Dmitry Loschinin, President & CEO of Luxoft and key client Andre Durand CEO of Denver-based Ping Identity team up to share the “secrets” of their successful global outsourcing partnership at the DaVinci Institute Movers & Shakers Breakfast Series event.
Andre Durand (AD): For a small company in India, it’s hard to stand out. You've got Dell, Oracle, IBM. Most of the major multi-national companies here in the U.S. doing heavy, heavy outsourcing into India. So, if you go over there and say I'm looking for twenty developers, you've going to be hard-pressed to find the best twenty developers. The process that we went through when we made a decision, we had a commitment to outsourcing, a deep-rooted commitment, when we founded the company, to outsourcing. So, a year's worth of experience in India that was turning out to be less than positive wasn't going to stop us. So, we went through about a three-month evaluation. We looked in four different countries. We started with two in out time zone, Mexico and Argentina. And then, of course, you had to include India. Most of the companies that we were looking at, and were pursuing our business, were coming from India. And then we also looked in Eastern Bloc, and specifically Moscow. We did evaluate four companies. The process was fairly rigorous. No accrual of that myself really, accrual to our VP of engineering who was immensely thorough. He went through seventeen companies originally, had kind of a vetting process that was spreadsheet analysis, if you will, of the competency, the economies that we were looking to gain in offshore to take that risk. From whose seventeen companies, he narrowed it down to three companies. The three companies he visited personally, two-day on-site to get a sense of the management team, to get sense for the talent that we were going to find in that country. Through that process, we ended up selecting, I remember it came down, as you would imagine, to one company in India, fairly well-known, and Luxoft, that was much less known and outsourcing to Russia, for software companies much less known. I remember having the conversation with him that went something like, I was going to take this risk, at the time I think we were a thirty-person company, to offshore all the work and time and effort that I knew that we put into attempting to make the Indian relationship work, I said how are we going see the economies to scale. How are we not being chased by the large companies, we're a small company. So, I said if Moscow works, it appeared to us that was a break out move. That was the wild card. So, Moscow really was the wild card for us.
Q: What type of criteria do you use for hiring people? If somebody is self-taught, do you, are you considering them for employment?
Dmitry Loschinin (DL): I think it's possible if somebody can demonstrate outstanding performance and real knowledge, we will not filter out this person, but normally we take people with a Master Degree, at least. More than 70 percent of the people working for Luxoft have more than five years of experience. So, we'd rather look for those with experience and then if the experience is appropriate, then we will check the experience and verify particular knowledge. It wouldn't be that much focus on the application. Once we take graduates, then we take those who have Master's Degree. And we work with students, of course. So, we have internship programs, but the goal of that is that once they finish, they will join the company being trained for the technology which we use and our processes.
Kevin Johanse, DaVinchi Institute: Twenty-five to thirty-five percent of any large process integration is waste. And the waste, if you will, is caused due to mostly cultural differences. Are there cultural differences, were there cultural differences between Ping and your company?
AD: So, we had a few cultural or, I'll say, language run-ins fairly early: about a month into our relationship as we were still establishing trust and trying to set up a regular cadence for the way, in which we communicated. There we two or three hours worth of overlap. If our guys got in at seven and if the Moscow team started a little bit later, but then worked a little bit into the evening. And I remember one of our project managers was describing how we were fairly happy with the talent we had found there and we were going to be more aggressive with our Moscow schedule. And there was a long silence there that was never really responded to on the phone call. Later on we heard that their interpretation of being more "aggressive" with Moscow was actually being more "angry" with Moscow. So, we didn't understand the silence because what we were really saying was that we were pleased with whom we found and we're fairly confident that you guys can achieve your goals. So, we're going to put more responsibility on you and instead they interpreted that the other way. Going back the trust and the cultural aspect, there are some obvious inherent differences. I would say, with the bias that we find in Moscow and in here. And trust is hard-earned. I would say it has taken eighteen months, not the full eighteen months but a good portion of eighteen months to build, in essence what is the company inside the company, the Ping group inside of the Luxoft group.
DL: We are going to set an office in Easter Europe, most likely Poland, also soon we will have an office in Canada - in Vancouver, actually. We are in the process of setting this up. In both of those cases, we offer a so-called near-shore solution. Some clients are not ready to go offshore and they are not so brave and they cannot take the risk as Ping did. It worked fine, but we also know cases when it didn't work. There many cases when outsourcing was not successful, especially for companies that did not practice it before. So, this will be an offering for those people who want to start carefully and then we will provide this close interface, which will be in Canada and Poland; in Canada, of course, for the U.S. and in Poland it's for European companies, European clients.
AD: I've got to stress the fact that Ping views the onus of retention; we take that serious for our group of people inside of Luxoft. So, it’s not just Luxoft's responsibility to retain people. It's mission-critical for us to retain these people. So, we treat them the way we treat out own people. The same thing holds true here, but I think probably more so there, the opportunity to learn and grow and to be challenged over there by the individuals. I've observed on our team is taken very, very seriously. More so than the compensation package. Moscow is experiencing a lot of pressure, if you will, around the appreciation of salaries and other things like that. You've got to look outside of that, really, to build the loyalty. And so, the challenge factor is a big one. Learning to do agile development, this is tough and, as you said, probably is only going to garner the top twenty percent of the people who are going to be up for the task of being rated every two weeks. There's no slippage that's allowed in agile development. So, once you find those people and you give them the opportunity to learn, we've experienced a really good retention rate.
DL: These are the major factors: finding good people, integrating them, creating this common environment, training then and then retaining them. If it's all achieved then it's a high probability for success, in this I would say, high-end outsourcing, what Ping is doing. As Luxoft, we offer really top-notch talent, Russian developers well known for their creativity. So, we are able to find them, we find them all over the place, in the so-called former Soviet Union space, and we bring them on board. We train them, we integrate them because first of all we try to learn what the client expects from us and we define this engagement framework and then we motivate them to stay. We show that they have really great opportunities for working here. So, nothing magic, but it works.
AD: So, the commitment and solid engineering management, if it's software outsourcing that you're doing, you can overcome anything. The reward is pretty substantial in Ping's cases, we've fully burdened expense for our offshore team is about forty-six percent of what we do here in Denver. That's no Silicon Valley - or Boston-based prices - that's Denver-based prices, which is easily twenty to thirty percent cheaper. So, that scales. If you a venture-funded company going through your A, B, and C round, competing in enterprise software, if you're going to save fifty percent and not give up anything on quality and quite honestly, gain something in innovation because of the cultural diversity, I'm big believer that cultural diversity breeds innovation, there's a lot to gain by outsourcing. But, you will need to start with a good head of engineering, which also has a commitment to build a global engineering team.
DL: CMM is very well-known standard basically developed here in the U.S. and distributed and accepted by the whole software community. There are five levels and each level means that a company has achieved and is compliant with certain standards. Level 5 means that the company really top-notch, world-class company providing services according to the best practices. That's who we are.