Offshore Outsourcing: Is There a Method to the Madness? Planning for Offshore Outsourcing
Written By: Nitin Kapila
Published On: May 28 2005
Regardless of whether you are a general manager with profit-and-loss responsibility, or are in a managing function, such as finance or information technology, the maturing of offshore outsourcing will impact you because it changes the way organizations structure, operate, compete, and deploy resources.
Consequently, several organizations have stumbled while experimenting with offshore and outsourcing in the past, and will continue to do so in the future unless they use a methodology to develop an outsourcing process. Without an appropriate process, an offshore initiative can result in increased costs, loss of customers, and the attrition of employee morale.
Planning Before Execution Will Expose Major Pitfalls
The planning phase for the successful application of offshore outsourcing involves minimal expense upfront and allows for rapid return on investment (ROI).
The typical start-up costs for the planning phase include assigning resources for business planning. The benefits of business planning usually include lower cost structure, improved responsiveness, increased focus on core processes, higher margins, and cash for entry into new markets and these usually offset the upfront costs of an offshore outsourcing initiative when done right.
Jumping into a partnership with a provider without due diligence including a business, operational, financial, or risk and mitigation plan is highly risky. Without planning, the team will have no way of gauging progress and measuring the risk of strategic, cultural, and operational issues associated with jumping directly into execution. Ultimately, an organized planning phase is crucial.
Program Management During Planning Mitigates Risk
Appointing an offshore outsourcing lead for program management for the planning phase is highly recommended to optimize benefits and avoid disruption to the ongoing operations and momentum of the organization.
The program management lead, in concert with the planning team, should develop and document a clear understanding of existing processes, owners, and costs. It is also important for the team to understand competitive, geopolitical, and pricing trends to ensure the team creates realistic targets for the initiative.
Activities undertaken during the planning phase typically include
(i) interviewing the owners of candidate processes, projects, or both;
(ii) facilitating work sessions;
(iii) creating work plans;
(iv) drafting a business plan; and
(v) creating high level transition plans.
Cross Functional Collaboration Adds Tremendous Value
Including key customers, prospects, employees, partners, and investors in the planning process often uncovers areas of opportunity that may accelerate ROI and minimize the risk of executing operations from offshore. Often collaborative requirement planning also uncovers resources and domain expertise that may have been overlooked when planning in "silos". For example, during the planning process that was undertaken at one software company, the team uncovered a key leader in research and development who was willing to relocate offshore to help start the offshore operations. The leader's willingness to share expertise thereby minimized some of the risks associated with working in teams across time zones and corporate cultures.
Experienced Managers Create a Phased Plan to Avoid Pitfalls
Successful implementers of offshore outsourcing typically take a phased approach. By breaking up the implementation into incremental phases that usually last between 12 to 24 months, organizations can manage risks and mitigations, and accelerate or decelerate their rollout appropriately.
The first phase of any implementation typically involves a pilot to ensure that communication channels, cultural alignment, feedback mechanisms, and other critical success factors are incorporated in the program at an early stage.
Business Planning Should Cascade into Requirements Planning
Once a foundation of current processes, owners, and goals is in place, the team can start documenting requirements for the leading candidates in collaboration with stakeholders. This stage-gate approach allows teams to focus on candidates with the highest degree of leverage and on ROI because requirement planning is typically only done for leading offshore outsourcing candidates.
Collaborative Ranking Criteria Go Beyond Partner Capabilities
Several categories of offshore outsourcing providers are available to businesses. They include the following:
- Multinational firms such as Accenture, IBM Global Services, ACS, and EDS that typically serve the needs of large enterprises.
- Established offshore outsourcing firms such as Wipro, TCS, Satyam, Infosys that are focused on lowering the total cost of outsourcing by undertaking majority of execution offshore.
- Emerging offshore process specialists such as Sonata for information technology, Global Vantedge in receivables management, and vCustomer in call center services. They are currently smaller in size than the generalists and focused on lowering the total cost of ownership of a specific process.
- Offshore capacity providers can help North American and European companies set up their own wholly owned subsidiary or joint venture.
Based on the objectives developed during the early stages of planning, firms can focus on due diligence and negotiations with the appropriate short list of offshore partners to ensure that strategy, culture, operations, and execution are aligned.
Pragmatic Planning Can Lead to Spectacular Results
Offshore outsourcing is a proven way of using resources from more than one country for lowering costs, entering new markets, and increasing capitalization. Organizations, both large and small, should consider applying offshore outsourcing to their processes pragmatically.
By adopting a proven methodology, organizations can achieve spectacular results. Offshore outsourcing allows organizations to reengineer their activities by focusing in-house personnel on the firm's core-competence, while outsourcing non-core functions to a shared service or third party organization whose personnel focus on developing the economies of scale and best practices in the function they provide.
About the Author
Nitin Kapila is a consultant with extensive international experience reviewing and benchmarking cross-border operations; collecting qualitative and quantitative data from across back- and
front-office functions; collaboratively ranking processes for offshore application; developing metrics and transition plans; and assessing valuation as well as go-to-market strategies for outsourcing providers.
Prior to consulting, Kapila served as a director of corporate development, product management, and product marketing for Inovis. He spent three years at MCI Telecommunications in product management and financial analysis positions. Kapila and his team from GRM Group, complement executive teams on assignments by leveraging business operations, offshore outsourcing, and corporate development experience.
Kapila holds an undergraduate degree in Electronics Engineering from Punjab University, an MBA from the American University, and has completed Executive Education at Harvard Business School.
He can be reached by e-mail at email@example.com or by phone at (404)321-7515.