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| Home - Industry Article - Apr 05 Issue |
What Business Value are You Receiving from Your Offshore Strategy? |
By M.M.”Sath” Sathyanarayan, President and Principal consultant, Global Development Consulting, Inc, & D.E. “Don” Fowler, Advisor
Let’s reduce costs by going offshore with some development or service functions! The board and management agree to set up offshore activities in a place like India, China, Russia, Slovenia, or Bulgaria. Time passes. Everyone is happy. Right? Well, maybe. Most companies are finding that their goals are not being met in a consistent way. Issues creep into the picture. These issues are really symptoms of deeper problems. Issues that frequently arise are:
Product schedules begin to slip. Your staff starts complaining that low productivity in the offshore operation is eliminating the cost benefits that you justified the movement to offshore in the first place. The offshore operation requests substantial added resources in the budget cycle.
Customer satisfaction relative to functions provided by the offshore group starts to decline. Customers feel the product is moving away from their needs or the call center doesn’t seem to “understand our needs”.
Politics develop between the marketing, product management and/or development functions in the US and the offshore operation. There is finger pointing and the US based groups complain about the offshore group doing their own thing and the offshore operation complains about lack of solid product requirements and communication problems with the US groups. Teamwork, a strong point of the company, seems to break down on any subject dealing with the offshore operation.
Frequent changes occur in vendor personnel at the offshore location. Members of your US team, who provided training and support to the initial offshore activities, have been reassigned to other duties and now the changes in the vendor personnel need support from your staff once again.
Almost every company with offshore operations encounters these and other issues along the way. There are some fundamental problems underlying the issues. While easily stated, the problems are not immediately obvious, especially to those who have been involved in the offshore projects from the beginning. Here are some of the fundamental problems that are frequently encountered:
Benefits from offshoring are questioned. While on a per person basis you are paying the offshore vendor much less than what a U.S. person costs you, some of your staff is telling you that offshore productivity is really low; that it takes 2 to 3 persons offshore for doing the same work that used to be done by one experienced person here. Added to this, there are costs associated with travel, communications and duplication of equipment, to name a few. The implied conclusion by at least some of the staff is that it is not saving money after all and it was a bad idea to have gone offshore. Even in the beginning if you have found that the offshore initiative was saving you money, the situation can change over a period of time – one factor is the escalating labor cost offshore. An assessment of ‘Business Value” combined with regular audit of productivity and cost will provide you one of the key metrics to effectively manage the offshore initiative.
1. Vendors develop problems. When you were working with the vendors to set up the initial project(s) for offshore work, they were attentive and you felt they considered you to be the most important client in the world. They took the time to expose their people to your company’s specific needs. Now they seem distracted and distant and the people don’t seem to remember all of your needs. Call center activities can lose the meaning of scripts they follow and that can lead to consumer dissatisfaction. Key members of the team that supports you may change either due to attrition or due to the policy of rotation. Chances are high that their own workload has expanded to the point they are stretched too thin. With lots of offshore activity, competition for labor is intense in the offshore site. The vendors must seamlessly scale their own business. Some are better at it than others. Added to this the focus of many senior managers is business acquisition. Your project which is now in the delivery cycle can suffer. Regular audits can catch and nip such problems in the bud before severe issues arise.
2. Attracting and retaining offshore staff becomes an issue. You invest valuable U.S. staff time to train the offshore team and put in a lot of hard work to do trial runs. At this point, several months have passed; you now conclude that they understand your issues, you reassign and/or remove staff at your U.S. location, because you can afford to duplicate staff only for so long. Not much longer after this move, you learn that key developers and/or team leads have left the offshore team. Even though the offshore organization says that they will address it, you realize that there is no way that they can do it, without investing additional resources from the head quarters.
Conventional response to this issue is to improve compensation. While this is necessary, it is usually not sufficient to address the issue on a long-term basis. For example whether you are offshoring only routine tasks or providing an opportunity for the offshore team to do new development can make a difference.
Another factor that can influence attrition is the choice of right business model to begin with. Some companies have gone offshore and established a 10 to 20 person subsidiary. In the current environment where the demand for skills is so high, if you do not have local branding, it can be hard to retain key developers since they can see better career opportunities at a larger well established organization. An audit that goes beyond personnel policies can help uncover issues that will deal with this issue.
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