Offshore outsourcing is an excellent and proven management tool for improving productivity and quality. However, companies must diversify their outsourcing partners geographically and among time zones to minimize geopolitical and cultural risk, while optimizing competencies. Specifically, diversification of sources will help manage the following risks:
Time zone differential
Potential for miscommunication
The solution to such risks is diversification. In effect, the organization should balance the risk, or as it is commonly expressed, not put all its eggs in one basket. This not only spreads the risk but enables the organization to drive better pricing and to avoid vendor lock-in.
The time zone differential can be both an advantage and disadvantage. For work where little interaction is required between the local and offshore teams, such as heads down coding, the differential can be a productivity advantage. The offshore team writes code while the domestic team sleeps. Where projects require interaction between the offshore and local teams, however, the difference of more than a few time zones can be a productivity killer.
The solution calls for mixing both far shore and near shore outsourcing providers. Through a project portfolio management strategy, managers can direct projects involving minimal interaction to appropriate far shore providers while steering projects that benefit from collaboration to near shore providers who can more readily interact with the local team given a minimal and manageable time zone difference.
For North American companies cultural mismatches occur when the outsourcing provider’s culture differs markedly from the Western business culture. The further the offshore provider is from the dominant Western business culture the more likely cultural mismatches will occur.
Again, the solution involves balancing projects between near and far service providers. An offshore provider in the Western hemisphere, for example, will be more in tune with the Western business culture than one in the Far East.
A skills mismatch occurs when the organization simply fails to effectively screen the provider for its specific skills. Every provider has particular strengths. Taking the portfolio management approach, the manager should identify the demonstrated skills of each provider and direct projects to different providers based on the project’s need for those particular skills.
Miscommunication in offshore outsourcing occurs primarily due to one of two things; lack of fluency in the customer’s language or a cultural barrier. Language fluency can be screened at the outset of the relationship. English has emerged as the dominant language of IT, but it is not enough to speak fluent English; you and the provider must communicate on the same personal wavelength.
This may not be a language issue as much as a cultural issue. Many far shore providers speak excellent English yet fail to communicate in an effective way. They may, for example, delay reporting that a project has slipped behind schedule in the hope they will somehow bring it back on schedule. Again, the solution is to screen the providers not just for language fluency but for cultural biases that may hinder effective communication. Managers want to avoid last-minute surprises arising from miscommunications.
Even normal outsourcing risks are amplified when going offshore. For example, the usual concerns about customer service. Managers want to be able to pick up the phone, call someone, and be assured that the provider is there to answer the call. Waiting 12 hours for the outsourcing provider to come into work and return their call is not acceptable in many cases. Again, a selecting from a mix of near shore and far shore providers based, in part, on the urgency of customer service, can be the solution.
Finally, managers are concerned about the quality of the relationship between the company’s staff and the offshore teams. Where outsourcing vendors are closer in terms of distance, as measured in time zones, and where there are more cultural affinities, it is easier to create close relationships between the two teams.
For North American companies considering offshore outsourcing Global Services Media recently looked at 50 outsourcing destinations. The top five of which alone--India, Philippines, China, Ireland, and Brazil—form the basis of a diversified IT service provider portfolio. Choose one of the first three for far shore and Ireland for mid shore. Brazil clearly is the near shore option.
David Shpilberg is vice chairman and co-founder of CPM Braxis, the largest Brazilian IT services and outsourcing company, providing IT consulting, application development and maintenance, software integration, remote infrastructure support and business process outsourcing services to global companies.