How Agile Offshore Practices Can Avoid the "Real" Costs of Offshore Outsourcing
CIO.
com recently published an article outlining the "real" costs of offshore outsourcing.
It has compelling arguments why offshoring drives down strategic value in the long run.
They touched upon five major risks for offshore outsourcing.
It is so convincing even a firm globalization believer like me has to acknowledge these disadvantages.
Here are - 1.
Service quality by offshore staff rarely is as good as onshore staff, especially in call center and customer service fields.
2.
Geo-Political risks abroad, especially concerning offshore service providers meeting compliance in the Western nations.
E.
g.
Satyam scandal.
3.
Offshore outsourcing vendor relationship = High management costs & High percentage of failures.
4.
Intellectual property protection risk, especially outsourcing to China.
5.
Risk of losing intellectual capital and knowledge based hurting company's long term competitive advantages.
Although these are "good" reasons not to offshore, I still believe the industry will prosper with innovative models.
Let's face it.
The fundamentals of international trade won't change - labor arbitrage and most efficient allocation of worldwide resources.
Many companies still see commercial benefits to offshore.
The key is building a collaborative offshore model to successfully manage the 5 risks mentioned above.
Outsourcing 2.
0 buzz has been around since 2004.
In essence, it is about aligning buyer and vendor's interests with more collaborative and agile approaches.
However, the industry still lacks a standard approach to so call Outsourcing 2.
0.
One of the challenge is how do you properly define such overused term "agile.
" What exactly does being agile mean with your offshore collaborators? Ideally agility drives values to customer with greater service flexibility.
Here are a few ideas of how "agility" can help mitigate the 5 great offshore risks.
Remember, both you and your vendor have to reach agreements that transparency and honest assessment are key components to execute agile offshore engagement.
You should also leverage the latest web based technologies to accomplish agile collaboration.
Please do not take these as best practices.
They are far from perfect.
But hopefully they provoke further thoughts and discussions to help establish the right offshore engagement under different circumstances.
1.
Offshore service level risks Buyer should devote more time and executive level support on directly training the vendor's mid to low management personnel.
Buyer can not simply outsource the entire training responsibility and expect great results.
Buyer needs to have a more collaborative process on training design, delivery and measurement with offshore vendor.
This is the only way buyer can consistently improve the service quality from offshore staff.
2.
Geo-Political risks This is somewhat of a systematic risk.
We certainly hope law makers from different countries work to achieve international standardization on various regulatory issues in the post US sub-prime era.
Besides counting on the governments, buyer and vendor can leverage enterprise 2.
0 technologies to ensure a more transparent governance structure and more efficient communication on regulation requirements and updates.
3.
Offshore relationship risks Like any vendor management, relationship is the key.
Offshore relationship is more breakable due to culture difference and complex outsourcing contracts.
"Don't put all egg in one basket" approach is one way to mitigate vendor risk but not very sustainable.
You can't hob around vendors continuously.
An ideal approach is to establish a dedicated offshore team with 100% transparency.
You should assign each onshore team member an offshore buddy.
You can design policy and project tasks to accommodate their collaboration on the daily basis.
With all the great social media tools available today (e.
g.
Enterprise Twitter, Enterprise Wiki, etc.
), it is easy for onshore individual to build work chemistry and social relationship with his or her offshore buddy.
As long as they work well together and drive end results, your vendor relationship will be just fine.
4.
Intellectual Property protection risks This is indeed the most challenging risk to mitigate.
IP protection is a big issue among local team as well.
Vendor typically won't mess with your IP but it's the vendor's offshore employees.
You have little control of what they can do with your idea and IP when they leave the vendor to join a competitor or start a new venture.
The best advice is "know your offshore team.
" Again I am stressing for transparency here.
You should invest time to screen through the quality and integrity of your offshore staffs and have traceability of offshore HR.
This way, in case of IP breach, you have better chance to identify the leak.
5.
Intellectual Capital loss risks The concern of losing intellectual capital somehow contradicts the principle of "outsourcing.
" Companies suppose to "outsource" their non-core components.
Since offshore industry and process mature, buyer today can leverage offshore vendor's expertise to support mission critical products or services.
In such engagement, buyer needs to maintain ability to replicate those outsourced processes or tasks shall offshore relationship ceases.
Referring back to the training investment buyer should make on offshore staffs, the same can apply to rebuild an in-house team if necessary.
The CIO.
com article specifically mentioned in-house developers don't create development toolkit anymore because of IT outsourcing.
It will cause significant knowledge loss for future enhancements, especially if offshore relationship sours.
Perhaps cloud computing can address some of the concern for knowledge loss.
Buyer and vendor are required to collaborate on a cloud based virtual computing environment hosted by a 3rd party infrastructure provider.
This way, all the knowledge accumulated through out the engagement is securely stored in the centralized data center where information access is controlled by the buyer.
It will improve overall outsourcing security and collaboration on multi-tenant basis between onshore and offshore teams.
Buyer enjoys full control of data access and backup with on-demand scalability.
com recently published an article outlining the "real" costs of offshore outsourcing.
It has compelling arguments why offshoring drives down strategic value in the long run.
They touched upon five major risks for offshore outsourcing.
It is so convincing even a firm globalization believer like me has to acknowledge these disadvantages.
Here are - 1.
Service quality by offshore staff rarely is as good as onshore staff, especially in call center and customer service fields.
2.
Geo-Political risks abroad, especially concerning offshore service providers meeting compliance in the Western nations.
E.
g.
Satyam scandal.
3.
Offshore outsourcing vendor relationship = High management costs & High percentage of failures.
4.
Intellectual property protection risk, especially outsourcing to China.
5.
Risk of losing intellectual capital and knowledge based hurting company's long term competitive advantages.
Although these are "good" reasons not to offshore, I still believe the industry will prosper with innovative models.
Let's face it.
The fundamentals of international trade won't change - labor arbitrage and most efficient allocation of worldwide resources.
Many companies still see commercial benefits to offshore.
The key is building a collaborative offshore model to successfully manage the 5 risks mentioned above.
Outsourcing 2.
0 buzz has been around since 2004.
In essence, it is about aligning buyer and vendor's interests with more collaborative and agile approaches.
However, the industry still lacks a standard approach to so call Outsourcing 2.
0.
One of the challenge is how do you properly define such overused term "agile.
" What exactly does being agile mean with your offshore collaborators? Ideally agility drives values to customer with greater service flexibility.
Here are a few ideas of how "agility" can help mitigate the 5 great offshore risks.
Remember, both you and your vendor have to reach agreements that transparency and honest assessment are key components to execute agile offshore engagement.
You should also leverage the latest web based technologies to accomplish agile collaboration.
Please do not take these as best practices.
They are far from perfect.
But hopefully they provoke further thoughts and discussions to help establish the right offshore engagement under different circumstances.
1.
Offshore service level risks Buyer should devote more time and executive level support on directly training the vendor's mid to low management personnel.
Buyer can not simply outsource the entire training responsibility and expect great results.
Buyer needs to have a more collaborative process on training design, delivery and measurement with offshore vendor.
This is the only way buyer can consistently improve the service quality from offshore staff.
2.
Geo-Political risks This is somewhat of a systematic risk.
We certainly hope law makers from different countries work to achieve international standardization on various regulatory issues in the post US sub-prime era.
Besides counting on the governments, buyer and vendor can leverage enterprise 2.
0 technologies to ensure a more transparent governance structure and more efficient communication on regulation requirements and updates.
3.
Offshore relationship risks Like any vendor management, relationship is the key.
Offshore relationship is more breakable due to culture difference and complex outsourcing contracts.
"Don't put all egg in one basket" approach is one way to mitigate vendor risk but not very sustainable.
You can't hob around vendors continuously.
An ideal approach is to establish a dedicated offshore team with 100% transparency.
You should assign each onshore team member an offshore buddy.
You can design policy and project tasks to accommodate their collaboration on the daily basis.
With all the great social media tools available today (e.
g.
Enterprise Twitter, Enterprise Wiki, etc.
), it is easy for onshore individual to build work chemistry and social relationship with his or her offshore buddy.
As long as they work well together and drive end results, your vendor relationship will be just fine.
4.
Intellectual Property protection risks This is indeed the most challenging risk to mitigate.
IP protection is a big issue among local team as well.
Vendor typically won't mess with your IP but it's the vendor's offshore employees.
You have little control of what they can do with your idea and IP when they leave the vendor to join a competitor or start a new venture.
The best advice is "know your offshore team.
" Again I am stressing for transparency here.
You should invest time to screen through the quality and integrity of your offshore staffs and have traceability of offshore HR.
This way, in case of IP breach, you have better chance to identify the leak.
5.
Intellectual Capital loss risks The concern of losing intellectual capital somehow contradicts the principle of "outsourcing.
" Companies suppose to "outsource" their non-core components.
Since offshore industry and process mature, buyer today can leverage offshore vendor's expertise to support mission critical products or services.
In such engagement, buyer needs to maintain ability to replicate those outsourced processes or tasks shall offshore relationship ceases.
Referring back to the training investment buyer should make on offshore staffs, the same can apply to rebuild an in-house team if necessary.
The CIO.
com article specifically mentioned in-house developers don't create development toolkit anymore because of IT outsourcing.
It will cause significant knowledge loss for future enhancements, especially if offshore relationship sours.
Perhaps cloud computing can address some of the concern for knowledge loss.
Buyer and vendor are required to collaborate on a cloud based virtual computing environment hosted by a 3rd party infrastructure provider.
This way, all the knowledge accumulated through out the engagement is securely stored in the centralized data center where information access is controlled by the buyer.
It will improve overall outsourcing security and collaboration on multi-tenant basis between onshore and offshore teams.
Buyer enjoys full control of data access and backup with on-demand scalability.
Source...