Offshoring: Nine Things No One Ever Told YouBy John Parkinson | Posted 09-21-2010
I first got involved in the offshore business in 1979 via a software engineering and testing partnership that brought together U.S., U.K. and French teams to support a project in the Middle East. This global talent pool was a critical factor in delivering the project successfully on time and on budget. Since then, I have been involved in global sourcing initiatives in India, the Philippines, Canada, Mexico, the Caribbean, Poland, Spain and China.
Along the way, I've learned things that we don't always see in the conventional literature on outsourcing or offshoring. Here's a checklist for CIOs to consider before leaping into "world sourcing."
- TCO matters more than raw labor rates. Low labor rates look attractive, but the total process cost eats into the savings a lot faster than people expect. Infrastructure investments, process changes, travel, rework--these all add an operations fee to the basic price.
- It takes time to get to a stable, productive process. We used to budget 18 months for each new offshore location to come up to speed. After a decade of practice, this came down to six to nine months--and an experienced partner helps. But if you and your partner are new to this, bet on 18 to 24 months.
- Time zone matters. "Follow the sun" models can work--but they're not right for everything. When you need effective responses to critical incidents that affect your customers, it's better to be on the same clock cycle--and that's usually the middle of the day at your site, not the middle of the night.
- Culture matters. You'll want your partner to run the business with the same operating style you would use. That's harder than you might think--especially if your teams have to interact regularly to get work done. Work cultures vary. You may need to deal with your partner's reluctance to admit it doesn't understand or its unwillingness to share bad news.
- Language matters. Basic English is still the most widely used technical and business language in the world (with simplified Mandarin and Spanish gaining ground fast). Some emerging service markets still have limited English-language skills. If you can't communicate effectively, the work isn't going to be done correctly.
- Capability matters. It's critical that your partners understand the business drivers of your region in order to grasp why your organization operates the way it does. This enables them to operate as a true extension of your business, no matter where they are located.
- Capacity matters. Can your partners cope with your company's growth and their own increase in volume? You generally don't want to be their biggest customer, or their smallest. You'll usually want a range of options that can adapt to the scale of your needs and the depth and breadth of the market.
- Diversity matters. When you factor in geopolitical, economic, judicial, operational and financial risks, you'll understand that you shouldn't be in a single market or even a single geography. Having more than one partner to meet all your potential services needs is a smart policy.
- Process matters. It's more work to manage multiple relationships than it is to manage one, unless you have sound processes and standards in place to keep the business running smoothly. Developing processes and standards to which all your partners must adhere takes time at the outset, but in the long run, you'll spend less time managing multiple strong partnerships than you will managing a single poorly functioning relationship.
John Parkinson is senior vice president, Project Management Office, at Axis Capital in Chicago, and a long-time contributor to CIO Insight.