Quest for an Organic Approach to Offshore Outsourcing

One of the toughest challenges for businesses today is trying to retrofit offshore operations once they have evaluated what work to send offshore or outsource.  They can spend months – or even years – strategizing how to do this effectively.   I am honored to welcome Uttiya Dasgupta discuss his theories on developing a phased approach to implementing an offshore outsourcing initiative.  Uttiya is one of the industry’s first genuine offshoring pioneers, having set up and managed IBM’s first offshore dedicated center in Bangalore in the 1980′s, in addition to helping Texas Instuments and Samsung establish their offshore operations.  He now heads up his own outsourcing consulting firm Omnispan.  Over to you Uttiya:

Ask a company which has been outsourcing work offshore, maybe for a year, about how well things are going, and you are likely to get responses such as “Well, we did OK on some projects” to “It is still a new area for us” to “Execution is fine, but we need to figure out how to use this as a strategic tool”. Ask the provider the same question and you will hear responses like “We wish we could get more work” to “We need clients to manage more effectively” to “The client requirements keep on changing and we are held accountable for non performance” etc.

Over a few more years, the situation tends to stabilize or the contract is reduced in scope or discontinued. To an SME which does not have deep pockets and time on its side, such uncertainties can lead to irreparable harm.

Many companies are advised to invest time and effort to choose an offshore provider with the right technology, management and cultural skill sets, with cost reduction being a basic necessity. However if you have not developed a business strategy that incorporates outsourcing as a key enabler, isn’t it not true that you will use the provider more for tactical one-off projects? Will you be able to leverage the provider’s capabilities and build a strategic partnership?

Then again, you already have a running business. And you are trying to retrofit offshore outsourcing, so that it becomes an integral part of your business (or you might be taking a second chance at this). If you are an SME, you want to achieve your first success in a few months (not years), and continue from there. Does this appear as a tall order?

Fortunately, the answer is a No. A number of companies have adopted an evolutionary approach for their offshoring initiatives. Instead of spending endless hours up-front in strategizing, they have outlined three distinct phases. The first phase can be characterized as a Pilot in which simple and non critical work is offshored. If this is successful in a few months, they can move on to the next phase. The second phase can be characterized as reaching a steady state, in which more critical operational work is offshored. With consistency in operations, the next phase can be entered. The third phase can be characterized as a Partnership, in which the provider and client are well aligned to address critical and strategic business challenges. 

To quote some examples – software companies have offshored test automation and software auditing in Phase I, these were internal tasks, not directly visible to clients. After a couple of months, they have gone on to Phase II and offshored product testing and software development of a few critical modules (not IP related). After a year in Phase II, they have moved on to Phase III, in which they have been doing joint design and development and testing on new products.

Some benefits have been a) progressive building of a strong relationship and management processes between client and provider, b) progressive buy-in of the client’s internal staff to offshoring and c) progressive enhancement in performance. The last point requires mention since the bar on performance has been raised on both sides – client and provider.  While the provider is accountable for deliverables or outputs, the client is accountable for training, and specifications or inputs.

Where does the provider selection fit into all this? Well for one, the three phases should be identified up-front. As you do this, you will gain an idea about the kind of capabilities you are seeking in your offshore partner. Instead of having a straight jacketed RFP, include the phases as part of the RFP, and ask providers for any insights. Also quiz the providers on a lot of situational questions, keeping in mind that both of you need to resolve communication issues when work starts, or the “rubber meets the road”.

What about appropriate names for the three phases? Since you are progressively building your muscles for offshore outsourcing, how about using Crawl, Walk, and Run?

Uttiya_dasgupta

Uttiya Dasgupta is Founder and President of Omnispan LLC

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6 Comments

  1. Posted April 18, 2008 at 1:46 am | Permalink

    Offshore outsourcing is the way of hiring an external organization to do some business functions in a country other than the one where the product are actually developed. Functions are being performed in a foreign country by a foreign subsidiary. Opponents point out that the practice of sending work overseas by countries with higher wages reduces their own domestic employment and domestic investment. Offshore outsourcing benefits its employee because they are earning higher than what they are expected to earn in their own country.

  2. jefferson faudan
    Posted April 18, 2008 at 12:48 pm | Permalink

    i think that’s how the approach should be… crawl, walk and run… step by step…slowly but surely

  3. Posted April 24, 2008 at 12:23 am | Permalink

    Excellent synopsis for developing an offshore strategy. Thank you. Do you see major differences between business processes and IT offshoring when transitioning work offshore?

  4. Posted April 25, 2008 at 1:01 pm | Permalink

    Dan,

    Without going into the distinct differences between business and IT process offshore transition, my experience has shown that when offshoring routine processes that are well documented, the issues are pretty much the same across the board – for example, application support, or payroll data management. The real differences come into play with process that require customization to the business, and the ability to find the skilled labor offshore to take on the work. For example, there are often shortages in specific skillsets within application development, or financial analytics, that require alignment to the parent business. Moreover, attrition can be a huge issue with these more complex processes, so this much be managed well both onshore and offshore to minimize risk.

    Phil

  5. Posted April 27, 2008 at 11:08 pm | Permalink

    Thanks to Uttiya’s pioneering work, when I got to Bangalore in 1996 I thought we were late to the game…hindsight !

    I agree with the organic approach to a sourcing relationship, it creates project structures and relationships that are both more robust and more flexible than the big bang implementations.

    However, I find that larger companies often get lost along the way between “walk” and “run”. If a sourcing pilot is successful, follow-on projects multiply across departments and business units. Hands-on project managers with their own spin on tactics hyperfocus on operational governance. Execs are off focused on grander strategy, until they wake up one day and find that their outsourcing pilot has turned into a dozen siloed implementations owned by different managers. Each project is running fine, but the strategic impact is not there, and the total dollars are adding up. Words like “value add” get bandied about, but by this point there are many opinions about what constitutes value.

    My team is often called in for a relationship intervention, to help bridge the “Walk to Run” gap. We’ve concluded that there is a set of strategic outsourcing competencies that must be put in place in parallel with the “crawl, walk” phase before you can “run”.

  6. Posted September 10, 2008 at 1:39 am | Permalink

    i think this article presented the outsourcing decision analysis via genetic algorithm (hence, evolutionary approach). the initial operation being outsourced is the initial population (or individual) in the start of the algorithm. if the evaluation of the operation being outsourced does not improve the situation, then the company needs not to reject the idea of outsourcing.it’s just that the initial operation being outsourced does not fit for offshore outsourcing. the company can replace the operation to be outsourced. then evaluate the operation’s performance in the outsourced state. the number of iteration for the algorithm is the one period of performance evaluation (in sales commonly known as marketing period). business has really a lot of risk to take, it is always in constant innovation. who kows product maybe obsolete in the future (as floppy replaced by flash disk). one good thing about evolutionary approach is that it always converge to optimal solution. it could be wonderful if outsourcing company could provide software using evolutionary algorithms for the decision-analysis of prospective companies to outsource some of their operations. who knows it could entice all companies to opt for outsourcing.

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