More than half of offshore outsourcing initiatives fail to meet cost savings and contract performance targets, according to a three-year study of 90 offshore initiatives. This Foote Partners study found that poor supplier relationship management was to blame. In particular, there were several companies abdicating too much management responsibility to their offshore supplier once the contract was signed.
It's tempting to do so. After all, offshore suppliers can be halfway around the world, and it costs lots of money to keep a close eye on them. They're Level 5 on the Capability Management Model (which ranks quality-related practices) and most companies are probably a Level 2 at best. But if you can't build and maintain better relationships, it will cost you plenty, maybe even your job if you have made bold cost savings projections to your CEO. Here are 13 steps to successfully manage your offshore outsourcing supplier:
- Select an experienced supplier and understand the supplier's real business model. Everyone involved must understand company core values for both sides, and deliver on them.
- Go through an exhaustive due-diligence process and examine every possible contingency of the offshore deal. Nail down all terms before an outsourcing contract is signed, and be absolutely certain that you understand differing legal standards and cultural norms.
- Determine how stable a supplier's workforce is and find out how it measures its attrition rate. Make sure your provider has career advancement paths in place and plenty of retention inducements.
- Ensure buy-in on both yours and the supplier's sides to a detailed strategic offshore outsourcing plan from the very start, not just senior management but middle management on down. Set clear objectives and get consensus before signing any outsourcing agreement.
- Establish a small domestic employee "anchor team" responsible for project control and quality assurance. Select a few people from the supplier company to serve as domestic liaisons and assist in project management to avoid problems with project control and business knowledge issues. Agree on the project management tools and processes to be used, and ensure that the offshore team understands all nuances. Adopt a structured change management and issue tracking process, but be flexible with respect to the needs of the offshore team.
- Develop a communications plan for primary external and internal stakeholders, providing mechanisms for feedback, two-way communication and especially for active follow-up with the offshore outsourcing manager(s) and IT steering committee.
- Embrace the offshore team, involve them in your business, share vision and plans, and help them anticipate and better respond to the changes.
- Give extra attention to the "soft" factors. Throughout the project ensure regular face-to-face communication with suppliers, the offshore team and managers in outsourced facilities. Budget and plan for visiting the offshore facility, communicate business expectations in person and maintain constant personal contact. Consider walk-throughs, reviews and testing at the offshore location to be assured that feedback is understood and incorporated accurately, in a timely manner, and in a way that will motivate the offshore team.
- Carefully outline the process for ordering changes to work being performed, and stick to it so you don't lose track of change orders in multiple e-mail exchanges with a supplier.
- Devote strenuous efforts to managing user expectations. Give users straightforward information about accomplishments and don't hide bad news. Introduce stakeholders to the offshore team and don't hesitate to share their concerns. Agree on contingency plans ahead of time with the offshore manager. Demonstrate transparency and proactive planning.
- Set and measure financial, productivity/performance, resource and relationship/process goals that extend beyond contract service-level agreements. Aim as high as possible so that you won't be disappointed with a lesser result.
- Plan for unexpected costs during the early stages of the outsourcing relationship, when knowledge is transferred from people on staff to members of the outsourcing team (e.g., extensive travel expenses and plenty of cultural or language training). Deploy additional network bandwidth and security technologies if necessary for important data transfer. Be aware of country-specific communications and data encryption regulations and requirements.
- Think through the scenarios and the what-ifs both long- and short-term to anticipate emerging costs, and ensure that the outsourcing provider is delivering the expected services. Treat the outsourcing relationship as a task-based performance contract as well as a partnership.
In conclusion, try to avoid costly surprises. Consider quickly completing one full application development cycle or phase of the IT operation or business process being outsourced, and involve all technical, quality assurance, compliance team and user group principals. This is not necessarily a pilot, but an exercise to go through all the steps leading up to going live with a large project. Use the experience as an early test of teamwork, knowledge transfer, communications, project management and other critical success factors.
David Foote is co-founder, president and chief research officer of Foote Partners LLC (www.footepartners.com), a management consultancy and IT workforce research firm based in New Canaan, Conn. A former Gartner Inc. and Meta Group Inc. analyst who founded and directed Meta's executive service, Foote has advised leading corporations and governments on five continents in information age management strategies for more than 20 years. Contact him at email@example.com.
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