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| Home - Industry Article - Jun 04 Issue |
Five Reasons Why Offshore Outsourcing Projects Fail
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4. Nonexistent Internal Communication
Employees should be a major focus for company leadership during the offshoring transition phase. Many of those affected by offshoring attribute their dissatisfaction with it to poor corporate communication. The communication effort should begin before any potential vendors are involved. Companies must have a strategy for letting all employees know, especially those who may be at risk, the reasons for outsourcing and the process that is going to occur. It is not an easy task, but it is a necessary one. Failing to communicate with employees about offshoring invites more problems in the knowledge transfer phase down the road.
Employees want to know what is happening, why, and how it affects them. Problems occur when leadership does not inform middle management and lower-level employees of the offshoring plan. Too often, outsourcing is treated like a dark secret, with corporate rumor mills breeding fear and distrust. Companies must step forward and clearly state their objectives such as to save costs, become more competitive, give customers better service, or provide a better return for stockholders. Your employees must understand why their company is putting so much effort into launching and managing an offshoring initiative.
However, even the best communication efforts won’t prevent employees affected by the offshore outsourcing decision from being understandably upset. Having onsite employees train offshore replacements may be a good way to transfer knowledge, but it’s also a good way to generate animosity from the onsite staff. Some companies attempt to mitigate these situations by providing additional compensation to onsite staff who stay on to train the offshore employees. Democratic presidential candidate John Kerry wants companies that are outsourcing jobs to provide affected employees with at least three month’s advance notice. Neither solution is perfect, but any efforts companies make to diffuse these volatile situations and communicate honestly with onsite staff are better than none at all.
5. Poor Transition Management
Despite rigorous due diligence, vendor reviews, and several test projects, the real work begins once the contract is signed. Transition management, a critical factor in the success of offshore initiatives, is defined as the detailed, desk-level knowledge transfer and documentation of all relevant tasks, technologies, workflows, and functions.
The transition period is perhaps the most difficult stage of an offshore endeavor, taking anywhere from three months to a year to complete. There are many issues to consider when moving to the new vendor. For example, current employees must be a willing part of the process, and communication is critical.
Another key aspect of transition management is knowledge transfer, or bringing the vendor’s employees up to speed on your internal procedures, a step that U.S. credit card company Capital One may have rushed. A Capital One spokeswoman verified that the company stopped routing telemarketing calls through its vendor Wipro Spectramind after it discovered that the actions of some Wipro employees didn’t conform to the company's standards and practices, namely offering potential customers free gifts and reduced membership fees without prior authorization.
Knowledge transfer also involves technology transfer and documentation. If the vendor will be assuming licenses or operations of client-owned systems, applications, or infrastructure, then all in-scope systems must be identified and documented. Licenses, maintenance agreements, hosting, and telecom infrastructure may be part of the transition.
In a 2003 interview with E-Business Strategies, an offshore IT vendor revealed that in one outsourcing engagement, the client didn’t disclose that part of his code was customized. The client didn’t realize that the maintenance contract with the supplier stated that the code could not be removed from the United States. The supplier abruptly halted the offshore maintenance agreement. The three parties involved eventually worked out a satisfactory solution, but the client’s failure to delineate what technology had to remain in-house significantly delayed the project. This example underscores the importance of smooth transition management.
Conclusion
Despite the challenges of offshore outsourcing, many companies choose to initiate small offshore projects and to eventually incorporate offshore outsourcing as a key part of their overall corporate strategy. They are drawn to offshore outsourcing for the obvious reasons: sizable cost savings and quality improvements. However, the moment companies stop closely managing the shift offshore is the moment the benefits vanish and the costly surprises appear. The market leaders that have enjoyed offshore success painstakingly evaluated vendors and offshore destinations, dedicated substantial time to upfront planning and expectation management, and ensured clear communications and transitions.
Marcia Robinson is the president of E-Business Strategies, a technology research and strategy consulting company. She coauthored the bestseller e-Business: Roadmap for Success, as well as e-Business 2.0: Roadmap for Success, M-Business: The Race to Mobility, Services Blueprint: Roadmap for Execution, and, most recently, Offshore Outsourcing: Business Models, ROI and Best Practices. She has extensive experience in outsourcing services delivery and customer relationship management. Marcia can be reached for article feedback at: marcia@ebstrategy.com
Ravi Kalakota, Ph.D., is the CEO of E-Business Strategies. A sought-after speaker and consultant on business technology trends and strategy, he has written eight pioneering books on e-commerce, e-business, m-business, e-services, and now offshore outsourcing. Two of his books are considered by Amazon.com to be "e-commerce classics." Ravi can be reached for article feedback at:
ravi@ebstrategy.com
 
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