Choosing the right Offshore Outsourcer.

What is offshore outsourcing? It is contracting with a third-party company located in another country to provide services to design or build products that might otherwise be performed by in-house employees.  Having worked with offshore vendors since the early 1990s, I have 10 tips which hopefully will help you choose the right offshore outsourcer.

1. Choose an outsourcer with whom you or someone in your network has worked with in the past and has established a level of trust. Do not view the outsourcer as one who is merely providing extra bodies to staff a project. The team at the outsourcer is really an extension of your staff. They must understand your company's culture and you must understand theirs. Be ready to go native! Start with a site visit to the outsourcer's facility. Take time to meet and get to know the outsourcer's team.
2. Do not shortcut internal preparation, planning and goal setting. Forrester data shows that it is quite beneficial to spend sufficient internal time on defining the overall goal of the outsourcing effort with respect to your company's business strategies and ensuring that detailed documentation is available for services that are being outsourced. The probability of failure goes up dramatically when the internal preparation is "fast-tracked".
3. Do not decide to outsource solely based on economic considerations. According to Gartner, outsourcing deals based on price alone are doomed to fail. Outsource to make your company more competitive in the market. Even though, cost savings will likely continue to be the driving force behind many outsourcing deals - do not nickel-and-dime the outsourcer. If you drive down the outsourcer in price or go for the cheapest offer - just like anything else - you get what you pay for. Outsourcing work to another country is usually a lot more expensive than you think because of hidden costs. Stephanie Overby in CIO magazine says, "Expect to pay up to 10% on managing the offshore contract."
4. Do not give up control of your outsourced project. There are many who believe that outsourcing a service transfers ownership of that business process to the vendor. Wrong! You need to remain engaged by participating in the planning, design and implementation in addition to determining how well quality standards and requirements are being met at every step. Successful outcomes are a result of defining quality metrics against which the outsourced service is measured at pre-determined points to determine variances so that quick corrective actions can be taken.
5. Outsourcing has inherent risks. Not all risks associated with outsourcing can be eliminated through well crafted service contracts. It is important to first identify and quantify the risks depending on the outsourcing operation and then work with the vendor to mitigate them. Risks associated with data security, process discipline, failure to deliver, turnover of vendor personnel and knowledge transfer are some of the common risks that need to be addressed. Ultimately, risk costs money. By using a collaborative approach not only can the risk costs be reduced but it usually results in reduced vendor charges as well.
6. One size does not fit all. The criteria used to choose an outsourcing vendor are different depending on the type of service, size and scope of the project being outsourced. It is important to stay focused on vendor qualifications that are pertinent to the project being outsourced and not use a generic one-size-fits-all approach. For example if marketing or advertising functions are being offshored it is important for the vendor to be knowledgeable about local culture and social norms. On the other hand, technical capabilities may play a bigger role in selecting an outsourcer for a technology project.
7. Choose a partner for the long haul. While it is important to ensure that the outsourcer is adequately positioned and qualified to meet your immediate requirements it is prudent to look beyond their current capabilities. Can the outsourcer scale up on technology, people and infrastructure as the needs of your company change? It is a good idea to share your company's strategy, roadmap and goals (as much as is practical) to see if there is a good match.
8. Choose an outsourcer with international certifications. This is an indication that the outsourcer follows industry best practices and standards which implies that there is a much higher probability that the end product will meet specifications with a lower than average defect rate. Teams with industry certifications provide a degree of predictability with respect to product quality and delivery.
9. The location of an offshore outsourcer is important because differences in language and culture in addition to the geopolitical climate can cause major problems. A country with a stable government that respects IP rights with good universities/colleges where the commercial language is English is usually a good bet.
10. Last but not least prepare your internal staff for the transition. Communicate, communicate, communicate. Outsourcing can cause major changes within the organization from layoffs to restructuring. The impact of outsourcing on your company's operations must be clearly communicated to spare employees the painful process of guessing who is going to be laid off next. According to Mary Weier of Information Week, offshore outsourcing rarely leads a company to eliminate most of its staff. In fact, it's fairly typical for companies that have adopted an offshore model to retain 70% or more of their internal staff.

Comments

[Mike at OffshoreAdvisor.com]

Samuel,

That is a great list of items to keep in mind when looking to offshore outsourcing partners. The few that I would emphasize are number 3, 6 and 7.

While cost savings are typically listed in the top three reasons for most outsourcing initiatives, you are right, there needs to be more than a focus just on cost. Also, you really need to set up an outsourcing arrangement based on your own specific needs.

And finally, you do need to take the long view. Many companies develop overly restrictive terms and conditions that limit flexibility and how an outsourcing relationship can evolve. At the end of the day, the market is going to change and your outsourcing relationship will need to evolve. In the process, your outsourcing partner will need to make a buck. If the contract is not profitable, both parties will loose.

The one other thing I would add to your list is to also select your outsourcing location based on a long-term commitment. As you are making a commitment to a partner you are also making a similar commitment to the countries and cities where your partner has operations. It is still a work in process, but we have some great data to help in selecting the best outsourcing country for your needs at http://www.offshoreadvisor.com/TopOutsourcingCountries.html . Hope you find it helpful.

Mike

[Samuel Prasad]

Mike,

You make a good point. Long term commitments not only involve choosing the right partner but also picking the right location which is critical to the success of the relationship.

Your site is a good source of information.

Regards,
Sam