The Allure Of Offshore Outsourcing
Is It Worth It?


By Dr. Wendell Jones

The allure of offshore outsourcing is just too attractive for many companies to ignore. Organizations are drawn by cost reductions and the promise of more staffing flexibility and increased business agility. However, the best of planning and the signing of a sound contract do not guarantee offshoring success. Success depends on effective management structures, processes and dedicated relationship managers who can manage and lead across organizational boundaries.

The relationship with an offshore outsourcing supplier requires discipline on the one hand and flexibility and cooperation on the other. There are special considerations in managing offshore outsourcing.

Special Offshore Considerations

One special consideration is the project and program issues that are magnified as the work moves outward from on-site to nearshore and offshore. The most significant project issues are communications between the individuals and teams, team building and relationship management, project and program management, and meeting performance commitments. Interfaces and handoffs between organizations are particular points of difficulty and risk. So while establishing and enforcing the use of strong project/program management and supporting tools and techniques with common standards and metrics is difficult enough on-site, it is particularly vexing and challenging — yet critically essential — across borders.

A second consideration is the communications infrastructure. In developing countries, services are prone to disruptions due to terrorism, political unrest, natural disasters, and other catastrophes. Before taking work to an offshore location, evaluate whether the country has an uninterruptible power supply, backup generators, and redundant communications facilities.

Disaster recovery and backup contingency plans are essential and should include plans to quickly shift work between locations as well as designate supplier and customer teams ready to travel on short notice to restore full operation in a new location.

A third management consideration unique to offshoring is physical security of intellectual property and trade secrets. These are important issues in any situation but are particularly critical in countries with different legal systems and enforcement mechanisms. While the leading nearshore and offshore suppliers maintain strong security measures and procedures to protect intellectual property, it is wise to limit offshoring to countries and companies that can offer security guarantees. The larger service providers typically provide these guarantees.

A fourth important consideration is the sharing of data and software across organizations and teams. This requires strict version control to protect the integrity of programs and data. It is important to keep versions of critical components in more than one location to apply backup and version control procedures and to use shared configuration control tools. Good conflict resolution processes clarify interests rather than positions, sustain a good working relationship between client and supplier, invent win-win ways to resolve differences, foster good communication, normally lead to better solutions, and are considered fair by both sides. While the contract provides the basis for dispute resolution, day-to-day handling of disputes depends on the offshore outsourcing managers.
If possible, colocate the offshoring managers from both organizations so that person-to person communication is easy and spontaneous. Face-to-face communication is the most effective.

Poor management of the people involved in the arrangement can seriously jeopardize the success of offshore outsourcing. Client and supplier offshore outsourcing managers should discuss and attempt to reconcile differences in their approaches to conflict management as part of the transition process. This helps to develop a unified and cooperative approach to resolving disputes.

Attempt to resolve disputes at lower levels and to follow a defined escalation process that involves both companies. Meanwhile, watch for negative and positive patterns in dispute resolution over time. Encourage the positive approaches as permanent ways to resolve future disputes and curb negative behaviors. Offshore outsourcing managers in both companies must be trained in dispute resolution methods. At the same time, think twice about using a power advantage over the supplier to resolve disputes. Habitual use of power erodes cooperation and eventually destroys trust in the relationship.

Integration Actions

There are a number of important integration actions. The integration efforts should foster a good working relationship from the outset and encourage cooperation and teamwork. Integration actions include:

• Planning the integration effort
• Selling change to the organization
• Gaining buy-in from the people essential to success
• Organizing management teams and structures
• Establishing conflict resolution mechanisms
• Placing people who will undertake and direct the integration effort and lead the relationship management process (including the offshore outsourcing managers in both client and supplier organizations)
• Establishing good relationships between client and supplier specialists and managers
• Setting up procedures that direct the work and manage the relationship
• Establishing communication methods and means

Communications and Cultural Differences

Strong accents and cultural differences are areas of obvious concern that may interfere with communications or cause misunderstandings between the supplier and the customer

Some countries may lack adequate data and voice communications and other reliable infrastructure capabilities, causing difficulties in using videoconferencing for day-to-day communications between on-site and offshore staff.
The location of supplier personnel can be a very important issue, particularly when coordination with users or internal people is critical for the smooth provision of services.

Several dimensions of location affect the ability to communicate with, work with, and manage an offshore supplier. One is the magnitude of the distance separating the two parties. Communication is easiest and best for people located in the same suite of offices. And generally, it is still not difficult for people in the same building on different floors. It is harder for people who work in different buildings, but on the same campus. The communications difficulties increase for people working in different locations in the same city, in the same area of a country, in different regions of a country, and in different countries.

If supplier people are located on different continents in widely differing time zones, the problems can be magnified. All this is why it is important to locate about 30% of the offshore staff on-site and communicate often between the on-site and offshore teams using videoconferencing.
 

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