei, it lackeu the uepth of featuies to hanule multiple piojects anu
integiate with the company's ecosystem.
Nanagement selecteu [&3?>,.$.& foi an in-uepth pilot with othei team membeis
baseu on a iecommenuation fiom a colleague in a majoi accounting company. It coulu
hanule multiple simultaneous piojects anu hau a plugin ecosystem to woik alongsiue
0mega's uevelopment softwaie. In oiuei to intiouuce the change giauually, the
uevelopment team staiteu using it alongsiue the existing ShaiePoint PN tool to test it in
ieal-woilu use. 0nce key membeis became familiai with the tool, management expanueu
use to the whole team on a single pioject. In this limiteu pilot pioject, both uevelopeis anu
analysts useu it to tiack tasks anu assign bugs anu issues. Beficiencies in using the tool foi
suppoit anu bug tiacking became eviuent. Even though 0mega alieauy puichaseu two usei
licenses, it uefeiieu puichasing licenses foi the entiie company. Nanagement wiote these
licenses off as a sunk cost, anu the company migiateu to anothei inuustiy leauei in pioject



68
management calleu Z>3(. This softwaie package inteiopeiates with othei valuable tools
such as a wiki foi uocumentation, coue ieview softwaie foi ieviewing uevelopei woik, anu
hosting of souice contiol.
5.2.3 Using Project Management Software with FDA Compliance
In oiuei to use Z>3( in compliance with the FBA's iecommenuations in !# +BI N(3;
##, the company's compliance officei must veiify the softwaie foi piopei functionality. The
compliance officei will piepaie a checklist of functionality foi the softwaie, anu stoie this
checklist in 0mega's secuie compliance foluei. The company will also neeu to mouify the
softwaie to ensuie that employees cannot uelete oi mouify pievious auuit histoiy. This is
to ceitify the "authenticity, integiity, anu, when appiopiiate, the confiuentiality of electionic
iecoius, anu to ensuie that the signei cannot ieauily iepuuiate the signeu iecoiu as not
genuine" (FBA, 1997).
The compliance officei will neeu to peifoim some mouifications to the initial
installation of Z>3(, incluuing auuing a veiification step to the woikflow of issue tiacking anu
iesolution. Rathei than simply maiking an issue as iesolveu, uevelopeis will maik the issue
as 'Penuing Fixeu'. Quality Assuiance will then uo a veiification check. This check becomes
pait of the auuit log of changes ovei time that the company iequiies foi FBA compliance.
0mega uses an electionic uocument management system (ShaiePoint) foi
maintaining all of the necessaiy compliance uocumentation uuiing the uevelopment of its
meuical softwaie. This system has alieauy been configuieu foi the "piotection of iecoius to
enable theii accuiate anu ieauy ietiieval thioughout the iecoius ietention peiiou" in
accoiuance with !# +BI N(3; ## (FBA, 2uu2).



69
5.2.4 Peer Reviews and Quality Assurance
To help minimize the majoi iisk of auuing multiple new employees at the same time
on the offshoie team, management shoulu set up a coue ieview woikflow. Bevelopeis
maintain souice coue in souice contiol softwaie that maintains a histoiy of changes ovei
time. The offshoie team will be woiking on a sepaiate uevelopment bianch in souice
contiol. Aftei each check-in, the expeiienceu local uevelopeis will ieview the coue anu
pioviue feeuback. This ieview will likely highlight aieas foi optimization oi point out
secuiity flaws that the company shoulu auuiess. Coue ieviews aie valuable foi uecieasing
anu avoiuing technical uebt, by catching any issues befoie they can entei piouuction
systems.
Coue ieviews aie also valuable foi FBA compliance. A uevelopei tiiggeis a woikflow
notification whenevei checking in new coue to the souice contiol system. Anothei
uevelopei woulu then ieview this checkeu in coue to tiy to finu any possible issues oi
secuiity weaknesses. When a ieviewei signs off on these changes, it cieates the auuit tiail
that FBA compliance iequiies. In oiuei to comply with FBA iequiiements, "testing shoulu
occui thioughout the entiie lifecycle of the pioject" (}acquette, 2uu1) anu shoulu incluue
uocumentation that this testing has occuiieu.
0nfoitunately, peei ieviews cost money in teims of oppoitunity costs. Reseaich
shows that this shoit teim cost iesults in bettei softwaie quality, lowei iisk, anu moie
ieliable ielease scheuules in the long teim (Fagan, 1976) anu that "the eailiei a uefect is
founu in a piouuct, the cheapei it is to fix it" (Cockbuin & Williams, 2uuu, p. S).
These ieviews will help the local expeiienceu uevelopeis tiain the iemote team anu
maintain coue quality. They will likely neeu to iequest changes to match the coue stanuaius
of the company. 0nce the new offshoie team gains expeiience with the stanuaius, they can



70
ieview each othei's woik in oiuei to ueciease the buiuen on the technical leaus anu take
auvantage of local time zones foi fast feeuback. Baving uevelopeis check each othei's woik
will also help builu cioss-functional anu self-uisciplineu teams.
5.3 Lean Methodologies in Software Development
The softwaie inuustiy has auopteu the concept of 'lean' fiom the manufactuiing
inuustiy, wheie Toyota intiouuceu lean manufactuiing with its Toyota Piouuction System.
This system founu ways to eliminate waste thiough iefining piocesses, minimizing woik in
piocess, anu uecieasing the stoiage of inventoiy (Kiafcik, 1988). The following sections
will uiaw analogies to these foims of waste within the softwaie uevelopment piocess.
5.3.1 The Product Backlog: Aligning Business Objectives with Development
The heait of the uevelopment piocess in an agile methouology is the piouuct
backlog. This piioiitizeu list of all possible auuitions, impiovements anu uefects, cieates a
place to accumulate all iueas foi new piouuct uevelopment. This list piomotes innovation
by builuing a piouuct ioaumap anu piioiitizing R&B stiategy. The piouuct backlog in Z>3( is
soitable, with the highei piioiity items consistently shuffleu to the top of the list so that the
team always knows what to woik on next. Piioiities can be set foi a single pioject oi acioss
the entiie company poitfolio. In oiuei foi the uevelopment team to piogiess in a uiiection
following coipoiate stiategy, the executive team shoulu sit uown with the leau uevelopment
managei at least once a month to ieview the piouuct backlog to piioiitize anu oiuei.
0ne of Toyota's piimaiy ways of ieuucing waste in manufactuiing is to minimize the
amount of inventoiy piouuceu anu stoieu. This iuea is ielevant in the softwaie inuustiy as
well, since "ongoing uevelopment piojects aie just like inventoiy sitting aiounu a factoiy"
(Poppenuieck & Poppenuieck, 2uuS, p. 2). In the softwaie inuustiy, the uevelopment team



71
can maximize customei value by only builuing things a customei actually neeus. Builuing
unnecessaiy featuies is equivalent to oveipiouuction in manufactuiing anu iesults in waste.
The piouuct backlog stoieu in 0mega's pioject management softwaie helps to synchionize
coipoiate stiategy with actual uevelopment timelines.
5.3.2 Optimizing the Supply Chain: Installation and Migration Scripts
The uevelopment team can inciease opeiational efficiency by using as much
automation as possible. Bevelopeis neeu to be able to setup anu install new applications
fiom 0mega's platfoim with minimal woik. 0ne of the new offshoie uevelopeis shoulu
focus on iefining the installation anu migiation sciipts that cieate new instances of 0mega's
softwaie. The company can ueiive enoimous gains in piouuctivity by being able to geneiate
new veisions of an application anu move between uevelopment anu piouuction
enviionments.
5.3.3 Continuous Improvement and Technical Debt
Agile uevelopment auvocates constant impiovement. Piogiammeis iefei to
continuous impiovement of the coue as iefactoiing, wheie they iestiuctuie the softwaie to
inciease maintainability. It is "a uisciplineu way to clean up coue that minimizes the chance
of intiouucing bugs" (Fowlei & Beck, 1999, p. xvi). This woik usually uoes not iesult in any
exteiioi changes to the softwaie, othei than peifoimance, yet will iesult in lowei suppoit
costs in the futuie.
Refactoiing can pay uown technical uebt. Nanagement shoulu not neglect
uevelopment tasks that help ieuuce technical uebt anu iesolve inefficiencies in the
unueilying softwaie. Buiing uevelopment, sometimes uevelopeis neeu to take shoitcuts in
uevelopment to meet tight ueaulines. Whenevei consciously cutting coineis, uevelopeis
shoulu cieate new backlog tasks in the pioject management tool to iecoiu ways of



72
coiiecting these shoitcuts in the futuie. "Tasks neeueu to pay off that uebt aie enteieu into
the system along with an estimateu effoit anu scheuule" (NcConnell, 2uu7) wheie these
backlog tasks become visible anu the team can piioiitize them against new featuie
uevelopment. Recoiuing these impiovement tasks uuiing initial woik also helps to
uocument why uevelopeis maue ceitain uecisions in softwaie uesign.
5.3.4 Retrospectives and Improvement
In oiuei to avoiu iepeating mistakes the team will paiticipate in ietiospective
meetings at the completion of each spiint: "At iegulai inteivals, the team ieflects on how to
become moie effective, then tunes anu aujusts its behavioui accoiuingly"
(agilemanifesto.oig, 2uu1). At the enu of each spiint, the entiie pioject team sits uown to
uiscuss how the spiint piogiesseu, what causeu pioblems, positive outcomes, anu
impiovements foi next time. The managei shoulu encouiage each team membei to vocalize
theii opinions anu by going aiounu the ioom anu asking each peison to say something. The
uistiibuteu team shoulu use viueo confeiencing uuiing these ietiospectives as a stiuctuieu
time to builu cohesion.
Theie is often a tenuency to bypass these ietiospectives with constant time
piessuies anu ueaulines, but these uiscussions aie ciucial. Looking foi ways to iefiame the
ietiospectives by vaiying the foimat of the ietiospective can be helpful to ensuie it is
piouuctive (Beiby, 2u1u).
5.3.5 Balancing Support Tasks with New Development
0ne obstacle in auopting fixeu two-week spiint scheuules is balancing the piessuies
of unplanneu suppoit anu maintenance iequests with new featuie uevelopment. The
company must auuiess suppoit iequests in a timely mannei to ensuie excellent customei
seivice. 0mega maintains a policy of ensuiing as few bugs on piouuction systems as



73
possible. Piouuction issues take immeuiate piioiity ovei new featuie uevelopment. As well,
customeis might finu issues that coulu compiomise usability anu stability of uata. The
initial theoiy foi hanuling suppoit was to have the local uevelopei team take caie of
suppoit tasks. Bowevei, this will likely cause a bottleneck, anu miss "the sense of
iesponsibility the team has foi a system that it not only uevelops but also maintainsthe
team is acutely awaie of the impact of getting things wiong" (Watts, 2uu8). Without the
offshoie team expeiiencing the negative consequences of low quality coue that iesult in
suppoit iequests, they aie not able to leain fiom mistakes anu finu ways of incieasing coue
quality anu uecieasing technical uebt (Baitholemy, 2uu1).
Since the suppoit team will neeu to ueal with issues immeuiately, they cannot
commit to two-week iteiations aheau of time. The uevelopment managei can swap
membeis of the suppoit team eveiy two weeks to ensuie each peison has the oppoitunity
to woik on new uevelopment. Noving new uevelopeis in anu out of suppoit ioles cioss-
tiains them so that they gain a ueepei unueistanuing of the entiie softwaie platfoim.
5.3.6 Multitasking and the Project Portfolio
Changing contexts between uiffeient piojects causes a loss in piouuctivity.
Nultitasking "is the act of stopping a task befoie it is completeu anu shifting to something
else; in softwaie uevelopment the teim "thiashing" is often useu to uesciibe this piactice"
(Fox, 2uu7). This becomes an issue because employees spenu moie time shifting contexts
than they uo actually completing woik (Pipei, 2uuS).
In the past, 0mega caiiieu at least 6-8 active piojects simultaneously with six
business analysts shaiing the iesouices of two uevelopeis. Analysts compete foi uevelopei
attention with bug fixes anu uevelopment tasks being the ciitical path foi pioject
completion. Piojects often enu up sitting at 9u% complete as management pulls uevelopeis



74
to woik on othei tasks. Toyota saw this as a souice of waste in theii piouuct uevelopment
methouology (Poppenuieck & Poppenuieck, 2uuS, p. 2). The figuie below illustiates the
cost of switching between multiple piojects.
Figure 6: Cost of Context Switching on Multiple Projects

A,431&) (5(-;&5 =3,% I,'&3 03,G.W !F#F"
0ne majoi cost of multitasking piojects is hanuling the synchionization of bug fixes
fiom one pioject to anothei. When a uevelopei fixes a bug in one pioject, she will neeu to
meige this fix ovei to the othei piojects that have the same coue veision. The time spent
hanuling this coue meiging incieases foi eveiy active pioject iunning. With one active
pioject at a time, these coue upuates only neeu to happen at the stait of the new pioject,
iathei than constantly synchionizing veisions between the piojects. 0mega uevelopeis
iepoit that hanuling this constant meiging piocess consumes appioximately 1S-2u% of
theii uevelopment time.
Implementing a stiict limit on the numbei of active piojects will iequiie a
significant change in management policies. Such a change will uiamatically affect company
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75
sales cycles anu appioaches to inteiacting with clients. Nanagement shoulu avoiu special
piojects that uefiay fiom the long-teim stiategic ioaumap: "keep youi piojects small,
focuseu anu attainable" (Pipei, 2uuS). This way the uevelopment team can quickly ielease
veisions to a customei anu shift quickly to a new pioject. Sales executives shoulu only sell
featuies that aie alieauy available in the company's piouuct offeiing iathei than offeiing to
uo custom iequests foi a single customei.
Boing two week fixeu iteiations foices the executive team to piioiitize anu focus on
the most impoitant tasks. It intiouuces iigoui by piotecting uevelopeis fiom uistiacting
tasks such as cieating uemo sites foi sales people oi hanuling supeifluous iequests fiom
panickeu customeis. When teams woik on single piojects at a time, the uuiation of piojects
become easiei to foiecast. As well, it allows the company to focus on stiategic 'technology
push' uevelopment insteau of always following the whim of customeis in a maiket pull
appioach, since "both maiket neeu anu technical infoimation aie iequiieu foi an inventive
iuea to be synthesizeu" (voss, 1984, p. 147). In oiuei to uelivei both what the maiket
iequiies (maiket pull) as well as invent new maikets (technology push) the company neeus
to balance both.
0ntil this point, 0mega piimaiily iesponueu to maiket pull, which ueliveis on what
a customei wants to pay foi. Bowevei, the company also neeus to tuin uown customeis
that woulu uistiact fiom puisuing the most piofitable business. 0mega can minimize this
thiashing using fixeu iteiations, minimizing the woik in piocess anu establishing a soliu
piouuct ioaumap. If new piojects iequiie extensive uevelopei iesouices, management
shoulu evaluate them in teims of the oppoitunity cost that uiaws away fiom moie
stiategically appiopiiate anu financially soliu piouuct uevelopment.



76
5.3.7 Project Management Software as a Kanban Tool
0ne system useu in manufactuiing to limit multitasking is the use of 'Kanban', which
is a set of visual inuicatois to uiive woikflow. Z>3( has the equivalent of a Kanban boaiu
built into its pioject management softwaie. The Kanban boaiu visually iepiesents uiffeient
pioject tasks in a spiint as caius aiiangeu in columns. The left column lists tasks anu usei
stoiies waiting foi implementation. As a uevelopei begins woiking on something new, she
uiags the task fiom the left column into a miuule column to maik it as active. This staits the
timei tiacking how much time a task takes to complete. When the uevelopei finishes a task,
she uiags the caiu to the 'Completeu' column on the iight siue.
This Kanban boaiu gives a quick visual inuication to the uistiibuteu team what tasks
aie active. "Any pioject oi pait of a pioject you aie woiking on but is not complete woulu
be inventoiy" (Nillei, 2uu6), anu uecieasing the amount of outstanuing inventoiy helps
pievent waste. This boaiu limits the numbei of task caius that can be in the miuule active
column. This uissuaues uevelopeis fiom beginning a task anu leaving it incomplete, anu is
an effective tool foi minimizing woik-in-piocess, a cential tenet to lean methouologies.
5.3.8 Waste and Underutilized Hardware
Anothei foim of waste within the company is the numbei of unueiutilizeu seiveis
that the company must maintain, upgiaue anu seivice. These seiveis, especially testing
seiveis, typically sit iule foi a laige pait of the uay anu night. In manufactuiing, maintaining
inventoiy is the laigest souice of waste, anu "in softwaie uevelopment the analogy to
inventoiy is excessive haiuwaie" (Wengei, 2uu8). A solution to this unueiutilization is the
tiansition to clouu baseu computing, wheie the company outsouices seivei hosting to
poweiful thiiu paity giiu computeis that scale uepenuing on the amount of piocessing
powei neeueu. With clouu computing, the company only pays foi the tiaffic anu piocessing



77
powei that it neeus. The next chaptei will look at an implementation plan foi outsouicing
this infiastiuctuie in oiuei to ueciease waste.



78
6: CLOUD COMPUTING: OUTSOURCING INFRASTRUCTURE
0mega is looking foi ways to minimize the amount of iesouices it neeus to ueuicate
to maintaining this infiastiuctuie. The goal is ueteimining what is coie to the company,
while passing on any peiipheial tasks to an exteinal seivice pioviuei (Kakabause, 2uu2).
Even though seivei hosting anu infiastiuctuie is not the company's coie focus, it takes up a
significant amount of focus anu laboui iesouices. Clouu computing uses outsouiceu
seivices to extenu a company's computing infiastiuctuie as "a way to inciease capacity oi
auu capabilities on the fly without investing in new infiastiuctuie, tiaining new peisonnel,
oi licensing new softwaie" (Knoii, 2uu9).
Suppoit will become a majoi issue foi 0mega in the futuie, paiticulaily as it auus
piouucts anu seivices that iequiie 24-houi suppoit. Baving an offshoie team iesiuing in an
opposite time zone will allow the company to pioviue this oveinight suppoit anu fast
tuinaiounu on issues. Emeigency suppoit conceins typically aiise because of failuies in
haiuwaie that hosts applications. The offshoie team woulu not be able to auuiess haiuwaie
issues in a tiauitional uata centie since this usually iequiies physically walking ovei to
ieboot a seivei oi ieplace a haiu uiive. With a fully viitualizeu clouu seivei infiastiuctuie,
netwoik auministiatois can peifoim this suppoit fiom anywheie.
6.1 Omegas Server Hosting and IT Infrastructure
0mega cuiiently maintains a laige IT haiuwaie infiastiuctuie. This infiastiuctuie
of netwoikeu seiveis is iequiieu both foi the company's inteinal use foi hanuling uay-to-
uay business neeus, anu to pioviue site anu application hosting to its customeis. This
infiastiuctuie incluues the maintenance anu iunning of multiple seivei faims foi email



79
(Niciosoft Exchange), uatabases (SQL Seivei), web seiveis (IIS) anu hosteu teiminal
seivices (Winuows Remote Besktops).
0mega uses Niciosoft technology foi 9u% of its softwaie anu haiuwaie. This
conveys the benefit of a stable, matuie enviionment compaieu to open souice softwaie
alteinatives. The uownsiue of Niciosoft seivei technology is the steep cost of licensing.
Bosting the entiie iequiieu infoimation technology infiastiuctuie inteinally iesults in high
costs foi the company, anu the executive has iequesteu stiategies on how to outsouice at
least some of this infiastiuctuie to thiiu paities to simplify suppoit anu maintenance anu
ieuuce cost.
The following sections will analyse uiffeient appioaches to outsouicing 0mega's IT
infiastiuctuie so that the company can ueciease costs, inciease ieliability anu secuiity of
theii enviionment, anu ensuie the ability to expanu as neeueu. The analysis will look at two
sepaiate aieas:
1. Inteinal IT Infiastiuctuie: The softwaie anu tools iequiieu foi the
functioning of the business, incluuing email, uocument management, anu
softwaie uevelopment tools
2. Bosting of softwaie anu applications foi customeis: since 0mega offeis a
laige pait of its piouucts using a Softwaie-As-A-Seivice (SaaS) mouel, it
ueuicates a laige amount of its iesouices to maintaining online hosting of
websites
This analysis will bieak outsouicing uown into two phases in oiuei to ensuie a
caieful anu measuieu tiansition. It will begin with stiategies foi the inteinal IT
infiastiuctuie as a fiist stage, anu then look at how to outsouice application hosting foi
customeis.



80
6.1.1 Server Infrastructure and Cost
The total cost of owneiship (TC0) of hosting an IT infiastiuctuie compiises moie
than licensing costs. Even expensive haiuwaie may not be the laigest component, with
some aiguing that haiuwaie compiises "less than 1u% of the cost of a computing seivice"
(uiay, 2uuS, p. S). The total cost of owneiship (TC0) incluues the suppoit anu maintenance
costs as well as the oppoitunity cost lost fiom technically skilleu employees having to focus
on seivei suppoit iathei than othei tasks such as new application uevelopment.
As an illustiation of some of these hiuuen costs, a iecent failuie of a clustei
component on a haiu uiive cost 0mega a week of unexpecteu uown time foi a laige pait of
the company. Since this was the seivei foi the uevelopment anu staging of applications, as
well as foi the company's uocument management system, it thankfully uiu not affect
piouuction customeis. If it hau, this woulu have been a catastiophic failuie costing the
company a laige peicentage of its business. Foi instance, uue to a cascauing set of failuies,
theie was the possibility that this ciash coulu have iesulteu in the loss of uocuments
yieluing an inestimable cost to the company. This single event tieu up the iesouices of foui
of the piimaiy technical team foi the entiie week, as well as ieuiiecting a significant focus
of the executives in iestoiing functionality of this system. At a loaueu houily iate of $4u pei
houi pei employee foi Su houis of woik, this iesulteu in a cost of about $48uu in uiiect
laboi. Buiing this uowntime, the efficiency of the entiie company uecieaseu by at least 7u%,
with no access to pioject uocumentation oi uevelopment enviionments. Pioject timelines
weie pusheu back a week with a laige numbei of oppoitunity costs associateu with them.
The potential iisk that aiose fiom this event hau it been a piimaiy component on a
piouuction system coulu have incieaseu the magnituue of this failuie.



81
6.1.2 Cloud and Exit Strategies
An auueu benefit of having the entiie coipoiate infiastiuctuie locateu in vaiious
clouu systems is that it makes the company easiei to sell when the oppoitunity aiises.
Rathei than having to move a uata centie anu ship actual seiveis to the location of the
acquiiing company, 0mega woulu simply pass on the login infoimation to the clouu hosting
accounts with little cost of migiation. As well, company valuation becomes easiei with the
ieliable piice stiuctuie of clouu computing seivices.
6.2 Migrating Internal IT Infrastructure
The inteinal IT infiastiuctuie compiises all of the business piouuctivity softwaie
that is iequiieu foi employees to complete theii woik. Since the suppoit of this
functionality is not pait of the company's coie competency anu focus, outsouicing the
hosting of these seivices will allow the company to focus on tasks that aie moie impoitant.
The two piimaiy expenses foi inteinal seivei infiastiuctuie aie the hosting of Niciosoft
Exchange foi email anu messaging, anu the company's electionic uocument management
system, Niciosoft ShaiePoint. These two seiveis have highly complex configuiations
iequiiing specializeu employees with knowleuge of suppoit anu maintenance. Without
these two key systems iunning smoothly, company piouuctivity uiops completely. Since
0mega is small, maintaining full installations of these seiveis is not economically efficient.
This enteipiise softwaie can hanule thousanus of useis, with licensing piices matching this
scale. 0mega is fai fiom ieaching the point wheie hosting this softwaie achieves economies
of scale. This unueiutilization is a souice of waste anu excess cost within the oiganization.
6.2.1 Comparison of Available Outsourcing Services
A compaiison of available options foi outsouicing the hosting of email seiveis anu
uocument management systems iesulteu in a shoitlist two piimaiy seivices: uoogle Apps



82
anu Niciosoft 0nline. 0mega evaluateu uoogle Apps as a possible seivice to ieplace high
Niciosoft licensing costs foi both mail anu messaging anu office tools. At the time of this
analysis, uoogle's offeiing hau not evolveu to a point wheie it coulu be a ieplacement foi NS
0ffice. Niciosoft has enteieu into uiiect competition foi uoogle with its Niciosoft Business
Piouuctivity 0nline hosting seivices, which makes available a clouu-baseu Exchange seivei
foi outsouiceu email hosting, as well as the hosting of the company's uocument
management system, Niciosoft ShaiePoint. Niciosoft's solution seems to be the piimaiy
canuiuate foi 0mega outsouicing.
6.3 Migrating Application Hosting
0mega offeis a laige pait of its piouuct offeiings in a Softwaie-As-A-Seivice mouel.
The company maintains an aiiay of uatabase anu web seiveis to pioviue functionality to its
customeis. 0utsouicing this uomain of the company iequiies caieful analysis. The hosting
of applications is the piimaiy way the company ueliveis value to its customeis.
6.3.1 Security, Compliance and Healthcare
0ne piimaiy uecision factoi foi outsouicing application hosting is the legal
constiaints in the health caie inuustiy. Secuiity anu the piotection of patient health
infoimation aie of utmost impoitance to the well being of the company. Bue uiligence must
be taken befoie selecting a thiiu paity hosting pioviuei to be suie that the thiiu paity
follows ceitain piotocols foi secuiity anu uata piotection.
Noving to a majoi clouu seivice such as Niciosoft 0nline shoulu not iesult in a
ueciease in secuiity. Laige companies such as Amazon oi Niciosoft have moie iesouices to
ueuicate to necessaiy maintenance tasks such as backups, haiuwaie suppoit anu
ieuunuancy. Because they can take auvantage of economies of scale, they aie able to



83
specialize anu biing on ueuicateu peisonnel with a focus in these aieas. By having ueuicateu
suppoit peisonnel anu 24-houi emeigency pioceuuies, an outsouiceu hosting company has
the ability to focus anu specialize on secuiity anu make suie that the latest upuates anu
viius uefinitions aie always applieu. As a small company, 0mega is unable to specialize anu
focus on all of the intiicacies of secuiity anu haiuwaie suppoit.
0mega must take into account the legal iisk anu liability of using an outsouiceu
infiastiuctuie. If the thiiu paity hosting seivice goes offline foi a long peiiou, oi in the
woist case, if the seivice loses uata, is theie any iecouise foi legal action. With meuical
softwaie, the company must follow stiict iules to piotect patient piivacy. Theie aie
significant legal iisks if the company uoes not piotect patient health infoimation.
0mega must balance the benefit of hosting uata in the clouu with the iequiiements
foi patient piivacy. Amazon Web Seivices has maue available a white papei on cieating
BIPAA-compliant Neuical Bata Applications using its clouu hosting seivice (Amazon, 2uu9).
Niciosoft also "unueigoes annual auuits foi BIPAA compliance" (Shinuei, 2uu9). Any
hosting seivice that 0mega ueciues to use shoulu have some soit of uocumentation aiounu
compliance anu publisheu stiategies foi iisk management.
Foi example, BIPAA iequiiements conuone stoiing piivate uata in an enciypteu
state. It auus one moie layei of piotection as long as one can piotect the enciyption key.
The ability to enciypt the uatabase at a low level without compiomising peifoimance
shoulu be a factoi in ueciuing what clouu pioviuei 0mega chooses. The company will neeu
to upgiaue its cuiient uatabase softwaie, Niciosoft SQL Seivei, to the latest veision in
oiuei to have uatabase enciyption that uoes not auveisely affect peifoimance. This
upgiaue is also iequiieu to enable in-uepth auuiting of all tiansactions within the uatabase.



84
Some juiisuictions anu hospital customeis iequiie that 0mega host patient uata on
0S soil. The same goes foi Canauian healthcaie laws, which uictate that uata cannot be
stoieu on seiveis iesiuing outsiue the Canauian boiuei. The healthcaie inuustiy places
gieat weight on piivacy anu the piotection of consumeis. When selecting clouu seivices
stoiing patient uata, 0mega will neeu to take into account these laws.
6.3.2 The Economics of Cloud Computing
By outsouicing to the clouu, one ieplaces the steppeu anu fixeu capital costs of an
inteinally hosteu infiastiuctuie with the stanuaiuizeu opeiational costs of using an
outsouiceu seivice. With iunning a local seivei infiastiuctuie, one must face the possibility
of unexpecteu blocks of expenses aiising fiom having to ieplace a seivei with a seizeu haiu
uiive, oi having to puichase a laige block of new softwaie licenses all at the same time.
Rathei than having a set anu ieliable cost eveiy month, the company neeus to piepaie foi
the possibility of laige blocks of expenses.
Theie is a gieatei ieliability anu stanuaiuization of cost stiuctuie with outsouicing
IT infiastiuctuie. With a clouu-baseu infiastiuctuie, the company can amoitize costs ovei a
longei peiiou thiough subsciiptions that uo not incluue suuuen suipiises. This uecieases
the iisk foi a small company anu ensuies ieliability in teims of cash flow.






85
Figure 7: Operational Costs of Cloud Hosting vs. Traditional Stepped Costs

A,431&) J4;8,3
Rathei than paying laige amounts foi hosting, clouu hosting allows a pay-as-you-go
stiuctuie wheie costs inciease in paiallel with usage. The figuie above illustiates how the
cost of clouu hosting incieases in a uiiect ielation to the amount the application is useu.
This allows a small company such as 0mega with limiteu cash to match theii infiastiuctuie
costs with ievenue.
Bosting costs inciease uiiectly in ielation to the level of tiaffic. This makes it
uifficult foi the company to offei fiee seivices to customeis using a penetiation piicing oi
fieemium mouel in oiuei to bieak into new maikets. All usage of a site iesults in a cost.
With tiauitional hosteu seiveis, the company can affoiu to offei fiee seivices to make use of
iule seivei iesouices without affecting the bottom line.
This uiawback may only be a factoi in ceitain situations howevei. Typically, setting
up tiauitional seivei hosting iequiies accounting anu planning foi the maximum possible
tiaffic. As an illustiation, consiuei if S6u uays of the yeai seivei usage iuns an aveiage of
1uuu useis at a time, but foi S uays a yeai, this balloons to Su,uuu useis. The seivei setup
thus iequiies the ability to hanule this peak tiaffic loau, even though most of the time this
computing powei sits iule. Rathei than only neeuing a single seivei to hanule the aveiage
Cloud hosting
Number of users / application usage
Hosting costs
(hardware, licensing,
support)
Traditional hosting



86
loau, it iequiies five loau-balanceu seiveis to account foi the peak loau. With clouu
computing, the seivei aichitectuie can elastically meet the peak loau while chaiging foi
only the aveiage loau foi 98% of the yeai.
Regaiuless of this question of iule computing iesouices, using a clouu-baseu hosting
seivice foi softwaie-as-a-seivice applications closely ties application use to ievenue, since
eveiy piece of tiaffic iesults in a cost. If 0mega can uevelop billing mouels that chaige the
usei baseu on how much an application is useu, then the cost of goous solu will moie closely
ielate to ievenue.
The company has been moving towaius using opeiational costing mouels foi client
contiacts. Foi example, 0mega might bill a customei baseu on the numbei of patients
enteieu into the system. Customeis often piefei this mouel as well, since it minimizes theii
own up-fiont capital costs. The use of clouu hosting foi applications coulu be conuitional on
what type of billing mouel has been set with the customei. Foi existing customei
applications that use a yeaily suppoit billing mouel, the piicing woulu neeu to be set in a
way that woulu piotect against uata usage exceeuing the actual amount of ievenue fiom the
customei.
Befoie moving the entiie hosting infiastiuctuie, management shoulu select a pilot
piogiam foi a paiticulai piouuct with an opeiational cost mouel. This will test out
peifoimance anu ueteimine ultimate costs foi using clouu hosting. 0nce the company
iealizes the technical viability anu stability of the pilot pioject, management can look to
expanuing the migiation to the iest of its poitfolio.



87
7: CONCLUSIONS AND RECOMMENDATIONS
0mega is balancing intense giowth with the ability to effectively iestiuctuie anu
iefine piocesses. As the company expanus in size, using moie stiuctuieu pioject
management methouologies will help teams uelivei solutions on time anu in quick iesponse
to maiket signals. 0utsouicing the haiuwaie infiastiuctuie will help costs iemain low with
the ability to scale when iequiieu.
At the wiiting of this iepoit, 0mega uoes not cuiiently meet iequiiements foi FBA
!# +BI N(3; ##, although it is ceitainly on the path to achieving this. The necessaiy pioject
management anu uocument management systems aie in place that can act as iepositoiies
foi auuit uocumentation. Nanagement neeus to place auuitional focus on uefineu uisastei
iecoveiy planning, stanuaiu pioceuuies foi haiuwaie maintenance, anu iegulai inteinal
auuits. Auuing an auuitional employee as a Quality Assuiance expeit whose sole
iesponsibility is to enfoice compliance woulu be a valuable appioach to piomote uue
uiligence.
Baseu on uiscussions with peeis anu scholaiship on the subject, 0mega is taking on
significant iisk anu the possibility of high technical uebt by using an offshoie team. Both the
uifficulties of cooiuinating anu tiaining in opposite time zones as well as the lack of context
foi the iemote team coulu iesult in ballooning uevelopment costs anu an inciease in
suppoit uifficulties. The iecommenuations in this papei will help to minimize these issues,
such as close communication; coue ieviews; shoit iteiations followeu by ieleases; anu using
a stiuctuieu pioject management methouology.




88
APPENDIX A: NEW DEVELOPER DOCUMENTATION
EK0-5'2+, $; +,0"+ ,$ +0, =" & 306 08"'$@00B
1. Setting up uomain accounts anu peimissions
2. Softwaie licensing & puichases
S. Legal uocumentation
4. Account configuiation with:
a. Souice Contiol Seivei
b. Pioject Nanagement Softwaie

G&+2- +0, $; 23;$#8&,2$3 ;$# &'' 08"'$@00+B
1. Bistoiy of company
2. About company touay
S. About piouucts
4. About clients
S. About team anu oig chait
6. About knowleugebase, wheie uo I go foi help
7. Ny iesponsibilities anu my woikflow
8. Ny applications to uo my woik
9. Ny uesktop anu team collaboiation
1u. Piivacy anu secuiity consiueiations
11. Ny pay, my uays off

C3;$#8&,2$3 +"0-2;2-&''@ ;$# 10%0'$"803, ,0&8B
12. Bow to set up a new uevelopment site
1S. Basic stiuctuie of the platfoim solution
14. 0pgiauing sites anu piepaiing upgiaue installation files
1S. Auuing new mouules to the platfoim
16. Bocumentation of key libiaiies such as uatabase access anu foim engine



89
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