Offshoring Best Practices Across The World

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Companies worldwide have embraced a range of offshoring solutions because of the numerous benefits, including reduced costs, better quality, and agility. Increasing confidence in remote management and greater availability of high-speed networks spurred the expansion of offshoring best practices to several developing countries like India and the Philippines.

However, offshoring also has a few pitfalls, and companies considering the same should be aware of them. Here are a few of the best practices you can follow to successfully offshore your business operations.

Understand the offshoring learning curve

Not all companies comprehend the entire concept of offshoring in one go. There is usually a learning curve involved in offshore outsourcing. It begins with managers learning the potential benefits of outsourcing and the costs involved by talking to their peers in the industry. They then test the waters by offshoring a few pilot projects to reduce costs. Once the managers learn more about the process and its benefits, they take advantage of offshoring not just for cost reasons but also to improve quality. Companies well-versed in offshoring use it for a lot more, such as funding new product development, creating new business, gaining access to foreign markets, and increasing business agility.

Some companies may take years to get up to speed on offshoring. They can shorten the learning curve by having an integrated program of pilot projects. These projects can be used to test offshoring partner capabilities, identify suitable projects, and test the best contract mechanism. You could also give the same project to two different suppliers to identify the better partner for your business.

Select your offshoring destination with care

Selecting an offshoring country only on the basis of cost is the wrong approach. Cost drivers and risks are dependent on several factors and may shift rapidly with time. If you choose a country only because it is cheap, chances are you may find yourself trapped at a location that cannot meet your needs.

The right way to choose a destination country is by using a broad set of business criteria, keeping the company’s strategic objectives and goals in mind. For instance, if a US-based company wants to sell computers in the Chinese market, they can consider setting up an offshore office in China. Cost is not the only deciding factor here. Having a presence in China will help the company expand its customer base and enter a foreign market, helping meet the company’s strategic expansion goals.

Adequately plan and manage the offshoring process

If you consider a traditional IT delivery model using local vendors, it is highly personalized and location-centric. However, offshoring, it converts into a more process-centric and location-independent structure. Who does the task from where is no longer important? What becomes more important is how the task is completed and measuring the outcome. This is a cultural change that companies must be prepared for before they consider offshoring their business operations.

It is crucial that companies plan the transition phase very carefully. They have to be in complete agreement with the suppliers on the defined outcomes and financial targets before they take the leap. Companies should be very clear about their top priorities and the reasons they choose to offshore their business operations. The priorities must be clearly validated time and again over the course of the engagement.

Before entering into any offshoring agreement, ensure that:

  • You have the support and commitment of your senior management
  • You have created an offshoring strategy including objectives and goals
  • You have clearly defined the scope and limitations of offshoring.
  • You must establish KPIs for both the transition state as well as steady-state.

Get to know your vendors

Before you sign an offshoring contract, ensure that you take the time to know your vendors. Companies that offshore business operations usually partner with a local offshoring company registered with the government regulated authorities. Clients must make time to visit the delivery centers so that they can take a closer look at their delivery model and business capabilities. By doing so, you can see the delivery center in action. You can assess the center on various parameters such as IT security, working standards, compensation, HR processes, and adherence to local laws.

Getting to know your vendors can also help establish rapport and build relationships. Most vendors would be willing to arrange a visit for you. They also offer various activities that can help you gain better insight and understanding of their culture, capabilities, and delivery model. Visiting the delivery center also gives the vendor an opportunity to get to know you.

Manage the transition

Transition refers to the smooth transfer of services from the client to the vendor organization according to contractual requirements. The transition phase lasts from the day the services start at the vendor site to the day the vendor reaches the steady state, as defined in the contract.

To get the most of the offshoring services, clients must have a robust transition management process. Ideally, there should be representation from both the client and the vendor to plan and fulfill requirements and for identifying and mitigating risks. There should also be an effective reporting mechanism in place.

The following key activities are recommended during the transition management process:

  • Having a strong governance structure
  • Focus on service delivery key performance indicators (KPIs)
  • The strong and effective communication mechanism
  • Organization change management
  • Focus on a long-term relationship

During the transition phase, it is also important to maximize the face-to-face time between the client team and the delivery team. People do business with people. In the initial stages, it is important to ensure that both teams are aligned in their ways of working and work culture.

Companies should also deploy a risk management program to identify problems early in the process.

Ensure a smooth operation

Once the transitional phase ends, the service moves into the operational or steady state. During this stage, management costs, roles and responsibilities become visible and formal. Companies gain a lot of knowledge and insight during the transition phase, which may lead them to add features or change things in the agreement. So, incident management, change management, and problem management must be clarified early.

Choose the right functions to offshore

Even though offshoring has many financial benefits, all functions are not suited for offshoring. Some functions may require specialized forms of knowledge or close proximity to customers. Such functions should not be offshored and may not give you the desired benefits of the process.

Despite everything, some large technology companies are known to outsource 50 percent of their IT infrastructure workforce offshore. They manage these high numbers by separating roles that are mature and stable. These roles can be easily offshored compared to those who have stringent regulatory, technical, or security requirements. For instance, many think that it may not be possible to offshore an L-3 team, the highest level of technical support. The reason is that these engineers often require access to sensitive or confidential information to resolve problems. As a solution to this problem, some companies split their L-3 team into two. One team focuses solely on customer service and remains onshore. The other team focuses on engineering and can easily be offshored.

Select the right offshore service model

The prospect of having your business running 24 hours a day can be attractive. However, all companies do not have the scale or the budget for such an offshoring solution. You have to consider your business requirements and budget before finalizing an offshore service model.

Many companies find that creating centralized hubs offers global reach and concentrated expertise. The center-of-excellence approach also makes it easier to leverage staffing, develop deeper competencies, and standardize business processes.

Provide domain-specific training to offshore suppliers

It is important to manage the knowledge transfer process carefully. Your offshore partner may be lacking in domain expertise. However, you can easily bridge this gap by providing the delivery team at the vendor’s end with the same orientation and training session that you provide to your onsite employees. The training should include tools, technologies, and methodologies as well as an introduction to peripheral departments.

You may think that this will increase your training costs. Considering that these training sessions will make the delivery team at the vendor site more knowledgeable and productive, it is a worthwhile investment. When you have a well-trained offshore delivery team, you can also ensure that the highest standard of quality is maintained, boosting your reputation.

When companies contemplate offshoring one or a few of their business functions, cost reduction should not be the only goal. If you want to make the most of an offshoring engagement, you must measure the vendor in other areas, such as improved operational efficiency and customer satisfaction. By partnering with the right offshoring solutions provider, you can make the most of operational and commercial benefits while minimizing risks and timeframes. Following the above best practices can ensure that companies create strategic advantage through offshoring. The way you start your offshoring initiatives often determines how they will end. The better prepared you are, the more beneficial offshoring will be for your business, and you will be able to avoid the pitfalls others fall into.