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Five ways to make your offshore outsourcing relationship work

Going offshore for applications development work and business process services is no longer a question of whether, but rather a question of how and when.

The cost and quality opportunity of offshore outsourcing is just too great to ignore. One research study estimated that using offshore services for software package implementation and support saves 15% to 20% in the first year of work, and up to 40% to 50% in subsequent years.

Shifts in where work is performed are the inevitable result of globalization, helped by broad advances in communications and IT. But to accomplish real cost savings, and even more, from offshore outsourcing, companies must think carefully and broadly about their offshore relationships and what's possible. Here's what to go for:

Capability and chemistry

The first question to ask of an offshore service provider is one of capability. What are its technical and project management skills, its performance record, its industry knowledge and breadth? The second question is what will the "chemistry" be like between the two companies. It takes chemistry, as well as capability, to bridge a 10,000-mile distance -- and a service provider's chemistry is made up of a combination of its people, processes and shared beliefs. It's easy to meet the people, a bit harder to see a service provider's processes and even harder to ascertain a company's beliefs or culture. One technique to understand the culture of an offshore service provider is to project how it will behave in a condition of crisis -- an operating breakdown, national strife or natural disaster. Is it likely to do the right thing at the moment of truth?

Transparency and trust

If the chemistry is right between the two companies, a comfortable trust should develop. But to maintain that trust, both the company and the offshore service provider will have to be transparent. That is, they must make their operations fully visible to each other. A good offshore/onshore partnership can only work if the business processes can operate across long distances, and this requires a degree of openness that most companies normally do not practice. Transparency is most important when you are offshoring business processes. Offshore processes must connect seamlessly with onshore processes, or cost advantages will disappear and service problems will increase.

Transparency is also required to know when operating breakdowns do occur, and a governance structure is required to determine what to do about those breakdowns.

Go for more than costs

Almost all major companies operate globally. That means more than just having a global headquarters. Consider using offshore partners to develop a real "follow-the-sun" operating strategy. The objective is to have operations up and running somewhere in the world during a full 24-hour period -- connected by technology and through a set of processes that provide service to any location, at any time. Service levels can increase, while costs go down. This benefit can also be important for companies that must operate with a 24/7 help desk capability -- like those in the pharmaceutical industry.

You can also shorten the duration of applications development efforts by building an "around-the-clock" development environment. Report development, data migration and testing can be strategically programmed to take advantage of operating in different locations and time zones, getting new company services to market faster. It may also be more cost- and time-effective to support global software rollouts from an offshore hub. Don't get stuck in the belief that all major development efforts have to be U.S.-centric.

Know the extent of business change

Most major software efforts fail because managers and executives underestimate the degree of business change that a new system will require. Knowing how much business and process change are involved in an initiative is all the more important when you are considering doing the applications development work offshore. If a considerable amount of business transformation is involved, be careful not to shift too much of the work. Change management expertise is important and onshore capability is required to get the job done. In these instances, the balance of offshore and onshore work must be carefully and intelligently considered.

Will my job disappear?

When the prospects of job loss are at hand, people may resist moving work offshore. Don't miss the fact that concerns are present as decisions are being made. It is always fair play to see whether an onshore capability can compete. But in the end, a company's competitiveness may be at stake. Moving work offshore may deliver a tough message, but new jobs get created by companies becoming more successful and putting money back into local economies.

James Champy is chairman of Perot Systems Corp.'s consulting practice and head of strategy for the company. He is also the author of the best-selling books Reengineering the Corporation, Reengineering Management, The Arc of Ambition and X-Engineering the Corporation.

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