NO ONE EVER SAID OFFSHORE OUTSOURCING WAS easy. For some, the difficulties are just too much to overcome—culture, time zones, change management, layoffs and legal risks. Yet, despite these pain points, buyers are being drawn by the appeal of offshoring services that includes: cost savings, focus on core business, improve quality standards, increase speed of business, flexibility in business operations.

The Smart Approach to Offshore Outsourcing
Over the last decade, successful companies like AIG, GE and Citicorp sought distant shores to build a strategic advantage through lower costs and higher service levels. Now these firms have over a decade of offshore experience. These firms are well positioned for the offshore boom. They have been offshoring for a significant period of time and understand the pains of offshoring and the best practices for offshore success. It is decades of knowledge and experience—not just results that is accelerating the offshore phenomenon.

Firms realize the offshore opportunity and are making sure to capture the returns by focusing on mitigating both obvious and unknown risks. The leaders are approaching offshore from a total cost of ownership (TCO) perspective and following a very systematic method. This systematic method encompasses the entire sourcing lifecycle from planning to services management and receipt.

A best practices approach to offshoring
Knowledge: Companies expend significant effort and resources to gain insight into offshoring via analysts, Internet searches, suppliers, benchmark studies and advisors. It is not unusual for a firm contemplating offshoring to make several visits to the country and suppliers being considered. Many firms put a considerable amount of effort into benchmarking and analysis. Companies are empowering themselves with knowledge to be sure to make the best decision for their company, and avoiding the mistake of depending upon the supplier’s marketing brochures.
Plan: Firms look at their portfolio of applications and business processes and asking some questions prior to any sourcing: What should we send offshore? Strategic, Core, Non-Core? IT or BPO? Where is the best-suited location for offshoring? When should we outsource? What is sourced first and when, what and how do we transition more? Over what period of time? How should we offshore? What process should we use to make the ownership and sourcing decision? Should we buy, build or outsource? Many firms get an independent intermediary to navigate this offshoring lifecycle.
Source: Firms carefully study their IT and business processes and evaluate risks to make decisions on ownership models. Other key decisions made at this stage are the mix of onshore and offshore resources. During this stage, some key steps undertaken by firms are Ownership model, Mix of onshore and offshore resources, Location and supplier evaluation, Due diligence on location and suppliers based on criteria beyond process maturity.

Smart companies hire neutral parties to carry performance evaluations and due diligence. Negotiations focus on more than price and include an overall cost of ownership comprising service levels, performance criteria, transition, knowledge transfer and price. Contracting that focuses on assuring delivery of commitments and provides flexibility for market and situation changes. Country and supplier specific knowledge is very critical here.

Manage: Once a contract is signed for a buy, build or outsource model, managing takes on the pivotal role. Monitoring and managing the progress of the contract through its lifecycle may be the key differentiator between a successful offshoring experience and a lukewarm ‘me-too’ offshoring engagement that may not deliver on the unique advantages. It is not unheard of to get an independent intermediary with a local presence to add value at this stage. Smart companies pay special attention to Transition management, Knowledge transfer and protection

Program management (Financial management, Performance management, Resource management, Contract management, Relationship management), Benchmarking and re-energizing.

At periodic intervals, companies that are smart about offshore, monitor and evaluate the performance of their offshore operations against benchmarks and pre-agreed criteria. This enables a process of closing gaps, maintaining focus and making improvements. As these firms mature in their offshore capability, increased evaluation and success quite often leads to increased leverage and use of offshore resources and capabilities.

It is important to recognize that globalization is not a fleeting phenomenon; it is a market reality. While it is a great competitive weapon for some, for others it is a great equalizer. Prudence and caution have led to offshore success for many. Is it your turn now?