Realizing the Value of Offshore Sourcing
Praba Manivasager
General Manager, Renodis Global Services,
Analysts International
Compressing the time to sustainable cost savings.™
Private & Confidential
September 10, 2004
Analysts International ©
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Agenda
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Offshore sourcing is mainstream
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Offshore comes with strings attached
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Increasing your odds of offshore success - A
step by step guide
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Analysts International ©
Strategy & Planning
Solution Design
Implement & Transition
Manage & Optimize
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Key Take- aways
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Q&A
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• Best Practices
• Sample Deliverables
• Risks and Pitfalls
• Key Criteria
• Case Studies
• Measurement & Analysis
Renodis Background
Renodis is a leading offshore advisory and management firm positioned to assist companies
maximize ROI, compress time to cost savings and minimize risks of moving business operations
offshore.
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Founded in early 2000
Offices in Minneapolis, New York, and Chennai, India
Focused exclusively on offshore sourcing of BPO and IT services
from India
Vendor neutral services
Specialists in the full offshore outsourcing lifecycle including planning,
design, implementation, transition, optimization and management
Assist organizations with the challenges faced onshore (alignment of
domestic organization) and offshore (service delivery)
The foundation of our offering is to assist organizations with the
challenges in the near-term to become self-reliant in the long-term
Recently acquired by Analysts International (NASDAQ: ANLY) in
November 2003
Analysts International ©
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Focus of This Discussion
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Practical ideas for successful offshore sourcing
Sourcing of services from offshore locations
Primarily IT related services with some BPO
Most favorable location for offshore sourcing of services – India
(with brief discussions about other locations)
Out of scope
• The outsourcing industry
• Sourcing of products from offshore locations
• The political and social ramifications of offshore outsourcing
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Offshore Sourcing is Mainstream
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The global outsourcing spend was $320 billion last year and in
2005 it is expected to be $585 billion and $827 billion in 2008.
India's share in total IT spend will be 3 percent. -- Secretary
General of UNCTAD
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2.3 percent of total IT software and services spending by U.S.
corporations in 2003 was devoted to offshore outsourcing
activities. That figure will rise to 6.2 percent in 2008, the study
says. During that same time period, total savings from
offshoring are expected to climb from $6.7 billion to $20.9
billion. -- ITAA
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The cost savings and use of offshore resources "lower
inflation, increase productivity, and lower interest rates. This
boosts business and consumer spending and increases
economic activity. -- ITAA
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Offshore Sourcing is Mainstream – cont.
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The benefits of offshore IT outsourcing added $33.6 billion
to real gross domestic product in the United States last
year. By 2008, real GDP is expected to be $124.2 billion
higher than it would be in an environment in which offshore
IT software and services outsourcing does not happen. -ITAA
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The "incremental economic activity" from offshore IT outsourcing
created more than 90,000 net new jobs in 2003, and is expected
to create 317,000 net new jobs in 2008. -- ITAA
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Shipping software and IT services work abroad leads to higher
real wages for U.S. workers through lower inflation and higher
productivity, according to the study. Real wages were 0.13
percent higher in 2003 and are expected to be 0.44 percent
higher in 2008. -- ITAA
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Offshoring Actually Generates Greater Value
for the Global Economy.
The United States is reaping the largest benefits from outsourcing, with $1.12 to $1.14 of
every $1.45 to $1.47 in value created coming back to U.S. citizens through lower prices on
goods and services and increased business sales and profits.
$1.00
0.45-0.47
1.45-1.47
. . . creates
new value from
re-employing
U.S. labor* . . .
. . . and makes
the global pie
that much
bigger
0.67
0.33
$1 previously
spent in U.S.,
now offshored to
India . . .
. . . delivers
value to
India . . .
• Taxes ($0.04)
• Revenues ($0.20)
• Local suppliers
($0.09)
• Cost savings
($0.58)
• Goods sold
($0.05)
• Profits from
Indian ventures
($0.04)
*Estimate based on historical U.S. reemployment trends
Source: McKinsey Global Institute
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. . . brings
returns to
U.S. . . .
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How Offshore Benefits the Twin Cities economy
• Global Insight, economic consulting firm, estimates that 1,854 jobs were created
in MN as a result of foreign outsourcing in 2003, and grow to 6,700 by 2008.
• Donaldson’s General Manager: "If we didn't follow the [trend], we'd be out of
business.”
– In Donaldson's case, the company now has twice as many workers in China -- 2,500 -- as the
1,100 it has in Bloomington. The Chinese operation not only has allowed Donaldson to keep
making a product it no longer could make at a profit in the United States, it also has helped
boost the company's Minnesota employment, up by 400 people since 1990.
• After the 9/11 terrorist attacks slashed demand from the hotel and airline
industries for its software, Bloomington-based Integrated Decisions had to cut
costs. By outsourcing offshore, Integrated Decisions saved several million dollars
due to lower wages, cheaper real estate and a "tax holiday" granted by the Indian
government.
• "I think it's almost a certainty we would have had to close the company, had we
not had the ability to move these jobs offshore when we did, in response to a
crisis," Robinow (CFO) said. "The company would not be here and the 50 jobs
that we now have in the United States wouldn't exist.“
• In Minnesota and six other Midwestern states, fewer than 1 in 10 of the workers
laid off lost work to someone overseas – US Bureau of Labor Statistics
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Benefits of Offshore
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Cost savings
Faster Time to Market
Just in time skilled resources
Higher quality
Redirection of internal resources
Scalability
Shareholder value
Studies show a benefit to the US economy of $1.12 for every $1 spent on offshore services
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Offshore comes with strings attached
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Known Issues
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Communication and cultural related problems
Mismanaging across time zones
Process gaps
Steep learning curve associated with offshore initiatives
Mismanagement and definition of SLA’s and contracts
Improper planning and analysis
Insufficient governance model
Lack of proper work transition
Poor project tracking and monitoring
Overlooking vendor management
Mid-handling change management
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Known Issues – cont.
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Quality and time issues due to cultural differences,
lack of business knowledge and distance
Data security if appropriate measures are not
considered/implemented
Cost over-runs/hidden costs associated with
transitioning and offshore management
Aiming too high, too fast before the model has been
proven
Poor project management due to lack of offshore
project management knowledge
Internal backlash and lack of support
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Show Me the Savings!
Offshore companies often advertised cost savings of 40-60% when moving
work offshore.
Myth: Low Bill Rate = Lower Overall Project Cost
Truth: Low Bill Rate ? Lower Overall Project Cost
Through Renodis research, and application of our Total Cost of
Offshoring™ (TCO)
Model which quantifies actual savings, studies have shown that companies
who have learned to offshore efficiently and manage hidden costs often
save 20-30%.
Several companies have seen little or no savings!
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Increasing the odds of offshore success:
A step-by-step guide
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Renodis Global Services Methodology
A four phased approach to implementing a successful offshore program.
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Step 1: Strategy and Planning
The key to any successful offshore program is a plan that is aligned with the overall business
strategy of the company.
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Step 1: Strategy & Planning
Leading Indicators :
1) Offshore has been identified as a key component of corporate
strategy.
2) Competition is using offshore sourcing successfully.
3) Rogue offshore projects underway within business units.
4) You’ve been assigned as the offshore manager.
Key Takeaways :
1) How to develop a business case for offshore sourcing
2) How to develop an offshore sourcing strategy
3) Understand the various operating models for offshore sourcing
4) How to develop momentum and enlist support for offshore sourcing
5) Learn the difference between offshore, nearshore, bestshore etc.
Output:
A detailed Offshore Roadmap and execution plan
Analysts International ©
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What to outsource?
Outsourcing Continuum
Physical Infrastructure
+ Telecommunications
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Assets
Data Center
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Assets
Application
Outsourcing
Business Process
Outsourcing (BPO)
IT Management
Application Maintenance
& Development (AMD)
Application
Strategy
& (Bus.)
Architecture
Application
Portfolio
Management
Application
(Technical)
Architecture
Application
Development
& Implementation
(Custom + Pkg.)
Application
Conversions/
M&A Integration
Application
Maintenance
What can be moved offshore? Where do I start?
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Application
Enhancement
Application
Support
Country Comparison
According to the a McKinsey & Co. study, India provides the highest quality
resources at the lowest cost.
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400 of Fortune 500 companies outsource some software development to India
India has 80% market share of offshore outsourcing market
India has 32 out of the 58 companies worldwide who have achieved SEI CMM Level 5
Cost advantage
Active government support/
Israel
Tax-free software exports
India
– Maturity
Singapore
– Large, skilled, English speaking
engineering scientific base, second
only to the US
Hungary
– 12 hr time difference
Quality
Low
Malaysia
Philippines
Mexico
China
Russia
Low
High
Cost Source: McKinsey Analysis
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Comparison of Operating Models
Criteria
Outsource
ODC
JV
BOT
Short-term cost savings
Long-term cost savings
Capital commitment
Time to deploy solutions
Regulatory hurdles
Due diligence required
Training of offshore resources
Ability to integrate with onshore
processes
Knowledge required of offshore
country
Ability to manage and control
complex business processes
Ability to share business and
financial risk
Legend =
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- Low
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- Medium
- High
Subsidiary
Acquire
Offshore Governance Model
In an effort to maximize cost
savings, many organizations
fail to dedicate resources to
successfully manage an
offshore initiative. It is
recommended that
organizations spend between
2-7% of the contract value
in performing management
activities.
Executive
Committee
• Strategic direction and oversight
• Financial stewardship
• Sponsorship of strategic initiatives
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Program
Management
Office
Business Unit
Steering Committee
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Vendor relationship (onshore/offshore)
Performance dashboard
Key operational issues
Finance and budgets
Enterprise-wide initiatives
Service Level Management
• Project prioritization
• Project management
• Process and technology evaluation
Case Study: UK Based IT Services Company
The client offers a range of award winning, innovative products and world-class services
in the areas of application services, infrastructure management, enterprise software
products and business process outsourcing. They operate globally, with operations in
Europe, the Americas, and Asia; with offices in England, India, The Netherlands, Russia,
Scotland, Sweden and The United States. The client engaged Renodis as strategic
advisors to help them formulate their India strategy and to facilitate a series of acquisitions
in the Indian marketplace. We provided them with the following services:
? Requirement definition
? Strategy formulation
? Business planning
? Prospect identification
? Valuation analysis
? Hosted site visits
? Deal structuring
? Due diligence reviews
Client Benefits
? A strong understanding of the vendor landscape in India across offerings, industries,
valuations, and size
? Review of each prospect on valuation metrics and operational characteristics
? Understanding of negotiation tactics and options to integrate acquired company with
current operations
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Step 2: Solution Design
For companies that are outsourcing, a solution design involves finding the right partner and
putting together a win-win outsourcing agreement. With over 1,000 IT and BPO vendors in India
vying for your business, the selection process can be complex.
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Step 2: Solution Design – (outsource to vendor)
Leading Indicators :
1) Offshore strategy mapped out
2) A business need is eminent
3) Business units looking for cost control mechanisms
Key Takeaways :
1) Establishing RFI criteria
2) What to look for in site visits
3) Technical and Business Due Diligence
4) Contract Negotiations and Service Levels
Output:
Signed agreement with 1 or 2 offshore vendors
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Vendor Selection - Process
• Define offshore requirements and form basis for evaluating
potential partners
• Create an initial list of qualified vendors using Vendor
Intelligence DB
• Draft RFI/RFP and distribute to vendor list
• Manage response process and vendor communication
• Evaluate responses and rank vendors using vendor evaluation
framework
• Host offshore site visits with short-listed vendors
• Perform detailed vendor due diligence
• Define service level agreements
• Negotiate outsourcing contract
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Vendor Selection - Criteria
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Financial Stability
Ability to Provide Staffing
Depth of Technical Skills
Breadth of Technology Expertise
Software Development Process (i.e. Test Environment, Quality, Reporting,
etc)
Flexibility
Innovativeness
Engagement/ Account Management
Level of Commitment/ Exclusivity
Management – experience, longevity with company, vision, responsible
growth
Culture – compatibility
Employee satisfaction – benefits, openness, work environment
Nimbleness – adapt to market conditions
Willingness to work together– flexibility, value of relationship
Innovativeness with relationship
Due Diligence – Business and Technology
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Best Practices – Service Level Agreement
• You can only manage what you can measure
• Involve business managers in SLA development (i.e. quantify
business impact of sub par service level)
• Establish a ‘warm up’ or transition period before measuring
• Communicate excessively, establish escalation protocol
• Build in flexibility to change SLA criteria based on changes in
business needs
• Establish achievable SLAs based on internal history and vendor
capability
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Case Study: $350M IT Services Provider
A $350M IT and creative services provider engaged Renodis to assist with defining
and implementing the company’s offshore strategy. We provided the following
services to the client:
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Strategic guidance
Operating model analysis
Business planning
Partner selection
Structuring relationship
Pricing negotiation
Integration of offshore into service portfolio offering
Sales force training
Offshore recruiting
Benefits to Client
? A fully operational service offering that they could take to their clients
? Ability to compete in a cost sensitive business environment and create a
competitive advantage
? An offshore mature sales force that understands the offering and its benefits
beyond cost savings
? A dual-shore partnership that involves risk-sharing and ‘best-shore’ task
allocation
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Case Study: $250M ERP Software Vendor
A $250M ERP software vendor, was looking to significantly reduce R&D costs by
developing offshore capabilities. The company engaged Renodis to help executives
make decisions on the appropriate course of action. The project included:
? Strategic advisory
? Business planning
? Country selection
? Partner selection
? Operating model analysis (JV, acquisition, Build-Operate-Transfer, Outsourcing)
? Hosted vendor site visits
? Offshore feasibility analysis across entire product line
? Financial modeling
? Operational and financial due diligence
? Contract negotiation
? Deal structuring (build-operate-transfer)
Benefits to Client
? Cost savings of 30% on activities across the development lifecycle
? Best-shore product development practice
? Ability to grow individual business units by using offshore as a center for
integrated services
? Reduced time-to-market through multi-shore development
? Increase in professional services revenue by freeing up product specialists
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Step 3: Implement and Transition
Once an agreement is in place, both the internal organization and the vendor have to prepare
before work can be transitioned. The first 120 days of offshore relationships are the most trying
and several steps can be taken to reduce the risk of failure.
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Step 3: Implement and Transition
Leading Indicators :
1) Signed agreement
Key Takeaways :
1) Establish Offshore PMO
2) Align Internal Organization
3) Use Offshore Viability Process to select projects
4) ‘Grow’ offshore project managers
5) Measure and report
Output:
Successful transition. Steady state reached. Minimize backlash
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Organizational Change Management
The single largest barrier facing organizations as they pursue offshore outsourcing is the
challenge of internal organizational change. Often companies under estimate this factor
resulting in unexpected cost over runs.
• Executive commitment at the highest level
• Educate executive leadership on strategic importance of offshore
initiative
• Two-way cultural orientation
• Identify discrepancies and similarities among corporate cultures
• Targeted workshops and seminars for all stakeholders
• Implement strategy to retain key personnel and contractors
• Carefully planned internal and external communication (over
communicate)
• Implement governance structure
• Manage results not resources
• Tie compensation to offshore success
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Program Management Office (PMO)
“37 percent of those who have had a Project Management Office for less than one year reported
increased success rates, those who had been operating one for more than four years reported a
65 percent success rate increase.” -- CIO Magazine & PMI Institute
• The Program Management Office is a strategic entity that is formed at the
corporate level. They come in various sizes and structures but overall they
cover the following areas:
– Project Support: Provide guidance to managers in business units
– Project Management Methodology: Develop and implement a standardized
methodology
– Training: Conduct training programs as required
– Home for PM’s: Maintain a central organization from which PM’s are loaned out
to business units
– Internal consulting: Advise employees about best practices
– Software tools: Select and maintain tools for employee use
– Portfolio management: Establish portfolio of projects and allocate resources
accordingly
• It is important for the structure to closely follow the company corporate
culture in order for it to successful. However, they are not a quick fix to the
organizations problems and they do not deliver immediate savings.
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Validation of PMO Structure
A Project Management Office, including it’s goals and processes, should be a subset of the
PMO, and needs to be integrated and aligned properly.
• A properly structured PMO will help ensure:
– All projects are managed and controlled by trained and experienced ‘offshore
mature’ project managers
– Activities, knowledge resources, human resources, and tools are organized to
encourage reuse to prevent duplication of effort
– Project quality is continuously monitored and areas of risk are regularly identified
and mitigated
– Processes are consistent across all projects within the program
– Cost, quality, scope, and issues are effectively communicated both within
Discover and with the vendor organization
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Offshore Viability Process
Renodis Global Services Offshore Viability Process allows each individual process/
project to be fully understood and reviewed before segmenting what is beneficial to be
transitioned offshore.
Inputs
Sample Criteria
Output
Reward
Client
Offshore
Readiness
• Organizational experience
with offshore
Process D
• Process maturity
Process A
Process B
• Business criticality
Process
Details
• Size of project or process
Chance for
Success
• Level of complexity
• “Packagability” of tasks
Offshore
Delivery
Capabilities
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• Technical environment
• Offshore vendor skills
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Process C
Work Transition Model
Initiate
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CoLocate
Assess
Remote
Pilot
Offshore
Pilot
Initiate: Team building, training, client/product knowledge
Co-Locate: On-site operations, environment/system knowledge
Assess: Progress, adjustments, balanced scorecard
Remote Pilot: Identify/resolve issues
Offshore Pilot: Real offshore, validate/update processes
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Training and Mentoring of Project Managers
• Project Managers are essential to the success of an offshore project, and
PM’s who have a strong background often don’t realize the need to be
versed in offshore delivery
• The training sessions led by offshore verse project managers will help the
onshore project managers better manage the offshore initiative by
addressing the following topics:
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Onshore expectation management
Process expertise
Quantitative measurement and analysis
Conflict resolution
Cultural awareness
Communication skills
Workflow management
Relationship management
Vendor management
Scope/change management
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Knowledge Management
• Knowledge transfer between an onsite and offshore team is vital to the
success of transitioning a project offshore. The following is a process
that can assist in transferring knowledge. Shadowing of resources by
allowing the offshore resources to visit onsite, and then using a train-thetrainer approach at the offshore location can help the project become
successful while helping it stay within budget.
• Gather existing documentation from all sources (company repository, IT
resource, business end-user)
• Analyze and understand all existing internal processes relevant to the
project
• Gain an overview from the IT resource or group, and the business enduser
• Consolidate understandings, present to IT and business user if time
permits
• Identify deficient areas and refine
• Conduct training with group members as required
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Performance Management & Reporting –
Measurements and Outcomes
• Some Key Performance Indictors for Performance Monitoring include:
- Cost Variance
- Schedule Efficiency Index
- Cost Performance Index
- Calculated Estimate to Complete
- Cost Efficiency Index
- Productivity Index
- Schedule Variance
• These Key Performance Indicators will quantify savings from offshore
through the following reporting mechanisms:
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- Planned and Actual Dates
- Estimates to Completion
- Deliverable Completion Status
- Estimates at Completion
- Earned Values
- Productivity Summaries
- Variance Summaries
- Scheduled vs. Actual Effort
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Best Practices: Communication
• Communication is key to a sourcing initiative, and when sourcing
to another country, key decision makers must realize that it is vital
to add additional resources to the project management and
oversight team to ensure effective communication. Establishing
an offshore PMO to assist as the initiative scales often increases
the chance for success
• Document all communication protocols and escalation channels,
and include during all training sessions
• Clearly define and document all roles and responsibilities
• Ensure that the communication channels allow for variances in
culture and communication skills
• Set a governing communication plan to ensure constant &
consistent communication
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Sample Performance Monitoring
Many offshore vendors have similar proprietary tools available, below are screen shots from Niku 6…
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Step 4: Manage and Optimize
Even after an offshore initiative has reached steady state, organizations must ensure
that they are properly monitoring, analyzing and optimizing service delivery.
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Step 4: Manage and Optimize
Leading Indicators :
1) Signed agreement
Key Takeaways :
1) Total Cost of Offshore (TCO)
2) Vendor Relations
3) Measuring success
4) Improving cost savings and quality
Output:
Improved cost savings. Increase breadth of outsourced functions.
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Total Cost of Offshoring (TCO)
The Renodis TCO model allows organizations the ability to calculate their true offshore costs.
• Comprehensive cost model for offshore application development and
maintenance projects
• Captures cost elements in every stage of the application development &
maintenance lifecycle including:
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Start-up (or set baseline to measure against)
Requirements Analysis
Design
Development
Deployment
Enhancements
Maintenance
Training
• Allows companies to understand how much an offshore project is costing
above simple bill rate calculations
• Upon completion of analysis, companies can closely evaluate areas in which
significant costs are added to TCO and take specific actions to reduce
• TCO model includes both quantitative factors (e.g., bill rates) and qualitative
factors (e.g., onshore/offshore communication effectiveness)
• Using the basic framework, a TCO analysis needs to be customized for a
particular client and project situation
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Total Cost of Offshoring™ (TCO)
The above component measurements are translated into a blended Bill Rate to allow companies
to understand their additional costs for offshoring.
Total Cost of Offshoring™ (TCO) is a
comprehensive costing tool, areas of
measurement include:
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Once the TCO analysis is completed a
root-cause analysis is needed to identify
areas of improvement such as:
Bill Rate
Communication
Quality
PMO Alignment
Infrastructure
Project Management
Relationship Management
Change Management
SLA Management
Performance Management
On-site/Offsite Ratio
Security costs
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Strategic Alignment
Budget
Portfolio Assessment Process
Global Procurement Process
Scalability
Change Management
Vendor Assessment
Need for Vendor Oversight
Cost of Delayed Implementation
Year 1 ($M)
Year 2 ($M)
Year 3 ($M)
Fully Loaded
Hourly Cost
100% Onshore
10
10
10
$50
100% Offshore
4
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$20
Hybrid – 1 year
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$30
Hybrid – 2 years
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10
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$40
1 Year to Steady State
Bill rate: $30/hr
Time to 100 offshore steady-state resources: 12 months
3 Year Project Cost: $18,000,000
2 Years to Steady State
Bill rate: $45/hr
Time to 100 offshore steady-state resources: 24 months
3 Year Project Cost: $24,000,000
Cost of delayed implementation to be amortized
over 3 years: $24,000,000 - $18,000,000 = $6,000,000
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Maximizing Relationship with Vendors
• Avoid drawing lines between customer and vendor—one team, one vision, one
success
• Establish trust as early as possible
• Expectation management is critical
• Regularly gather, analyze and communicate information about costs and
performance
• Jointly develop strategies for continuous improvement of outsourced services
• Carefully perform knowledge management and transfer activities; assuring that
what has been learned in initial outsourcing actions is utilized to assure smoother
implementation in future extensions
• Benchmark against industry & other vendors regularly; adjust periodically
Offshore Sourcing & Vendor Relationship Management
Offshore
Sourcing
Strategy
Vendor
Selection &
Contracts
25%
25%
Sourcing Strategy
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Set up &
Launch
Manage
50%
Vendor Management
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Focus on Vendor Management:
Improve
Typically in the first year
companies spend 40% on vendor
selection, 40% on agreement and
SLA and 20% on vendor
management.
In the offshore context, we
recommend 25% vendor
selection, 25% on agreement and
50% on vendor management
Win-Win Vendor Relations
Long -term success depends on establishing mutually beneficial relationships; over
time, the relationship and workflow processes supercede contractual details.
Phase 3
Offshore
Value
Relationship
Mgmt
Phase 2
Relationship
Mgmt
Phase 1
Relationship
Mgmt
Contract
Mgmt
Contract
Mgmt
Contract
Mgmt
Evolution of Relationship
Source: Gartner, Renodis Analysis
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Maximize Value
of Offshore
Case Study: $200M IT Service Provider
Client engaged Renodis to assist with the legal and operational clean up an
offshore recruiting center in India inherited from a past acquisition. Client wanted to
transition this entity into a new operating unit. Renodis assisted with:
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Statutory and regulatory guidance
Obtained FPIB and RBI clearances
Facilities management
Offshore recruiting
Operational Management
Assistance in finding 3 rd party contractors
Business Planning
Client Benefits
? Brought the India business unit back on track and in-line with organizational
strategy
? Strong partnerships for post-Renodis operational stability
? Recruited resources that helped realize cost-savings through India
organization rather than be a cash burn
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-- BREAK -Outsourcing advisors can play a valuable role in the outsourcing process…
• "The world actually passes you by about every three months in this field of
outsourcing, and you need to hire someone who is current with it to help you. I
used to go through trial and error with bits and pieces of HR functions before. But
now that I've done a deal using a consulting firm, never again would I do this
without expert help - even on a renewal. From a cost standpoint, they were
invaluable to me for the Request for Proposal (RFP), the implementation details,
and the negotiation of the contract." (HR Manager for F500 firm)
• A survey of buyers of global outsourcing services found that risk can be reduced
by 50% through the use of sourcing advisors. (Ross Research)
• With a growing need to cut costs, companies are expanding their supplier base to
offshore location such as India. The vendor due diligence processes are time
consuming and costly. Also, due to the distances, it becomes difficult for the
prospective customer to verify the details provided by the supplier in the RFI/RFPs.
Thus, companies use offshore outsourcing consultants to:
– To reduce the time and costs of identifying the vendor, as well as reduce the overall cost of
procuring the services
– To get assurance of the quality and the delivery capabilities of the vendors
– To reduce the risks of experimenting with “unknown” vendors
– To appropriately structure the Service Level Agreement (SLA) covering pricing and
performance clauses (Merrill Lynch)
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Strategies for Maximizing Offshore Benefits
• Understand and manage hidden cost elements
– Several ‘soft’ costs will erode savings
– Assume additional overheads
• Execute fast and transition large volumes
– Move from pilot to production quickly
– Small projects don’t justify the risk and overheads of offshore
• Focus more on project management than vendor management
– Offshore requires different project management skills
– Don’t rely on vendor, hire or train your own project managers
– Manage outcome not resources
• Get executive commitment and align organization
– Set savings and investment expectations
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Keys to Success
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Offshore outsourcing isn’t easy, takes time
Understand why you are going offshore
Need strong senior management commitment (both client and vendor)
Select your vendors carefully, think long term
Not too many, be important to each other
Senior management to senior management relationship
Involve vendor in the planning process
Give and take, flexibility
Shared responsibility, credit and blame
Solicit and accept vendor input
Onsite vendor visits to get to know team
Dedicated vendor liaison/coordination role
Keep negative experiences in perspective
Conduct cross-cultural training early, both client and vendor organizations
Apply team building concepts
Client organization contributes to lack of offshore success
Strive for continuous improvement!!
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A Possible Future?
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Thank You
Praba Manivasager
612.290.5886
praba@renodis.com
Analysts International ©
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