In our previous blog post on global outsourcing we looked at some key issues such as strategic fit for the business, selection locations and keeping the clients in the loop. In this second blog in the series we move the process on and look at the critical challenges of partner selection and management buy-in. In the work we have done on major global outsourcing projects, these are phases which have the potential to go badly wrong.
Partner Selection in Global Outsourcing
The reasons for deciding to outsource work can be many and varied. Often the move is driven by cost concerns, but this is not always the case. Many organisations, for example, find that they need to outsource to a secondary location to find scalable talent or to be near to a key client.
Whatever the reason for the transition, you will need to select an outsource partner (unless you decide to open a captive operation) and the future success of your entire organisation could then be heavily dependent on how that partner performs. Therefore, selecting the right partner is a very critical process.
What do you need to consider when going through the selection process?
Cost: This is obviously a critical consideration, but ongoing costs are notoriously difficult to determine. What is certain is that costs are not simply related to the monthly bill you get from your outsource partner. Other intangible costs such as drain on management bandwidth, attrition and training are often very significant – but problematic to quantify. If you chose the cheapest option might this radically increase these intangible costs?
Management Capability: It is critical that you assess the management capabilities of any outsource partner. Offshore business in countries such as India and Romania have grown exponentially over the past decade or so, but management capability has not necessarily been able to keep pace with that growth. It is not a question of education or technical ability; it is more an issue of commercial experience and acumen. Most organisations who transition work abroad are looking for people who can operate with a knowledge of their home country market conditions and – even more difficult – an understanding of home country cultural expectations. How do you assess management capability in advance of working with people?
Attrition Rates: How does your potential partner manage its attrition rates? Attrition rates are notoriously high in the outsourcing sector in and this can cause serious difficulties on an ongoing basis. Attrition leads to knowledge and skills seepage, and massive recruitment and re-training costs (which can eat away at any cost arbitrage you were looking to harvest).
Size: Should you team up with a large, well-established player in the market who has size, scalability and well-tested procedures, or with a smaller outfit which is growing and hungry for your business? With a larger player you might end up being a small fish in a very large pond and feel you are of little importance whereas a smaller partner may see you as strategically vital but lack the sophistication you are looking for.
Cultural Affinity: Your home team will need to work closely with offshore colleagues and vice versa. Often, however, the outsource location is in a country with a completely different cultural approach to all aspects of business. You cannot expect your colleagues in India or Romania to automatically understand your expectations of them. Left unattended, the cultural gap often becomes the biggest barrier to effective cross-border working.
Keith Warburton, Global Business Culture CEO
The Importance of Leadership and Organisation “Buy-in” to the Outsourcing/Offshoring Process
When embarking on a transformational programme such as this, all companies are confronted with many organisational elements which need more attention than usual – managing change, staffing, project management and execution, learning how to manage virtual teams, communication –and each of these elements have to have total focus from the leadership team for the project or projects to be successful. In light of this it is evident that the most critical factor for any successful offshoring/outsourcing programme is the buy-in of the Senior Leadership team and the subsequent total involvement of all levels of the organisation. Even those business teams not directly involved in the process under transfer will have a role to play to ensure a timely, high quality and cost-effective outcome.
This ‘buy-in’ is critical for several reasons:
These kinds of programmes, more often than not, constitute a fundamental transformation of the enterprise affecting employees at all levels – changing organisational structures and work practices, building new relationships – and it is impossible to over-estimate the impact this can have on the business. Therefore, it cannot be a ‘business-as-usual’ approach and demands full-time senior management attention to enable success.
Often these programmes are launched as a means to reduce cost and/or improve delivery quality. These deliverables are in turn factored into future business plans which drive shareholder value. So, expectations are often huge and are at risk unless the attention of all functional leaders is fully focussed on delivering the resources and support necessary to achieve the planned outcomes.
Normally the accountability for the process being outsourced/offshored is a held by a specialist area of the organisation, be it Operations, Sales Administration, Client Service, Accounts Payable/Receivable etc. However, delivering the required results can only be achieved if the Senior Leadership is involved in driving all parts of the organisation to support the programme, through shared goal-setting, reward and recognition schemes, skills development and all other parts of the change management process. Good outcomes generally always require the total involvement of all concerned and full corporate motivation around this kind of programme is essential to its success.
It is vital that the Senior Leadership ensure that commercial teams understand the importance and progress of the programme, and that they are able to help support the business in front of clients who may feel their service is under strain during this offshoring/outsourcing process.
These kinds of programmes can at times produce a level of demotivation, even resentment, in the organisation whether the teams are directly or indirectly involved. Senior Leadership involvement is key to managing this and they will need to manage and control the internal messaging at all stages of the programme to keep teams focussed and motivated.
The success or failure of transformational programmes is nearly always down to the level of business leadership engagement and how that is seen and felt within the organisation. Having your teams feel comfortable about the upcoming and ongoing changes is essential. Your messaging needs to be well thought through and consistent and everybody within the organisation needs to be aware of what is being communicated both internally and to the client base.
We would love to talk to you about the importance of Leadership and Organisational Buy-in as key enablers to a successful outsourcing and/or offshoring programme – please get in touch if you would like an initial discussion.