Lawson Goes Offshore
March 1, 2004
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Several months ago (see https://blog.lawsonguru.com/2003/10/01/lawsons-india-flap/) , I wrote about Lawson’s offshore development plans. This month let’s take a closer look.
As you’ve probably heard, Lawson has signed an agreement with Xansa to open an offshore development center in India (see http://www.xansa.com/pressreleases/131419?version=4&parent=99616&link=99616).
Peoplesoft’s doing it too (see http://msn-cnet.com.com/2100-1022_3-5160332.html), and it?s clearly something Lawson feels they must do in order to remain competitive in the ERP software business.
So, what does this mean for Lawson, and more importantly, for you—its customers?
- First, just because Lawson is moving some development offshore doesn’t mean that Lawson is anti-American. What’s ignored in all the public jawboning about offshore development is that we continue to move manufacturing jobs overseas. How can we as Americans buy foreign cars (even though it may be "assembled" in the US, a Toyota is still a foreign car!) and then complain about the offshoring of our back office or IT jobs? The primary motivation is that companies want to achieve better value and greater profits by outsourcing the work they don’t want to do and/or can get done cheaper elsewhere.
Sure, we’re seeing an increasing backlash against offshore outsourcing, particularly for the more consumer-oriented companies. But it’s the product of politics, media sensationalism and pro-Americanism at a time when America is particularly sensitive to all three of these inputs. However, while that attitude may be held by American consumers, it isn’t necessarily reflected by corporate actions, which are driven by a clearer motive-growth and therefore greater profit!
Companies that leverage cheaper offshore labor to expand operations create more profit, and that creates jobs right here at home. And, there’s the much-bandied statistic that for every $1.00 spent on offshoring, $1.12 is pumped back into OUR economy. Those that fail to act may well fall victim to those that do.
- Development offshore doesn’t mean that Lawson plans to move their support offshore. We’ve all heard the stories about Dell shutting down their India-based support after repeated customer complaints. I can certainly cite other examples of poor support I have received from offshore support facilities. But that doesn’t mean you shouldn’t offshore NON customer-facing activities. And Lawson has not said anything about outsourcing their support, nor would I expect that.
- If Lawson is simply using offshore development as a way to lower their maintenance costs, that’s not enough. What they should be (and by all appearances seem to be) trying to do is to use it as a way to expand their development resources and catapult themselves to the next level. Lawson is desperately trying to evolve from being an ERP software vendor to being the driving-force behind your enterprise applications infrastructure. That was the premise for their IPO, as evidenced by their subsequent acquisitions. Perhaps, by outsourcing some if its development and focusing on future products, Lawson can finally make that leap.
Companies staff their development positions based on the goals they want to accomplish. Thus, staffing is a function of projects. And, projects are a function of budgets, and budgets are a function of corporate goals and objectives. If total budgets hold constant (and no one is saying budgets are being reduced as a result of offshore activity), and spending is reduced (as a result of offshore labor savings), then you have a surplus. How is the surplus going to be used? The answer is "more development projects"!
Listen to Peter Drucker:
"The inefficiency of knowledge workers is partly the legacy of the 19th century belief that a modern company tries to do everything for itself. Now, thank God, we’ve discovered outsourcing, but I would also say we don’t yet really know how to do outsourcing well. Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management…when you outsource you may actually increase costs, but you also get better effectiveness." (See http://www.fortune.com/fortune/investing/articles/0,15114,565912,00.html)
- Lawson is putting a lot of faith in Xansa’s CMM Level 5 certification, and therefore finding the "Holy Grail" that will magically improve Lawson’s maintenance quality. Now, I don’t know anything specific about Xansa, and they may be fantastic. But I’m a natural skeptic, and I don’t take a CMM Level 5 at face value. I have worked with clients who’ve had this certification, and have found that their development practices are often no better or worse than other companies who don’t have the certification. Just because they received a certification doesn’t mean they live by it, and will keep it. So, let’s assume that the maintenance release quality stays the same or is even slightly worse than it is today. That’s still a plus, because it’s cheaper, right?
- What if the quality turns out to be a whole lot better? That would be fantastic, because Lawson has essentially found a way to triple or quadruple the size of its development team without driving up costs. Application functionality will improve because the St. Paul developers will be focused on new product designs and enhancements.
- Will release cycles be faster since Lawson can now throw more (albeit cheaper) resources at an assignment? Remember the adage that just because a woman can make a baby in nine months, nine women can’t make a baby in a month? The same holds true here.
- Product rollouts will be subject to the smooth integration of a partner that is half a world away. There is zero tolerance for failure. Also, this necessarily changes Lawson’s approach to development. How does the St. Paul staff transform itself into the role of analyst and spec writer? It’s a huge departure culturally, and hence, a far greater risk. Put it this way: Not only are they trying to pull off outsourcing, they are also trying to pull off the offshore move. Most companies would find each one of those a challenge in and of itself.
- What about those costs? While there’s been a lot of hype about the "cheap labor" afforded by going offshore, it’s the intangible costs (increased management oversight and travel, cultural differences, etc.) that may weigh more heavily in the equation. We’re still way too early in this to have any documented and validated evidence that offshoring really does turn out to be cheaper. If it is, how likely is Lawson to pass those savings on to their customers? Even if they don’t, and it goes to the shareholders, that’s a plus for Lawson and its customers in the long run if this bolsters Lawson’s chances for survival and growth.
- What about those existing developers? Does Lawson have a moral obligation to see that they are redeployed as analysts or business consultants? Or do they get laid off? In the past, Lawson has taken great pains to present themselves as an employee-friendly company. I had a client once tell me that their employees have a job for life. While they may be removed from a project and reassigned to different position, the client would never fire a loyal employee. It took me a long time to understand and respect this thinking. I think it applies to outsourcing as well. You can’t just discard existing employees who are displaced in an offshoring initiative. You owe it to them, to your remaining employees, to your customers, and to your shareholders, to provide them with re-training and to find alterative positions for them.
- Xansa now becomes a guardian of Lawson’s reputation. Is Xansa fiscally-sound? If the offshoring trend sours, does Xansa suffer? Any hint of a financial scandal would not only damage Xansa, but could ruin Lawson’s reputation. Just as any company should and would do when selecting a partner, we have to assume that Lawson has done the proper due diligence.
- By far, the biggest risk to Lawson and its customers is that Lawson is entrusting its intellectual property to another company half-way across the world. In the past, Lawson has offloaded some development to closely-watched partner companies; this is a whole new ballgame. Can Lawson ensure the co-managed security? Sometimes clients are asked to submit their own financial data, in part or as a whole, to Lawson for troubleshooting or benchmarking. What if that data makes its way to Xansa, and is somehow compromised? Since Xansa also has partnerships with Oracle, Peoplesoft, and SAP, can Lawson ensure that Xansa won’t play favorites? Do they have "Chinese Walls" in place to guarantee it?
While it may be frightening (as any uncertainty is), I think we’re in the midst of an exciting and challenging growth period in our economic history. We’re essentially "clearing the decks" and setting the stage for what could be the next US industrial revolution. And like it or not, Lawson is a part of it, and we-as part of the Lawson community-are too.