By Narasimham R V - Aug. 2006
Outsourcing and Offshoring of IT work to low cost countries has now become main stream and is here to stay.
Most companies in developed countries now have varying levels of experience and relationships with offshore service providers. On the other hand, some of the offshore IT service providers, especially in India have grown to a significant size and are now competing with global companies for larger contracts and higher end work.
Most companies that outsource to offshore service providers start on a small scale and then increase the volume as the process stabilizes and the offshore model is proven. This is fundamentally done to manage risks and internal impact of change.
Once the initial engagement is successful, further progress depends upon the objectives of outsourcing, the roadmap and commitment from both sides. However, in a lot of cases, it has been observed that due to various factors, the leverage and value that companies obtain from offshore outsourcing is far lesser than what is potentially possible.
Following are some of the factors and insights that might help companies better engage with offshore service providers and to derive better value out of the relationships:
1. Culture:
Most of the offshore service providers’ claim that their employees are trained on “cross-cultural” issues and it is a fact.
However, the point to be noted is that, these training programs are pretty superficial and help to the extent of making the “transaction” related interactions smooth, but rarely result in good relationship building across cultures.
Hence, conscious steps have to be taken from both sides to ensure that “joint team building” exercises are held periodically and cultural training takes place at both ends (supplier as well as customer).
This will go a long way in facilitating a better understanding and empathy between people, resulting in a stronger relationship.
2. Born Global versus Domain Knowledge:
A lot of the successful offshore IT service providers are “born global” meaning they came into existence to cater to global markets. Most have started by providing low cost resources (staff augmentation) to meet customer needs and then moved on to build project delivery capabilities.
While this has resulted in establishment of world class infrastructure and robust software development processes, what has been missed out is the opportunity to understand the actual business of customers (domain knowledge).
The key is to look for offshore providers who have a significant domestic customer base and whether the domain knowledge gained by working closely with the domestic customers is being integrated/leveraged for global service delivery.
The other alternative is to look for “niche” players with domain expertise, if required.
3. Project versus Program Management:
As mentioned above offshoring has now matured to a level where most offshore service providers have scaled to successfully deliver end to end projects in an onsite/ nearshore/ offshore model.
The key to getting further leverage from offshore players is their ability to execute larger and more strategic programs in an onsite/offshore and this calls for “Program Management” capability from suppliers.
While the offshore IT services companies have trained significant number of their managers on project management, there is a serious gap in the area of program management. This is a current area of focus for most service providers.
Hence, it is important to ask for a dedicated “Program Management” profile (interview and approve if required) to be assigned to the account or program to get the best possible results.
4. Structure and Governance:
As some of the offshore service providers grew in size and are becoming global, their organization structures have become complex.
Usually it is a three dimensional matrix with geography based sales teams, service lines (competency based), verticals (industry based service delivery teams) coming together for customer acquisition, delivery and account management.
This sometimes can be extremely confusing for customers, since there are multiple people contacting them and trying to service them.
The fact that most of the supplier senior management resides offshore adds to the complexity.
In such a situation, it is imperative that the supplier organization is well understood and an attempt is made to define a clear Governance model for the engagement.
A program manager should be made the single point of contact for escalations with a clear engagement defined at all levels on both sides.
What is to be looked out for during the vendor selection process is the internal dynamics and ability to “integrate service lines” and deliver solutions to customers in a seamless fashion.
This is an important factor to leverage synergies when more services are being sought or added.
5. Investment in Relationships:
Another important aspect to evaluate is the commitment of the offshore suppliers to invest in relationship building with customers as well as with Principals (like SAP, Oracle etc).
While most offshore players claim that they have partnerships with product vendors, they are usually a bit conservative when it comes to investments, product training, revenue sharing with others as well as monetary investments in relationship building activities.
While this results in lower cost and more profitability, it also reduces the leverage obtained from such activities.
Depending on the nature of work being outsourced, it is important to seek strategic investments from the offshore suppliers and make them commit to the same beforehand to get maximum value.
These investments could be in the form of professional training and certifications from product vendors, road shows, workshops and knowledge sharing sessions, hosting/ participating in customer events etc.
Offshore IT Service providers are making rapids strides in building capabilities and are extremely progressive but are not always “pro-active”! Hence it is important for the global customers to make an attempt to better understand the issues, and ensure thorough engagement to get better leverage and value out of offshore relationships.
Narasimham R V is an entrepreneur and consultant with extensive experience in IT Outsourcing and offshoring domain, having worked with customers in US and Europe. He can be reached at Narasimham.rv@gmail.com for further assistance in related topics and offshore governance and consultancy.
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