Whenever I hear that a company's offshore program has crashed and burned, or failed to launch, I can't help but wonder what went wrong. Everyone knows that without visible senior leadership supporting any change initiative, they may as well not bother even trying. But when senior leadership support is strong and the offshore program still fails, the problem usually lies somewhere between a flawed strategy and inadequate processes.
Let's talk provider strategies for IT application development and maintenance (ADM). In one company that really got it right, there was unquestionable senior leadership support for offshoring. But it took them 2 years before got any traction. Once they clarified their strategy, determined the phases of its evolution, developed simple, accessible processes and put a great Program Manager in place, they successfully offshored 95% of their $50 million annual budget for application development and maintenance (ADM), in just 9 months.
After I met with each of the line of business CIO about their experiences with offshoring both within this company and in any prior lives, successes and concerns with offshoring, they came together as an Executive Steering Committee where I played it back in the form of a phased implementation strategy.
The first thing to agree on was the offshore service providers - how many and who - leveraging the Strategic Sourcing work that had been completed. Some rules of thumb about deciding on the number and location of offshore service providers you'll be working with:
1) Consider how much business you have based on your new net spend. Will your company continue to spend at pre-offshoring levels, doing more with the dollars or will you capture the savings and reduce budgets? Spend will determine how important your business will be to your providers.
2) When you are first going offshore, picking one provider won't give you much opportuntity to learn how things could work, since you'll only have one experience. In the case of the company I am citing, selecting three providers proved to be a good number. Competition can be healthy but working with more than 3 providers can be complicated and expensive in terms of infrastructure costs, management time, etc. While they started with three providers, they let these companies know that this number would go two in the next year or so. The companies they chose were quite different in size. I can describe them as an "800 pound gorilla", a mid-sized domain specialist, and a small company. The mid-sized domain specialist company was dropped after about 18 months because they were difficult to work with. The powerhouse company proved surprisingly responsive and brought many best practices, and the small company was unbelievably flexible and responsive. The small company needed more coaching and training than the larger company, but the great relationship between them and their customer overrode any concerns and both parties are very satisfied with their relationship. With both offshore providers, the quality of work was excellent and the development cycle time much shorter than prior to offshoring.
2. Do your IT offshore providers also have BPO expertise? Sooner or later all systems and processes touch one another, so can one company support both needs? Once you successfully offshore ADM - which is the best place to start and learn from- you will likely initiate Business Process Outsourcing (BPO). You can minimize some of the risks and complexities of going with a new, untested provider by using the same company(s) for ITO and BPO. This strategy may fly in the face of a "best of breed" strategy, but can produce the most successful offshore programs overall. Consider that once your BPO productivity levels are stable, you'll invest in transformation activities to generate additional benefits. Transformation actions always include process redesign, but invariably you'll also be making changes to supporting applications and/or technology. Naturally, your ITO provider will be involved, and it helps if they are the same company as your BPO provider.
3. Think about geography. Do you want your providers in the same city or countries to minimize your risks and costs? Do you want them in different cities or countries to minimize risk? Do they have the capability to take their operations offshore from their location, giving you the benefits of changing market conditions? Does your contract give you the right to approve or deny migration of your business to a new location within their operation? How good is your knowledge of their laws and business norms in the countries where they do business? Can trust be built and will it grow?
Minimizing the number of offshore providers based on a sound, long-term strategy is an important decision in designing a viable offshore program. More on strategy next time......
Linda Tuck Chapman, Founder & Managing Director
ONTALA Performance Solutions ontala@rogers.com