Viewpoint

Really Smart Offshore Outsourcing

Offshore outsourcing is an increasingly prominent feature of the business landscape.  The shifting tectonic plates of globalization have raised the sourcing profile of many countries, including: Bangladesh, China, India, Malaysia, Mexico, the Philippines, Russia, South Africa, and Sri Lanka.  To do offshore outsourcing well requires thoughtful analysis, trust-building, smart management, continuous involvement, and discipline.  To do it well over time requires that it become a core management capability in the business.  Here are seven guidelines for making offshore outsourcing work for your organization.

1.  Look At the Big Picture When Making Your Business Case
Saving on labour costs alone won’t make for a good business case.  What are the hidden costs and risks that need to be accounted for or the investments that might have to be made?  In other words, what is the real ROI likely to be?  How big is the learning curve?  What knowledge/learning will be lost?  Do we currently have offshore outsourcing expertise in-house?  If not, where can we recruit it from or how can we develop it quickly? How much time and/or investment will it take to bring the vendor up to speed on our products and services?  How well does the offshore outsourcing model of operations align with the overall business strategy?  What is the political and economic climate of the vendor’s country? It makes sense to put a high-level management team together to ensure all the complexities are being thought through, including what the company needs to do to prepare for the cross-cultural challenges that will inevitably arise. A thorough SWOT analysis of a proposed relationship is a must.

2.  Make Sure There Is Absolute Clarity Regarding Your Goals and Objectives
It is so important to have a clear set of expectations, both for inside your organization and for potential vendors.  What specific work do you want to outsource (don’t make it strategic or highly changeable work!)  What kind of business relationship/deal do you want?  What are the outcomes you want to accomplish for your organization?  How will the relationship benefit the vendor(s)?  What do you see as the responsibility matrix in relation to yourself and the chosen vendor?  While some issues might change in negotiations, it is best to begin with clarity.  This will help prevent misunderstanding in the future.

3.  Invest Enough Time in Identifying, Evaluating, and Selecting Vendors
Selecting the right vendor(s) is critical to success and may take several months.  Create a vetting process which will include establishing a set of specific criteria to guide your choice.  It’s not unusual to have 500 hundred or more criteria for vendor selection.  Determine what is absolutely essential to meeting your goals, e.g., vendor experience and history, business philosophy, location, security, stable team and leadership, technological capabilities, workforce education and skill levels, workforce language requirements, staff attrition and absentee rates, local infrastructure, price, ethical and systematic management practices, financial health, existing customer base, efficiency and/or effectiveness.  Pay visits and talk with the vendor’s customers.  The contractual arrangement should be thorough and include: expected results, roles and responsibilities, timelines, payment details, and quality standards.  A termination clause is also important.

4.  Go Heavy on the Planning 
The plan will need to include many items under areas such as financial, technical, managerial, and people.  A critical area of the overall plan should be a transition plan (see below).  Of particular importance is identifying and defining the rigorous processes that will be put into place to manage and measure the business, including a quality assurance process, and even a continuous improvement process.  Very little should be left to chance.  Defining these processes is rather like the concept of ‘Feedforward’ rather than ‘Feedback’.  It is a way of providing complete clarity and reducing chances for misaligned expectations and mistakes.  Along with the processes, it is important to define the metrics that will provide the important performance feedback, e.g., cycle times, defects. 

5.  Be In Control of the Transition Phase
If the transition is poorly managed, the relationship could be a very difficult one.  If there is unnecessary confusion, skewed expectations, and developing mistrust at the beginning, things are only likely to get worse.  Often, one of the critical success factors is transferring knowledge and expertise, and developing a common business understanding and language.  Identify the best onshore and offshore managers to manage handoffs, and find ways for them to develop a relationship, e.g., team-building.  Send managers to one another’s facilities and have them job-shadow each other for a while.  If the scale and scope of the relationship is large, it might be worth having someone from the vendor within your organization to act as liaison and troubleshooter.  Also, make sure that there is clear and comprehensive documentation.  If you were outsourcing software development, for example, there would need to be excellent documentation on such issues as file protocols, hardware and software platforms, etc.    

6.  Maintain the Relationship
Neglect is one of the most common causes of failure in alliances.  Following the transition, it is vital to ensure that the business and relationship stay on track.  On the ‘hard’ side we need to be asking tough results-oriented questions: Are the desired outcomes being accomplished?  What improvements can be made in our integrated processes?  Do we have the right metrics in place?  On the ‘soft side’: Do we have the right balance between trust and control in the relationship?  Are our co-managers working effectively?  Are there areas of training we need to give extra attention to, e.g., virtual teamwork, working across cultures, accent training (for call centres).  

7.  Review and Evaluate the Relationship
Business environments change and factors that were key to a successful business 2 years ago may change this year.  As well as regular progress check meetings, it is good to have an annual review meeting among key managers to discuss the relationship at a more strategic level.   

Offshore outsourcing continues to grow rapidly as company’s look to reduce their cost base.  McKinsey forecasts that by 2008, IT services and back-office work in India alone will increase fivefold to a $57 billion industry employing 4 million people.  HR is no exception; According to Gartner Dataquest – a research firm – 85% of American enterprises will outsource at least one component of their HR functions by 2005.

Whatever your reasons for offshore outsourcing, be smart.  It can cost more and take longer than you think.

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