10 things to think about when you are offshore outsourcing IT
This is my site Written by Thomas Tøth on January 14, 2016 – 4:37 PM

** This blog entry is first published on LinkedIN Pulse on January 14th 2016. 

Offshore outsourcing (i.e. moving work to another legal entity in another part of the world) of IT-services is by no means a trivial task. All too often we see companies fail in reaching their goals and delivering the value and/or cost savings that they set out to achieve when they started on ‘project outsourcing’. Many companies are blinded by what appears to be huge savings in labor arbitrage.

There is indeed a good business case in offshore outsourcing of IT-activities, but it requires mature planning and execution. Here are ten of the most important things to think about if you want to outsource IT or IT-related activities.

1 – Selection of Country, partner and model
Arguably, selection of the offshore destination, the outsourcing partner and the outsourcing model could easily be broken down into ‘10 things to think about’ itself.

However, for the purpose of this blog entry let’s simplify it: Outsourcers need to put in a lot of effort in choosing the most suitable destination. Elements such political stability, proficiency in a language that is common between the client’s home country and the outsourcing destination, ability of the right kind of resources are among the most important considerations here.

Selecting the right partner is arguably even more important and while there is a long range of assessment parameters, I’d like to emphasize the overall importance of being compatible.

Finally, there is the outsourcing model. Are you going for pure service sourcing solution; and is your organization adequately mature to pursue this kind of outsourcing collaboration? Or are you thinking in the lines of a body shopping model, where the outsourcing partner provides resources that you manage within your existing organizational setup; and are your line managers capable of managing such a diverse and geographically dispersed workforce? Or are you aiming for a model somewhere in between the two aforementioned?

2 – Deconstruct Activities
What can and should be outsourced? The outsource-ability of activities depends highly on a number of factors, including, but not limited to: technical and business, process maturity, level of documentation and operational criticality.

In order to pick the right activities to outsource any organization need to deconstruct the activities that can potentially be outsourced and select the most feasible activities based on, among others, the above factors. And remember: If you outsource a failure you will most likely end up with a disaster.

3 – Partner’s benefit and motivation
Engaging in outsourcing is quite often a long-term investment. Just as in partnerships of a more personal character you will not be successful if you fail to pay attention to the fact that the outsourcing partner should gain from the partnership too – success is only achieved in win-win situations.

Therefore: Consider carefully how to strike a balance between your business case and the outsourcing partner’s business case. The key question is: How do we make sure that our partner has incentives to help us deliver our business case? Don’t exploit them – that will only make you happy for so long…

4 – Knowledge Transfer
Most large offshore outsourcing engagements I know of have a contractually agreed transition period of about six month where, among other things, the client-side employees are supposed to hand over knowledge to the vendor-side consultants. When I ask CIO’s how much time it takes before a newcomer to the organization is completely up and running and reaches maximum productivity, most say that it takes about two years. No wonder that a lot of outsourcing buyers complain that the service providers lack knowledge about their business!

To secure a good knowledge transfer knowledge gaps needs mapping first. Then, you need to make a plan that specifies a) what knowledge needs to be transferred, b) who is responsible for the overall knowledge transfer as well as responsible for executing knowledge transfer, c) which methods are most appropriate for the knowledge transfer, d) how much time does the buyer-side need to allocate to execute knowledge transfer, and e) how is the success of the knowledge transfer evaluated?

5 – Governance, SLA’s & KPI’s
Working across organizational and geographical boundaries is inherently different than working in a co-located environment.

Many organizations “move jobs” to an outsourcing partner and forget that their own organization has to be adapted to the new reality. This includes establishing a “receiver-organization” that can overlook the performance of outsourced activities and maintain the contract and relationship with the outsourcing partner. It also includes clear and effective governance structure that is mutually agreed upon as well as detailed service level agreements (SLA) and key performance indicators (KPI).

6 – Process Maturity
The big IT-outsourcing service providers are typically very mature in terms of processes. Furthermore, the big service providers have a lot of experience in setting up offshore outsourcing collaborations. Listen to them! After all, if you are engaging with a big service provider a significant part of the value comes from standardisation.

If you insist on working with them “your way” they will most likely accept. But the result is typically miscommunication and difficulties in coordination. Use their standardized frameworks and take it as a chance to improve your own organization’s process maturity and the process-related skills of your employees.

If you are engaging with a smaller service provider without a high level of process maturity you need to put an extra effort into implementing processes – collaborating across organizational and geographical boundaries will, put simply, fail without mutually agreed-upon processes.

7 – Language and culture
I have seen senior management teams in Danish organizations declare that, “as of today our corporate language is English”. Reality just doesn’t work like that. There is a huge difference between being able to small talk in English and having the proficiency to work on complex matters, such as IT, in English.

Likewise, working with people that are culturally very different than us is not at all trivial. Training your staff in cross-cultural communication and collaboration is almost always worthwhile. With the right trainer your staff will get insights into the new and strange culture as well as new perspectives on their own culture – and a toolbox to help them overcome inertia from culture clashes.

8 – Virtual Communication
Virtual communication is something that we all do on a daily basis. We send emails, instant messages, make phone calls, send text messages and some of us also spend a significant part of our work day using technologies such as Skype or other forms of video conferencing and e-Meeting systems.

However, when it comes to virtual communication in offshore outsourcing engagements, virtual communication is something that a lot of people perceive as challenging – and this despite of the fact that we all engage in virtual communication every day! Why is that? Put simply its because we know the people we are dealing with, rather than because we are actually good at virtual communication.

Unfortunately, when we engage in globally distributed collaboration we usually do not have the luxury of knowing the people we deal with that well. This means that we need to learn to do ‘proper’ virtual communication if we are to succeed in such collaborations.

And mind you, to do proper virtual communication is not just a matter of having state of the art technology available. Even though it is an appealing thought that a lot of IT-managers cling on to technology does not fix communication problems!

Surely, good technology helps, but in order to succeed in virtual collaboration with “strangers” one needs to learn to communicate in a new and different way. This requires both knowledge and practice.

9 – Your own staff’s motivation
Many organizations experience significant motivational problems among their own staff, when they engage in larger-scale offshore outsourcing. When you think about it that’s not at all surprising. Telling your staff that you believe that someone on the other side of the planet can do their job will inevitably affect people’s self-perception and confidence – “how can a new Indian guy, straight out of college do what I have spent 15 years to learn?”, they ask.

Whether he can or not is not important for the point I a trying to make here. The fact is that if your employee’s start thinking like that you are off to a really bad start. The slightest little mistake done by your new consultants will be interpreted as incompetence; your employees will engage as little as possible with the consultants, resulting in lack of business knowledge among the consultants etc.

So, the question remains: How can you keep your own staff motivated when you engage in offshore outsourcing?

In all too many organizations the official communication about the reasons for engaging in outsourcing as well as organizational support to adapt to the new reality of outsourcing has been downplayed with detrimental consequences. Your own staff is the foundation on which you will build a success and the organizational change project should be given a very high priority.

10 – Get professional advice
Getting professional advice from experienced outsourcing consultants is often a good investment. This is often recognized when it comes to the initial selection process as most organizations realize that re-doing a selection process when you too late realize that you had a false start is indeed most difficult.

However, false starts can be equally detrimental when it comes to the eight other challenges I have addressed above, as your employees sub-optimal experiences with offshore outsourcing and the corresponding bad stories that will start to circulate in your organization are equally detrimental to the success of your offshore outsourcing endeavor. Within these areas getting professional advice is often a good investment too.

So, bottom line: Consider the abovementioned bullets carefully and get help from an experienced consultant or consulting company in areas where you have shortcomings. Doing it right the first time is after all both more fun and less costly than repairing!

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