offshoring and outsourcing

Managing Offshore Outsourcing: Conducting a Relationship Health Check

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So, you have been outsourcing offshore for a while. If your experience is similar to many companies, even if you have been successful in the beginning, over time, issues begin to creep into your offshore operation; expectations do not continue to be met consistently. Why does this happen? How do you assure continued success?

Symptoms of trouble in an offshore outsourcing relationship

Recently I was called in by a Silicon Valley company faced with a management challenge. They had been offshoring for the past few years. In the early stages things seemed to go well, but in the recent past they encountered several issues and many in middle management felt that this whole idea of offshoring was not working. It was simply taking too much management time, was not saving the company any money and in fact it was a bad idea.

Senior management could not understand why this was happening. After all, they had done a lot of due diligence and chosen one of the top-tier vendors in India with an impeccable track record and reputation. They had devoted significant internal resources to establish and manage the offshoring initiative.

This Silicon Valley company is not alone in experiencing such symptoms. While some companies are quite successful, many find that the service provider does not meet their goals in a consistent way. Over time schedules and quality begin to slip. Your staff starts complaining that low productivity in the offshore operation is eliminating cost benefits with which you justified the move to offshore in the first place. Politics develop between the U.S. and offshore operation. There is finger pointing. And the U.S.-based groups complain about the offshore group doing their own thing, and the offshore operation complains about lack of solid requirements and communication problems with the U.S. groups. Teamwork seems to break down on any subject dealing with the offshore operation.

Why does this happen?

Offshore outsourcing is challenging because of distance, time zones and cultural differences. In addition, rapid growth in countries like India creates additional issues.

For example, when I began working with Indian companies in the early 1990s the offshore outsourcing was still in its infancy. Recent reports indicate the industry crossed $100 billion. And the growth continues! Management in various companies is challenged to handle such rapid growth. Some are more successful than others. In addition, internal movement upwards in the provider’s organization means that personnel with whom you had established personal rapport may have moved on to other assignments.

Attrition rates are high because of the abundance of opportunities for staff due to industry growth. So, not only management personnel may change, but individual contributors you have trained may also may have moved on.

If you began with a subsidiary of your own a few years ago and were successful, it may not still be a viable business model. This is especially true if you had set up a small-sized subsidiary; it may be hard for you to continue to attract and retain people in today’s environment. In addition, cost of management and infrastructure overhead in the current environment may make savings from offshoring disappear.

In addition, your own processes and personnel may have changed over time, causing some of the issues.

How do you address the issues?

1. Conduct regular audits of your offshore operation; once a year is a good frequency. In this audit, you should:

  • Review and update goals of the offshoring initiative – offshoring dynamics has changed considerably over time. For example, many companies initially went to India to reduce costs but now find that India offers a rapidly growing market potential. If you have not factored this change in your business strategy, should you?
  • Review the offshoring business model – if you set up your own subsidiary, make sure that it still makes sense. We are finding that many companies that set up their own subsidiaries offshore are not meeting expectations in today’s environment.
  • Make sure that continuing with the same outsourcing provider/partner still makes sense. You may have been a very important client to them five years ago; but if they grew rapidly as many companies have, are you still as important or at least important enough to them?
  • Determine offshore productivity. Identify approaches to enhance. This can range from tools, processes, infrastructure, management and how you are gaining visibility.
  • Assure consistent expectations between your organization and the offshore organization at all levels. You need to integrate management processes, culture and goals. You need to make sure that they are current.
  • Establish regular program reviews, if they are not already in place. The agenda should include not just the tactical aspects but your needs for the longer term.

2. Train your staff. Often technical managers and executives with no prior experience in offshoring find themselves with the task of managing an offshore effort or initiative; they do not receive training in the nuances of managing offshoring. Though they can develop this skill over time, you should consider providing training to help them get up to speed rapidly to effectively manage offshoring. If you did this initially when you launched into offshoring, you need to assure that you continue to train new managers.

In conclusion, to be successful, offshore outsourcing requires constant vigilance. Assuming you have been successful in getting past the initial hurdles, you cannot rest. Over time issues begin to creep into your offshore operation. To continue to be successful, you need to put in place annual audits/assessments of your offshore operation and continue to train managers in the nuances of offshoring.

M. M. “Sath” Sathyanarayan is President of Global Development Consulting, Inc., an advisory firm that provides training, coaching and consulting on offshore outsourcing. Whether you are just getting started or have been at it for several years, you can leverage GDC’s expertise. Sath has over 25 years’ experience in the industry; he led the pioneering effort in offshoring at HP/Tandem beginning in the early 1990s, was Founder/CEO of a startup and is now consultant, author and trainer. His continued thought leadership in offshoring is reflected in the book “Offshore Development and Technical Support: Proven Strategies and Tactics for Success.” He can be reached at sath@OffshoringSuccess.com.

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