Time for an update!
The number one reason for disappointments about offshore operations is a mismatch of expectations.
Example: the client expects to get rid of some operational issues at low cost, while the supplier expects to be judged based on the availability of skilled resources. After one year they’ll found out the difference.
Solution: discuss, agree and write down your high level expectations and evaluate the cooperation regularly.
2. Incomplete business case
Many offshore business cases miss some important elements, mainly on the cost side. Examples: start-up cost, increased management overhead cost, transition cost, rate changes. This may lead to optimistic expectations and disappointing results:
Solution: get your business case reviewed by an experienced offshore manager, before taking brave decisions.
3. Salary inflation
Looking at the cost differences between locations as ‘static’ is a common mistake, which may affect your business case dramatically. Salary inflation is defined as the difference between the average salary for a specific skilled person and the salary of a similar person next year.
Salary inflations between countries and between IT/BPO hotspot areas and other areas are very different . They vary from +25% in certain areas in Romania and China to <0% in some areas in Spain.
Solution: get informed about salary inflation and take it into account in your business case.
4. Wrong location
More than 25 years ago offshore IT and BPO started bringing everything to India, which went well for some types of operations, but for others the Indian culture appeared to be less suitable. For instance customer contact centres are better served by the client friendly cultures of East Asia.
Nowadays, we recognise offshore destinations on all continents, all having their specific strengths and weaknesses.
Solution: get informed about the cultures suitable for your operation and availability of resources.
Clients who don’t know the meaning of the word ‘juniorisation’ are at risk. Juniorisation is the process of constantly reducing cost by replacing senior resources by more junior resources. Large suppliers have full time dedicated ‘juniorisation managers’ especially focussed on new contracts.
What you see: the manager/architect/software engineer that you trusted so much, has suddenly disappeared, because he was urgently needed somewhere else. According to the supplier this has no impact on the quality. The reality is often very different.
Solution: add seniority KPI’s to the contract, monitor it and take action in case of unwanted juniorisation.
6. Unnecessary outsourcing
For many clients offshoring (bringing the operation to another country) is equal to outsourcing (bringing the operation from internal to a supplier). They feel safer when an experienced supplier is taking the responsibility, but they are unaware of the real labour cost, the suppliers’ overhead cost and their contribution to the suppliers profit margin. Result: they are paying too much.
Sometimes offshoring without outsourcing is a better alternative. In other words: building your own offshore department in an offshore location.
Moving the operation from an offshore supplier to your own offshore department is called ‘insourcing’. In the UK this has become a new hype. They call it ‘the third offshore wave’. Other European countries are expected to follow within 1-2 years.
Solution: size and type of the offshore operation and available knowledge are important parameters to determine whether insourcing would make sense for your organisation. A complete business case should always be the starting point.
The number of engaged managers –especially at the clients side – is often too high. This may inhibit or confuse the communications, frustrate the supplier, slow down the process and add to the cost.
Solution: a radical change of the governance structure, although many managers won’t like it. But what’s the goal of your organisation: keeping managers happy or establishing a high quality efficient low cost operation?
Business analysts on the client side and executors on the supplier side is the common distribution of tasks in offshore operations. However it isn’t the best, since it requires detailed instructions for the supplier and it doesn’t utilise the valuable experience of the suppliers’ senior managers and analysts.
Solution: put the seniors of the supplier into a powerful position and give him/her full responsibility for making it a success. Don’t forget to assess the capabilities of the suppliers’ senior and monitor it.
9. Inexperienced client
Imagine a football match between an experienced and an inexperienced team: who is likely to win?
In offshore operations the supplier is often the most experienced team and therefore the winning team. The inexperienced client pays his loss by an uneconomic contract and disappointing results.
Solution: get some people in your team who played the game before.
10. Cultural differences
‘Underestimating cultural differences’ has shown up in all offshore risk lists during many years, but is still hard to solve, because many people on both sides are unaware of their own culture. In their view they are just ‘acting normal’, while the other side is ‘acting weird’. They feel the other party is dishonest (‘always saying yes’) or disrespectful.
Please don’t think cultural barriers only exist between Europe and Asia. They also exist between Western-, Eastern, Southern and Northern Europe.
Solution: engage at least one manager in a key role, who is familiar with both cultures, not as additional overhead.
11. Personal relations
Even the best contract, detailed requirements and set of KPI’s won’t guarantee a proper cooperation.
Personal relations are needed to really understand each other. Don’t think personal relations can be built via email or Skype: the minimum is a face to face meeting twice a year and should include social talk, going to a restaurant etcetera. I have seen many offshore operations where top level managers on both sides regularly meet, while the operational managers are not allowed to travel for budgetary reasons. The result: they don’t know each other, don’t like each other and finally blame each other.
The solution is simple and should be included in the budget.
12. Big bang
If your organisation has little or no offshore experience, bringing a large proportion of your operation offshore within a short time, would be a risky step. The consequences of all mistakes will be heavier: lack of continuity, underestimated start up and transition cost, having selected the wrong suppliers, communication issues.
Solution: start with a small pilot project, evaluate and use the experience for the next steps.