What do you look for from an outsourcing vendor?
Performance — comprised of on budget and on schedule. We look for commitment. And it’s key for us to have someone with a shared methodology.

Don Vietti: We look for the technical expertise, and really a highly effective development process. When you take something offshore that process really has to be refined at a high level to make it work. That’s what we really value and look for. It’s one thing to have five guys overseas that can maybe write code, but it’s another thing to have almost a manufacturing mentality for application development.

Do you work with multiple offshore vendors?
Follit: No, I think it would be very difficult to manage multiple vendors for offshore. I was recently talking with somebody from Bear Stearns. They were talking about Infosys as well as CTS and they were going to be dividing some work between them. And if you think about each one of the aspects we were talking about earlier, you would have varied levels of capability and or commitment to those things. And I think it makes it particularly difficult to manage.

What are the key concerns about sending work offshore?
The fact that it’s offshore is pretty transparent to us. Obviously there has got to be some security regarding sending any test data over there. But we’ve not had any real concerns. We do have occasional conference calls with India about potential fighting between Pakistan and India, to make sure we have a feeling of security and we had developed some contingency planning around that.

Vietti: My concern is stability, and a possible disruption in service. If something happens, we are comfortable with the business continuation plans. We can house a lot of the people here. Everybody already has his or her visa. Let’s say there was a huge problem trying to get the people that know our code out of India. It might take a week or two. But the majority of our work is through T-1 connections and it is on our premises, it just happens to occur over communications lines. So we feel we’re pretty low risk as long as we can get some of the offshore people onshore. So far we haven’t had any disruptions at all.

So you wouldn’t send something offshore if you haven’t worked with the vendor onshore?
Especially in development projects, I don’t know how you could just send something offshore, unless our methodologies got so intertwined that a spec could just flow across the ocean in e-mail and mysteriously code comes back.

We can’t see working totally offshore. But we love to get to the 80/20 or 70/30 offshore/onshore level because that’s where the economics start to make a lot of sense.

How do you see the vendors that specialize in offshore to India fitting into the marketplace versus some of the major U.S. firms like EDS, Accenture, or IBM?
Follit: They provide different things for us. What we do with someone like Accenture is more the strategy planning — the strategic fit of certain packages and how they relate to the retail environment.

Vietti:India is used for detailed design and implementation, and that’s really their strength. We’ve had Accenture, CTS and our own people all on the same project.

I’m not saying that the Indian vendors can’t get there, but they are really not retail business experts. They are good from detailed design through implementation. And that can work in any industry. I know that CTS is building centers of excellence in retail and manufacturing, so over time they may be able to step into the integrators’ footsteps. But right now we have them separated along those lines.

What will it take for you to start taking strategy advice from a vendor like Cognizant?
A little more expertise and years of service in the industry. We have worked with CTS on projects where we brought in some of their analysts at the very early stages of project initiation. We’re starting to try them out and see how they do in different areas. Those services are typically onshore, so your economic model changes a bit.

We think they can really help us out in the back end of data warehousing. Data warehousing is generic across industries but there are very good disciplines within data warehousing that can be applied to retail or maybe manufacturing. We think they will do more at a higher level in that area than they would in things like price optimization or planning. Those are fairly specific retail skills where you need buyers or people that have been in the industry forever.

If you look at pain points in your IT organization, where does outsourcing fit in?
Follit: At the end of the day I run a business. And I have to create deliverables at a very optimized price point. By working with India, and as long as the rates stay competitive, I am able to come up with a blended rate for this organization that keeps me very competitive.

Then I have a capability capacity issue. In other words I have to try and find enough capability and capacity to meet the needs of this business but at the right price. The people who we’ve seen from CTS are very high caliber people at a good capacity for us at the right price. I couldn’t find those people, move them here, get them on payroll, bring them up and get them productive the way I can with CTS.

Vietti: It’s almost like the garment business a few years back. You have to look at this model to be competitive. These vendors are turning custom coding into a commodity.

Follit: What may happen in the future is that as the Chinese develop more English-based skills, China will give India a good run for its money. And my guess is that will all be transparent to us.
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