Tips and Traps

Outsourcing relationships must be flexible – Frequently, companies make the mistake of signing rigid, long-term outsourcing contracts only to find later that their business focus has changed significantly. The effect of those changes can result in additional charges that erase the original cost savings and sour the client-provider relationship. Innovative partner-style agreements are quickly becoming the norm as companies recognize the need for improved risk sharing and benefit reward models. The ability to modify the provision of service over the course of an agreement is sometimes more significant to a company’s long-term success than a well-crafted set of penalties for below-standard performance.

Asia is not one homogenous place – Countries in Asia differ from one country to the next. Foreign governments set their own rules for labor regulation, taxes and economic development. Failing to comply with these rules can result in stiff penalties and lengthy delays. Make sure your Service Provider understands the rules and will keep you in compliance, and make sure your service agreement spells out your Service Provider’s responsibilities.

Work around time zone differences – The time differences between locations in the U.S. and Europe, Africa and Asia can range from seven to 14 hours. Your offshore resources may be going home when your workday is starting. To avoid unnecessary delays, your service agreement must spell out times of availability, including contingencies for matters that require immediate attention.

Service agreements put you in control – A perceived lack of control is the single largest detractor in outsourcing decisions. However, outsourcing often leads to improved control and performance because you can clearly spell out your expectations in the service agreement and include penalties if they are not met. Much of the anxiety around control issues can be addressed with well-defined business metrics, periodic performance inspections, clear escalation processes and sound communication practices.

Industry knowledge is as important as local knowledge – Choose a Service Provider that can incorporate proven industry-specific business knowledge, effective business models and experience specific to the regions in which you operate. A Service Provider that has experience in working with offshore resources is a good choice as well.

Define Core Vs Non-Core functions – Some functions are best performed in-house to retain competitive advantage. In the quest to cut costs, some companies outsource functions they later discover are critical to their ability to adapt to market changes and retain their competitive advantage. IT-enabled and IT-intensive processes are often the vehicles through which market challenges are being met; any loss of control over critical IT services can severely damage an organization’s ability to compete.

Business continuity – Make sure your offshore Service Provider has a disaster recovery plan that will support your minimum service levels. The best approach is to plan carefully and make sure you have strong infrastructure support that can easily redistribute workloads to alternative locations, minimizing the chance of an interruption to your business.

Cost savings – Don’t be fooled. Lower hourly labor rates do not necessarily translate into lower costs. Critical considerations are a Service Provider’s transition processes, productivity rates, service delivery capabilities and quality commitment. These factors can impact the overall project cost and the value gained from the offshore engagement.