The Do's and Don'ts of Offshoring and Low Cost Sourcing

Audience: Management employees responsible for establishing new offshore service organizations.

Focus area: Development of a new low cost sourcing organization (including planning, hiring, training, & other organizational development activities).

As a CEO, mid-level manager, supervisor, small business owner, or in a professional career of any type, you may be responsible for moving part of your business or personnel to a low cost sourcing country.   Or you may be the supervisor or manager of the low cost organization charged with making it successful.   Even with substantial experience managing others, establishing a new “low cost” organization within an existing business model can be a daunting task.

If you are within the existing organization transitioning to the new low cost organization, the reaction of your employees, yourself, your peers, or your customers is often to support the initiative half-heartedly (or even quietly resist the change).   But reality is that you’ll need to support the initiative – to keep up with your business competition (who are likely outsourcing too), to grow your business, to further develop your own management skills, or simply to continue receiving a paycheck.

Although not a comprehensive list, here are some tips and common pitfalls for those responsible for off shoring.  Although I refer to the new organization as “offshore” or “off-site” within most of the suggestions, these tips apply to all forms of low cost sourcing (“homeshoring”, “out-sourcing” , etc.).

DO’s:

  1. Consider Low Cost Sourcing Alternatives: Consider alternative forms of low cost sourcing before moving offshore, particularly for strategic operations.   The total cost of low cost sourcing may be comparable between off shoring & an alternative sourcing approach after factoring in travel, equipment, facilities, and remote management costs.  Rural sourcing may provide a stronger business case, particularly if existing employees are willing to relocate to the rural area.
  2. Offshore Tactical Areas before Strategic: Consider moving tactical service areas of the business or department (e.g., accounting, finance, administrative services, etc.) before moving strategic functions such as engineering and IT.   Many companies start by off-shoring IT – perhaps the most difficult and sensitive area to move offshore.   A manager who has achieved a level of success in off-shoring IT would probably say that it would be less difficult to offshore HR, finance, accounting, purchasing, legal staffs, executive staffs, and even some areas of marketing/sales.     Highly administrative functions such as creating and distributing customer statements can be quickly moved offshore with low risk.  Most organizations (including IT & engineering) will have some highly repeatable, operational processes that can be moved with lower risk.
  3. Focus on Organization Development before Cutting Costs: It may take several months or even years before a low cost organization created from scratch is successful.  Focus on long-term actions that will create a successful organization instead of taking the lowest cost route in decisions.  In-time the low cost organization can be as successful as the one it is replaces or complements.
  4. Treat the Move Offshore as a Project: Assign a certified project manager to the project, and manage the entire change as a project.
  5. Document Processes before Moving them Offshore: Ensure that the business processes to be moved offshore are well understood, documented, and working properly.  This means creating an operations manual if one doesn’t exist.  I prefer the single document approach – i.e., all recurring processes are documented in a single operations manual.  The operations manual is a living document – if the off shore team does not understand or cannot reliably complete a process, chances are that the process must be better documented or is not being followed.
  6. Provide Proper Infrastructure in Offsite Locations: Make sure offshore people have the right equipment, including capable PC’s, conference phones with remote microphones, and all appropriate software.  Unproductive meetings will result if any team cannot hear teleconference speakers due to poor phone equipment.  Note that software licenses are often not transferrable between countries, and must be purchased in the low cost country.
  7. Develop a Structured Training Program: Provide extensive training for the new employees – training for both your organizational processes and communication standards within your organization.   A majority of your training could focus on written & verbal communications.    As a new IBM low cost sourcing employee I received six weeks of training and mentoring before making any contact with customers, and was well prepared to deal with most situations.
  8. Establish a Measurement System: Establish a formal system of metrics to measure the new off-site employees’ output.  Measure everything that can be measured, and clearly communicate the acceptable threshold to each employee.  At IBM every customer received a simple survey with a rating scale to assess my performance in responding to their question.   An established home sourced call center electronically measures everything – sales per order, customer satisfaction, number of minutes online/offline, number of additional items offered for purchase, etc.   It will be challenging, but equally important, to measure offshore employee performance when the primary customer is other internal organizations within your company.
  9. Plan Structured Interviews for Offshore Personnel: Plan and execute a structured panel interview of offshore position candidates, with specific evaluation criteria.    If subject matter experts will participate in the interview by phone, ensure that at least one employee attends the interview with the candidate in-person.
  10. Hire the Best when Success is Mandatory: Hire senior-level people offshore for professional occupations when you must have successful results from the project or business process – avoid hiring a high percentage of inexperienced people.  This means hiring more expensive staff within the low cost pay scale.  A more budget conscious approach is to build teams with an even mix of senior & entry-level people.
  11. Create a Customer Liaison Approach:  Create a formal strategy for any communications between the offshore team and your customer, even if the primary customer is another internal organization within your company.   Provide communications training to the assigned customer liaison(s) in the offshore organization.   If you turn your internal customers against the new offsite organization due to degraded service, the new organization will face an up-hill battle.
  12. Make Existing Experts Accountable: Make established subject matter experts personally accountable for making the off shored employees successful for the first few months or longer.  Note that the expert may be either in the local or off-site location.
  13. Establish Accountability Offshore:  Designate a lead person offshore responsible for making the new group successful, even though you may continue to have a lead locally during the transition period.  Both leads must have accountability for the arrangement being successful.   Make sure that the new offsite lead feels the pain if things go wrong.
  14. Test the New Offsite Team: Test the new offsite team’s knowledge on the documentation.  They must be able to prove they understand the information before they use it.  The test can be a simple verbal interview of the new offshore employee by a subject matter expert.
  15. Treat Offsite Employees as if they were Local: If you are accountable for their success, treat the low cost country employees as if they worked for you in person at your location.   Give them frequent direction, review their results, reward their successes, coach them on where to improve, and ensure that they feel any negative outcomes.  Think about how you treat and manage your local employees, and ask yourself if you or your organization is doing the same for your low cost employees.   If you hired a new, inexperienced employee into the same location as you, how would you handle the employee?  You would give him/her the guidance needed to be successful, especially if the person had minimal real-world experience.

DON’Ts:

  1. Fail to Consider Goals beyond “Low Cost”: Don’t offshore simply to save money alone.  Your goals should also improve service or expand business in the offshore market.  If your only goal is reducing cost, consider other forms of outsourcing.
  2. Don’t Ignore the Risk in Moving Functions Offshore – Your customers in your primary market won’t have sympathy for service outages due to problems in the low cost organization (e.g., telecommunications outages, hurricanes, earthquakes, and other disasters).  Employ a comprehensive risk management strategy in the off shoring project.
  3. Don’t Move Entire Strategic Functions Offshore: Don’t move entire strategic areas offshore (engineering, marketing/sales, IT,  etc) if there is inherit risk in doing so – a risk adverse approach will maintain staffs in both the local & low cost region.  It may be sensible to move entire tactical areas offshore.   If you can move several strategic functions offshore without risk or loss of business, then why not move the entire company?
  4. Don’t Underestimate the Impact of Language Barriers: Don’t staff customer service, call center, or other customer liaison positions with people that can’t speak the customer’s language fluently or understand how to respond to an upset customer.   This applies to offshore positions that communicate with your internal business customers in other departments.  I have two relatives that will never buy another Dell PC again due to communication problems with offshore support representatives.   I had a similar experience myself with Dell offshore support where it took 45 minutes on the phone and three transfers to other representatives to simply get a new CD to reload a computer – after that the CD I received was the wrong one, and I had to repeat the process.   Other low cost sourcing approaches (e.g., home shoring in the local region) will avoid communication issues.
  5. Don’t Change too Much at the Same Time: Don’t substantially change your business processes or implement a drastically different organization structure at the same time you create a new off-site team.  Only move existing processes and structures that are working well to the new organization.   Existing experts in the established organization will have difficulty making new processes work in the offshore organization.
  6. Don’t Ignore Security Risk: Moving to low cost countries where intellectual property has less protection will require increased security measures, or may discourage moving security sensitive functions to that country.
  7. Don’t Create “Dependent” Offshore Employees: Don’t allow local employees to “enable” or even coddle offshore employees – local employees may unintentionally create a relationship where the offshore employee asks the local employee for daily direction and other help for the long-term.  While this behavior is desirable in the short-term, the offshore employee must become increasingly independent, or should not be in the position.   Your goal is to create independence and “depth of expertise” in as many offshore employees as possible.  Teach the new employees how to find the answer, don’t just answer their questions.
  8. Don’t Hold on to Poor Performers: Don’t permit weak offshore employees to struggle forever – if they aren’t successful within a few weeks or months (depending on the level of skill required), replace them.  One strong employee may be covering for weaker employees without management being aware – ensure that management controls address these situations.
  9. Don’t Overload your Best Offshore Employees:   “20% of people do 80% of the work” in a new, relatively unskilled organization.   There is a tendency for the less experienced employees to become dependent on a single offshore expert – when that expert becomes overloaded the expert quits, projects fail, or the people dependent on the person fail to develop.
  10. Don’t Ignore the Risk of High Turnover: As the low cost sourcing economy develops, your experienced low cost employees will be in high demand – particularly in strong economic periods.  When one employee leaves for better compensation & benefits, they often bring their colleagues along.

Most of these tips will apply whether you are outsourcing services to a new supplier (onshore or offshore), establishing a new group of offshore direct employees, implementing home shoring, or adopting other low cost sourcing models.

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