Lessons For (And From) Offshore Services

The Indian IT industry’s meteoric growth in the last 10 years is well documented, and requires no introduction. The industry now has an estimated annual revenue of $50 billion, of which the BPO industry has a fifth share, and it employs about 2.2 million people, accounting for 7.5% of India’s GDP, and 35% of all exports from India. And not only is offshore sourcing growing in scale, but also in scope – in recent years, there’s been increasing growth in more knowledge or creative oriented sectors – for instance, Disney, IMAX and Sony collectively source about $250 million of animation work from India annually. India still offers cost arbitrage to the west, along with an enormous pool of skilled, English-speaking technical resources; IT vendors have adapted well to flexible engagement models, and of course, the falling price of communications technology has been a key factor.

Clearly, these are industries and models that work, that add value to both sides, and that will continue to grow in the near future, especially in the context of escalating cost pressures across much of Europe.

Yet, in all my years of working in the world of IT offshoring, I saw serious, sometimes systemic, problems with existing engagements, an astonishing number of times. These problems reduced value for both client and vendor, required endless time to find and resolve basic problems, and sometimes led to relationships that could have worked being terminated.

And these offer lessons to anybody starting to look at building successful offshore relationships today, whether client or offshore partner.

Vendor Selection
The first question is about the parameters on which companies select vendors and partners. An entire industry has grown up around vendor evaluation, looking at quantifiable areas like resource base, specific skill-set availability, past experience, clients and references, size, brand value, and so on. The importance of the client to the vendor, and hence the potential commitment of the vendor to the relationship is often ignored, or under-valued. And committed access to and oversight by senior management is almost never quantified. But these two are the most critical factors to the success of a relationship. Skills can be acquired, commitment can’t, and if you’re not important to a vendor, the partnership will never be optimal.

Pacing Yourself for the Long Haul
Following on from this, take the commitment to creating long-term relationships. Just as clients want to maximise value (savings), vendors want to maximise value (revenue). Often, therefore, the engagement roadmap isn’t well paced, and services are ramped up quickly, without a periodic evaluation of problems. Systemic problems remain and grow, until they get to the point where they endanger the entire programme. At this point, both client and vendor spend a large amount of resources on trying to fix them, and sometimes the partnership is terminated. Either way, it leaves a bad taste in the mouth on both sides. On the rare occasion when a client insists on a slow, steady, cyclical approach to growing the relationship, (and the vendor’s senior management is committed to slowly building a long-term, successful partnership) basic challenges – in communication, relationship, styles of work, expectations management or technical process – get ironed out along the way, and each cycle can be an improvement on the previous one.

Real Partnerships Build Accountability
Slower ramp-ups also allow both sides to familiarise themselves with each other, to work collaboratively towards a shared longer term view, to build ownership and accountability by the vendor, and to test and finalise the engagement model that works best for this particular relationship. While some of the world’s largest – and in some ways, very successful – outsourcers tend to focus exclusively on numbers, skill-base and cost, this is possible only when the scale of business is truly humongous. And even then, the vendors who work with these companies are continuously looking for ways to exit these relationships without impairing their income significantly.

Lab vs. Factory Models
Another recurrent point of contention is the lab vs. factory issue. Most new clients assume that their vendors’ resources will be similar to their own – with years of experience spanning several technologies and significant industry knowledge. Offshore companies usually follow a more factory oriented approach – more resources, with less industry-specific experience, more focused on individual technologies, with industry experts shared across projects and clients. It is important for clients to recognise that it is in their interest to have vendors provide services, and not resources, and for vendors to recognise that the same levels of experience don’t always work across all projects, and skill level compromises may be required – something that will always be made more willingly when relationships are built at the senior management level.

The Artificial Information Gap
Finally (for the purposes of this post), I’ve found that companies beginning to evaluate offshore services are frequently unwilling to provide more information than they absolutely have to, perhaps on the assumption that information is power. But sharing more information would allow vendors to think through more options, make better recommendations, and build more ownership at the start – and would probably go much further towards building successful relationships.

None of which is to say that offshoring doesn’t work – there are many examples of successful long-term partnerships, and clearly, economic value is created on both sides. But imagine how much more successful your offshore partnership could be if you took these factors into account.