When Dutch-American publishing and software giant Wolters Kluwer (WTKWY ) began outsourcing to India years ago, there were lots of jitters in the company. So when its legal compliance services unit hired Tata Consultancy Services for a pilot project to develop a piece of software, it was ultracautious and very controlling. Wolters Kluwer provided the meticulous specifications for the entire job. "We said that we had to make sure all requirements are documented down to the nth degree," recalls Christopher Cartwright, CEO of the publisher's corporate and financial-services division. "We tried to map everything out so there would be no doubt what we wanted."
In hindsight, that was a mistake. The pilot project was a mixed success. "It went O.K., but not perfectly," Cartwright says. Although it cost about one-third less to complete the job in India compared to what it could have required in the U.S., "it was done inefficiently because we didn't know how to make it work."
The Indian TCS engineers, all too willing to oblige, simply went along instead of using their expertise to the fullest and suggesting better approaches to tackling problems. "We found them to be very culturally flexible, but even to the point of helping a client down a path that is not ideal," Cartwright says. "This is a little different from U.S. providers."
Rather than merely blame the Indian supplier, Wolters Kluwer concluded that the real problem was that it didn't give TCS engineers enough leeway to use their own design skills. "Our requirements turned out to be overkill," Cartwright says. "If you try to treat one of these suppliers as a body shop -- telling them exactly what to do and how to do it -- it does not go well."
Subsequent experiences with offshore outsourcing have been much, much smoother. Moreover, Wolters Kluwer credits its partners with helping transform the $4 billion publisher of legal, financial, and medical books, journals, and Web-based editorial services. Indian contractors such as TCS and HCL Technologies are helping to integrate all of Wolters Kluwer's 10 publishing units onto a powerful single software platform called Atlas, in which 70% of the work was performed offshore.
Outsource companies also have helped it greatly expand the number and complexity of its editorial products, such as online updates on legislation, federal and state regulatory rulings, and court opinions -- all indexed, sliced, and diced in myriad ways -- for attorneys, tax practitioners, and health professionals.
Wolters Kluwer execs say it's hard to measure exactly how much outsourcing has contributed to greater output of products, since many of its editorial offerings are Web pages. But they say that because of the lower offshore costs, the company has been able to launch several editorial products that otherwise would not have been funded had they been developed in the U.S.
"Our financial-services unit had five or six products that we just couldn't execute," says Daniel Focazio, programs director for IT outsourcing and software processes. "We went to our marketers and said that if they were willing to augment our staff with lower-cost services, we can do those products. They said, 'Sure.' So we ramped up several teams and were able to bring more products and services to our customers than ever."
One example is software that enables banks to conduct thorough background checks of loan applications in order to comply with the U.S. Patriot Act. Another supplies all documents needed to generate a new loan, including paperwork to meet all regulatory requirements in every U.S. state.
Wolters Kluwer began its offshore shift four years ago. Encouraged by the results, it then drew up a strategy to "migrate as much offshore as sensibly should go there over three years," as Cartwright describes it. Focazio worked with local management and outside consultants to look at all the software that was being developed.
Since then, its offshore outsourcing has grown sharply. In IT alone, between 400 and 600 engineers from Indian tech-services companies are building "all of our next-generation, whiz-bang stuff," says Cartwright.
For editorial content, Wolters Kluwer is using suppliers in the Philippines mainly for more mundane jobs such as indexing articles and news items for different Web portals. But the publisher plans to expand its operations significantly to eventually handle some writing as well, including preparing background materials that will put U.S. legal cases in context. Cartwright says he hopes Wolters Kluwer will have its own development center in the Philippines, India, or China within a few years.
The publisher denies that offshore outsourcing has cost many jobs in the U.S. and Europe. The New York-based software and tech team is about the same size as before. And Wolters Kluwer is spending more on technology than it ever did, while reducing its cost per IT worker-hour by more than 15%.
"Mostly, we are augmenting our U.S. resources. You have to look at this model from the perspective of increasing capacity," says Focazio. As a result, the remaining engineers in New York are able to spend more time on innovation. "We need our people to move up the value chain," says Focazio. "We need people to lead development teams, for example, or manage teams of offshore resources. We need more architects, and you have to grow most architects internally."
But Wolters Kluwer also had to learn some lessons in employee relations at home. Convincing valued U.S. employees that outsourcing is ultimately good for them and their company is not easy. Wolters Kluwer began its U.S. layoffs in 2003, just as many tech workers were getting the ax or seeing their salaries drop.
NO SIMPLE HAND-OFF.
"When we started out, there was a lot of trepidation caused by the uncertainty," Cartwright recalls. To cool the panic, the company began a worker-education program. "We got ahead of them and explained that is all about enhancing capacity. We need to go from 100 IT staff to 200 to take on new products but can't afford them in the U.S."
Wolters Kluwer learned it must invest a lot overseas as well rather than simply hand jobs off to contractors. One key difference between the pilot project and current endeavors: The company flies some Indian staff to New York. That enables them to get to know Wolters Kluwer's development teams and work with them side by side. "What made us successful is that our partner's project coordinator is on-site working with our project coordinator," says Focazio. "The translation from our English to their English to Bengali is a lot better. As you mature with that model, the problems tend to go away."
The publisher also is more willing to defer to its partner's judgment. It now encourages developers at companies like TCS to be more assertive about giving advice. Often, it finds, the Indians' knowledge of business processes and software techniques is a lot better than its own.
By Pete Engardio in New York
Edited by Rose Brady