Outsourcing and Offshoring Success – 5 Lessons Earnt
Are you setting up your outsourcing and offshoring initiatives for success?
Raise the topic of outsourcing and offshoring (often coupled but vastly different) at the boardroom table and you will be met with a range of responses from ardent champions, to the less keen and every flavour in between. Regardless of where you sit on the enthusiasm scale and where your enterprise is on the outsourcing lifecycle, it is undoubtedly a staple of the business tool kit, especially within technology. According to Infiniti Research, the global IT outsourcing market is forecast to grow by 98bn USD alone, between 2020-24.
Historically outsourcing and offshoring was predominantly about labour arbitrage, where processes were lifted & shifted from a high to low cost partner or location. Whilst financials are still important, according to a recent report by Deloitte’s, cost often does not feature in the top 5 decision making criteria for leadership when looking at technology outsourcing.
Instead, in a world of increasing digitalisation and disruption, outsourcing is now increasingly being valued as a business enabler and competitive advantage. These advantages include:
Brain Gain
Faster speed to market and scalability
Disruptive Outsourcing
Introducing new concepts and practices into enterprises
Access to the Digital Workforce
Given the potential importance outsourcing has to our business’s, too often we fall short of setting ourselves and our delivery partners up for success. Frequently there is a tendency to expect the worst and pre-emptively direct the finger of blame to our outsource partners. However, it doesn’t need to be this way.
As leaders, we should be asking, have we set everyone up for success? Are we allowing a yesteryear mindset to hinder our future success?
Self-awareness is a vital leadership quality and leveraging experience to grow our unconscious competence is paramount. Having sat on both the buy and sell side, below are five lessons I’ve learnt for outsourcing & offshoring success:
1. Cultural Quotient (CQ)
When acquiring a new capability or moving delivery of an existing function to a third party or an offshore location, there are two primary cultural changes which need to be considered. These being the culture of the enterprise you are outsourcing to and the culture of the country that is now responsible for delivery.
Culture can be an enterprise’s greatest asset but also the Achilles heel. As the outsourcing party:
Invest time in developing your CQ by understanding the culture of the company you are outsourcing to and the culture of country performing the work. These two will have a significant impact upon both the actual and perceived success of your program.
Clearly define what success and excellence looks like. The definition of success and excellence can vary greatly between companies and countries. One person’s perception of excellence can easily be another person’s mediocre. Jointly document these definitions and ensure both parties unequivocally understand and can articulate these definitions using their own words.
2. Partner
You are mutually dependent upon each other to be successful. The relationship needs to be one of partnership with deep trust and confidence in one another. To enable this:
Invest in developing a relationship that recognises this, where the mutual focus is on how to exceed the collective expectations.
Where appropriate, develop a different type of contract called a Formal Relational Contract. This is a legally enforceable agreement that specifies mutual goals and establishes the appropriate governance structures to align everyone’s expectations and interests for the long term.
Enable access to the right people & resources. Ensure both parties have appropriate access and a relationship with the right personnel at the right level, including senior leadership.
Be open to alternative approaches to solving issues or challenges. Ultimately, it is about a quality outcome.
Provide timely feedback and constructive critique. Also solicit feedback on your performance in the partnership and how you can improve.
Hold each other accountable.
3. Expect Bumps
When learning to dance with a new business partner, there are going to be occasions when you tread on each other’s toes, especially at the early stages of the relationship. These bumps can be reduced by:
Joint planning. Invest effort early to plan in detail what you need, how it needs to be done and expectations.
Laugh it off and move on. Even with the best and most diligent planning, there will be oversights and the occasional slip up. Take these in one’s stride, resolve as they occur, adjust models accordingly and move on.
4. Communication and Engagement
As with all change, a critical activity to focus upon is effective communication and engagement, especially for the enterprise that is outsourcing. In particular:
Mutually agree a communication and engagement plan with roles & responsibilities, cadence, format of communication and escalation paths.
Engage all internal and external stakeholders. Share what is being done, how it is being done and critically, why it is being done.
Celebrate every success.
Overcommunicate with internal stakeholders. Don’t rely on a periodic e-mail update as these are often overlooked, instead adopt a multi-channel approach and get creative in sharing the what, how, why and successes.
Ensure key delivery stakeholders from each organisation are active participants. Sometimes this will require a little motivation from senior leadership.
5. Everyone needs to make a profit
Most commercial enterprises are established to generate a profit. Recognise your outsource partner also needs to make a reasonable profit.
Often buy-side commercial and negotiating teams are incentivised to reduce costs and they have become masters of “squeezing suppliers”. An unintended consequence of this can be that it creates a short-termism within the relationship for both parties.
This short-termism can ultimately result in a degradation of the service you receive and a lack of innovation, with the resulting impact to your business and customers.
Instead focus on measuring the value this partnership brings to your business and to your clients. By shifting away from a “cost plus” mindset, this delivers two significant benefits:
From a buy-side perspective, being able to accurately measure the value requires a deep understanding of your business. Having a deep understanding is a consequence of better data & knowledge, which leads to better decision making for your long-term success.
Provides a highly motivating environment for the outsource partner, where the focus and measurement is on how to do even better for the collective and continued benefit of all.
Trends will undoubtedly ebb and flow when it comes to outsourcing and offshoring. For each enterprise, the criteria and rationale for when, if and how to participate in these options will be unique to that enterprise. However, the guiding principles and structures for achieving success will remain broadly consistent.