By Linda Tuck Chapman, President, ONTALA Performance Solutions
Outsourcing is serious business and will have a long-term impact on your company’s future. Let’s improve the odds that it’s a positive one! Your customers and shareholders shouldn’t and won’t differentiate who delivers their services – your company or a third party. So the time you invest in planning your outsourcing program and sourcing the right service providers is time well spent.
Before you set your sights on a service provider or a destination, spend time setting strategy and planning. During an initial discussion with a client about expanding their small offshore program, they quickly realized that there was no consensus across the senior leadership team about their long term outsourcing strategy or the appetite for more offshoring in the current political climate.
Questions Precede Success
The questions you must answer are numerous and wide ranging: What value are you hoping to capture? What needs to happen to increase the probability of success? Every company that makes the decision to outsource wants to save money or avoid capital investment, so what else do you want to get out of the relationship? Is there visible executive support and who are the internal champions? Which countries and companies should you be looking at? What are the key constraints? How can you make the engagement process easy and predictable? What are the obvious mistakes that other companies have made and how can you avoid them?
The good news is that while there are lots of questions there are many, many successful offshore programs. And you don’t have to reinvent the wheel.
Determining what is most important to internal stakeholders is important but it doesn’t have to get complicated.
Typical goals that are readily satisfied by outsourcing include:
1) Cost savings or cost avoidance
2) Access to a large, high quality and skilled labor pool
3) Capacity that flexes with your demand
4) Exposure to sophisticated processes and knowledge transfer
5) Access to superior technology, processes or a platform.
Keep on Track
Once there is consensus on goals and objectives write it down, validate that you got it right, then re-state the goals and objectives at each phase. It is amazing how much drift can occur if you ignore this tactic. Re-validating goals and frequent stakeholder communication are fundamental to managing expectations and driving wildly successful programs.
The next consideration is potential service providers and locations. Although India and China are leaders, Nearshore service providers are quickly climbing the value chain with competitive talent pools, robust technology and viable solutions. And they offer something that India and Asia can’t…. same-time work hours. The value of which should not to be under-estimated.
Sourcing a Nearshore service provider means also means that cultural differences are not as extreme, geo-political risks are better understood, travel for site visits and operational management is far less onerous and costly, and the opportunities for collaboration should be more likely and frequent. And cost savings are comparable.
Do the Right Work Up Front
You need to be thorough during sourcing and contracting. This means investing enough time to think through and finalize everything possible during the sourcing contracting phases. Make sure you do your research, benchmark pricing by role and location, and adopt published best practices. Set up a simple pricing model, anticipate current, near-term, and future needs including specialized skills. Design a competitive but manageable number of performance metrics and minimum service levels, and define respective roles and responsibilities. Establish time-specific targets to increase the ratio of offsite/onsite resources, and strategies to minimize turnover of resources assigned to your account.
Once you have a strong foundation, a user-friendly engagement process will become the key to a successful program. If your program is for IT application development, maintenance and/or testing, developing a good set of requirements is far more important than ever before. If you have a PMO, good news. If not, source or quickly develop training or leverage your outsourcer to help develop this key skill within your team. Your project teams need to write solid Statements of Work and be able to size the work effort. You can publish examples on your intranet, deploy proactive support and mentoring, and establish internal user groups.
As for project pricing, it is okay to start out with time and materials pricing using negotiated rates. Within six months you should have enough experience and expertise to move to fixed pricing. And over time, if you commit a minimum number of resources or spend, you can evolve to “development centers,” dedicated teams who identify with your company and are exclusively assigned to your projects. This will help you to control costs, improve quality and increase your offsite/onsite resource ratios. Your informal leaders will emerge, so identify these internal champions early and noisily celebrate their successes.
If you want your outsourcing program to be wildly successful, here are three key tips to take away:
invest time to develop an enduring strategy and take time to plan
finalize every detail possible during the contracting phase
make it easy for users to engage
Linda Tuck Chapman, ONTALA Performance Solutions, is a former Chief Sourcing Officer and is now an expert advisor in Outsourcing, Strategic Cost Management, and Vendor Governance.