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Distributed Scrum: Mistake to have only the Product Owner in a separate location

Given the bad economy and the relentless surge to reduce costs, there is a lot more focus to see how all the costs involved in a software project can be reduced. Over the past couple of decades, a model where the development work moves to lower cost countries such as Romania, India, China, Philippines, etc has gained ground and there have been no significant failures to get this movement rolled back. When there is relentless pressures on senior management to show that costs are controlled, and there are no easy cuts (there is already a lot of monitoring of other expenditures such as travel, etc), the next question is about why the development effort cannot be moved over to Bangalore; after all, other companies are also doing it and by the way, their costs are now lower with no appreciable impact to quality. It is difficult to resist such an argument, unless the cost is a small fraction of the overall revenue.
So, what slowly ends up is that the development work (both coding and testing) gets moved in parts to a lower cost economy and eventually reach a point where all the development work is done in a remote location. We call it remote since there is an impetus to ensure that the Product Management remains connected to the market, and for most software products, the sizable revenue earning markets are the US, Japan and parts of Europe. So more often than not, the Product Manager / Product Owner remains in a city in the US, while the entire development effort moves to some part of India. And then the team goes ahead and implements Scrum.
You now have a scene whereby the meetings are such that the Product Owner attends from the US, the remote team attend from their locations, and the meeting is held at a time that is decided by all of them (for most of these meetings, the guiding principle is that the pain should be equally shared, so that no one feels that they are being discriminated against). However, for the case of Scrum, where there is a lot more interaction between the Product Owner and the Product team, it can get very tricky to have only the Product Owner in a separate location. For one, the Product Owner will sooner or later tire of having to disturb their entire schedule in order to attend the Daily Scrum Meeting, or even if they do not attend the Daily Scrum meeting, there can be a lot of discussions needed between the team and the Product Owner. When the Product Owner is located in the same location, there can be a lot of discussions that can happen through hallway conversations, or striking up quick call meetings where the Product Owner provides clarification or quick feedback to the team.
One way that I have found teams have worked this through (but which can slightly increase the planned expense) is when there is a Product Owner who also sits with the development team. This Product Owner works with the main Product Owner through frequent interactions, and has enough authority and clarity that he / she can answer most of the queries of the Product team and only need to go to the Product Owner for detailed queries that may not have been discussed before.

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