Global Outsourcing Key Considerations – Part 1

Global Business Culture has been heavily involved in a number of large-scale global outsourcing projects over the past decade. We deliver consultancy and training packages to clients at every stage of the global outsourcing process.

What have we learnt over the years? Here are a few thoughts on getting outsourcing right:

Strategic Fit & Business Case

For an outsourcing programme to work, it needs to be a clear priority within the overall strategy of a business and there must be a clear reason as to why it is happening. A clear strategy allows people at all levels in the organisation to make daily decisions about how to balance time spent on competing priorities. A key leadership role is to articulate the strategy so that it that builds the clarity people need to be able to make trade-offs. The business case needs to get to the heart of what it will mean for clients, for employees and for the expected outcome on the cost and quality of service. All this maybe common sense but it is often not that commonly found in outsourcing programmes. Often the approach is clear at the outset of a programme but then gets lost or diluted along the way as the organisation works through the challenges of implementation.

Although the most important factors will depend upon your situation regarding clients, employees and markets, here are some of the common reasons why outsourcing could be an effective part of your strategy:

• There is a need for the organisation to grow financially to ensure continued investment in the business. A well-designed outsourcing programme can bring this financial benefit. One major area of risk is that the pursuit of cost saving without a clear, and measurable set of goals for improving the quality of service can easily lead to programmes that under-deliver.
• The organisation’s current processes are too fragmented and variable and lack the strength to allow growth. This is often the case when a business has been built by acquisition but there has been little integration. This may expose the business to risk through vulnerabilities in technology and or continuity of service. Outsourcing can therefore be a way to build stronger organisations.
• People in certain locations may be overloaded with work they are not well suited for at the expense of work they excel at. Outsourcing, with a third party or your own captive centre, is a good way to ensure that you have the right work being done by the right people in the right locations.
• Clients may be changing how and where they operate, and outsourcing can be a way of matching their expectations about how and where services are delivered.

The need to be clear about why you want to outsource and how it fits in with your overall strategy is a good test to see if it is the right thing to do. It is critical to do this at the outset but also to ensure that there are regular check-ins to see if the programme needs to change.

Location Selection in Global Outsourcing

Deciding on the geographic destination for any outsourcing project could be both the most critical and most difficult decision in the whole project. If your decision to outsource in the first place has been almost solely based on cost reduction considerations, then your location destination decision is likely to be also almost entirely influenced by pricing issues – but this could result in you making a series of costly and almost irreparable mistakes. The damage you do through wrongly identifying the most appropriate location might far outweigh any benefits accruing from the transition.

Therefore, it is imperative that you balance other considerations against a simple price-to-price comparison. The following issues should be weighed against any simple cost comparisons:

• Geopolitical risk factors: How stable is the country you are looking at transitioning into? This analysis should look beyond mere potential political instability and its potential impact and consider such critical issues as infrastructure capacity, quality of education and healthcare and the possibility of future political sanctions.
• Tax incentives: Many governments offer generous tax breaks for overseas entities to set up operations in specific locations within their country. Be very careful about being seduced by these types of incentives. Incentives are rarely given in areas which offer the best solution to your needs. Look at why tax breaks are being given – it’s usually because local businesses don’t want to be there.
• Access to talent: This is obviously critical but not always easy to quantify. A large pool of available labour does not necessarily equate to a large pool of suitably qualified employees. The more your peers move into a particular country, the tighter the access to talent might become. Following your competitors or clients could create more problems than it solves.
• Time zones: Do not underestimate the difficulties that can be created by working across multiple time zones. The obvious problem is that somebody needs to be working at an inconvenient time for them. This can cause major motivational and attrition-based problems over time. Not many good quality employees want to spend their entire working life being inconvenienced.
• Cultural factors: When you outsource to a new country you take on the complexities of working cross-culturally. This very often results in inefficiencies and misunderstandings. You cannot expect the outsourced team to understand the home teams’ approach and business expectations through osmosis (and vice versa). If you chose to outsource to a completely different part of the world with a completely different culture you have to address these cultural issues through training and secondments.
• Currency issues:How stable has the currency of the outsource destination country been over the past decade or so? Currency volatility can be a boon when it swings your way but can completely destroy any cost arbitrage if it goes the wrong way. You can of course hedge, but do you really want to take the risk with a critical element of your corporate infrastructure?
• Legal issues: This is obviously a major consideration and becomes increasingly so as compliance and risk policies become ever tighter in the home country. Outsourcing usually involves high volumes of data transfer and data protection is currently at the top of the list of priorities for most countries.

This list is not exhaustive but gives a flavour of the type of considerations you need to factor into any outsourcing location decision. Look way beyond comparative pricing calculations – it just isn’t that simple.

Keeping Customers in the Loop When Global Outsourcing

Clients are often in two minds with regards to their own customers when embarking on a global outsourcing programme. Should they keep their clients in the loop, or should they remain secretive about their plans? Will clients react badly to being informed about the changes to come and even more worryingly will they expect any potential cost savings to be passed through to them?

There can only be one response in this situation – clients must be informed and ideally should become involved in the process. Any transition of work will very likely impact on them in one way or another and you have a duty of care to keep your clients fully informed throughout your journey.

Clients need to be in the loop for several very good reasons:

• If they find out by chance, they are very likely to be irritated and start to look for reasons why you shouldn’t be putting them ‘at risk’ in this way. When you talk to your clients you normally talk about partnership and wanting to develop long-term mutually beneficial relationships. Partners are up-front with one another.
• You can benefit from customer input and having them involved in the process from an early stage will build confidence that you are progressing with their needs in mind. You may find that clients can pass on valuable knowledge from their own experience which will help your transition progress more effectively.
• Most of your customers are also either in the process of outsourcing part of their business or have already done so years ago. They understand why you want to go down the outsourcing route and you may find that they react very positively to the development. You may even be able to leverage some of their relationships.
• You might need clients to help you with knowledge transfer at some point – especially if the work being outsourced requires high levels of customisation or market knowledge. The more complex the process you are transitioning the more important it is to have your clients onboard.
• The outsourcing process can result in a few your employees becoming demotivated and even resentful towards the process. The last thing you want is for your clients to hear about your decisions from disgruntled, possibly negative staff members. You must be in control the message at all points on the journey.

Ensuring continuity in levels of client service are critical during any outsourcing process and having your clients feel comfortable about the changes is essential. Your messaging needs to be well-thought through and consistent and everybody within the organisation needs to be fully aware of what is being communicated to clients at all times.

Core and Non-core Competencies – What to Outsource?

If you are thinking about outsourcing as a key part of your business strategy, then you need to give careful consideration to exactly what work to outsource. Going through the process of outsourcing is a great opportunity to create a big picture map of your processes and which ones are most valuable to your clients. Creating awareness and alignment around this and getting all stakeholders to buy-in to it will serve you well throughout the programme. It will help inform decisions, such as what to move and what not to move and when to use third parties versus your own captive centres. If you design a programme well, the first experience will be positive, and this might increase the appetite to do more. At this point knowing what is on or off limits becomes critical. As you build that big picture of your processes here are some of the factors to consider:

• How does local knowledge impact your client relationships? Often there is certain knowledge that is critical to the customer experience that only practically comes from living in the same country which can influence what you can move and to where.
• Do your clients need you to be in certain locations where you do not currently operate?
• What is the point at which a third party could copy your product or service with the processes you are considering moving? While you can build strong contractual frameworks, the loss of practical knowledge to a third party can be difficult to recover if needed.
• Is the process a commodity that many people can do? The inputs and outputs might be very important in your own big picture map, but the details might be a distraction.
• What level of metrics do you have that can support factual decision-making to ensure that you are neither overly optimistic or overly pessimistic in your approach?

Building that big picture map of your processes along with clear criteria for making and assessment of what to move and what not to is an important step in a programme. We would love to work with you to see how we can help.

Why are metrics so important to successful implementation of Outsourcing/Offshoring Process?

When embarking on a transformational outsourcing programme companies will need to focus very carefully on the use of Metrics and the linkage of these with the appropriate Reward systems to deliver a successful programme. Establishing these metrics is probably the most important workstream of the whole programme as they will underpin a successful transformation to an outsourced and/or offshored process environment both for the home teams and the new partner.

It is critical to get these metrics mutually understood before starting the transformation…otherwise you could get a mismatch between yourselves and your outsourcing partners in the measurement of the process performance. There are some things to watch out for:

• Ensure that when you request process metrics from your partners that they mirror exactly what you yourselves measure today – many companies fall into the trap of punishing outsourcers for poor performance on metrics they never had in their original home environment.
• It is important for companies to understand the impact of an outsourced sub-process on the overall delivery programme – quite often the process outsourced will have multiple hand-offs between the outsourcer and the home teams – often over different time zones and huge geographical distances that did not exist before the transformation. These processes will therefore need crisp and clear metrics to be designed even if there was no need for them in the previously. This process will help to ensure the seamless quality and response times demanded by clients.
• Most companies underestimate the level of understanding that the outsourcer has as to the criticality of the process they will be/are already handling. Having the outsourcer really appreciate how central they are to the delivery process will help in the continuous improvement of day-to-day performance and ultimately result in a better programme outcome.
• Another reason for the establishment of an effective set of mutually agreed metrics is that it will help the overall governance of the programme establish clear and concise communication on progress. They help put in the checks and balances needed to ensure that schedules are met, that clients are satisfied and that the finger-pointing and possible legal issues that can arise in delicate situations can be more easily resolved in a non-partisan manner. This will in turn also develop a feeling of partnership between the two sides and will help avoid some of the lack of trust that can be so destructive for ongoing process improvement.
• Finally, these metrics should form the basis of the reward programmes associated with the overall transformation project as they bring a very objective approach to measuring success from both a process and an individual perspective. Companies need to be very clear about what metrics they select to ensure they reflect the original desired outcomes. They also need to think about how to swiftly modify these metrics to reflect the current state of the programme and maybe change course when necessary. These reward programmes will of course go hand-in-hand with the other HR components of such a transformational programme to drive positive motivations on both the home environment and the outsourcing/offshored environment.

We will be following up this initial blog on global outsourcing with some more ideas over the coming weeks but if you would like to pick our brains at any point please get in touch.