In the mid-1990s, while Knowledge Services (KS) offshoring was unheard of, the first efforts to globalize such processes were being carefully crafted by a pre-eminent global management-consulting firm. As leaders of a proposed pilot, under hawk-eyed observation by partners around the firm, we had to make the model as innovative and foolproof as possible. We finally discovered the right ingredients. In the next few years, we repeated the process of strategizing, establishing and operating KS units.

In our mind, the essential ingredients of success in all KS offshoring initiatives are: Start Small, Think Big; Pursue Quality, Benefits Follow; Put People First.

Start Small, Think Big
Nothing works better. Most successful KS ventures planned humble starts, waited until they were aware of all the operational challenges of the business, and then implemented their expansion plans. We believe that things will go well if you work step-by-step as follows:

Propose a modest start: You cannot sell an offshoring initiative if the payoffs are small; no management will agree to outsource for small gains. At the consulting firm, we got approval to start a knowledge center with only 10 people, and then grow it to 65 in the following 15 months. It was 300-strong within six years. In other words, even as you propose a modest start, plan for ramp up. Well-conceived plans have multi-year scenarios and payoffs but real savings must start in Year 1.

Tackle operational challenges: Whether you decide on a captive unit or third-party services, you will need to manage operational challenges, predominantly people and infrastructure. In managing people, you will need to deal with recruitment, training, compensation, work environment, career paths and retention. In terms of infrastructure, captive units in some countries need to organize even their own utilities and transport. If you outsource to a third party, these problems will not arise but you will still need to manage absenteeism, attrition, and rising overhead expenses.

Beware of latent costs: Offshore operations can have hidden costs. Typically, costs begin with initiating the process, where time must be spent on diagnosing processes, reengineering them and streamlining functions. You should also expect to spend time and money on ensuring these processes are performed at both ends, so you must plan for both travel and training. Also, expect to work towards optimum productivity levels. In short, offshoring is a long-term investment. Initial hidden costs include the expense of selecting a service provider (documenting requirements, sending out requests for proposal and evaluating the responses, and negotiating a contract), legal fees, the cost of layoffs, and the opportunity cost of initial low productivity.

Ensure open communication: Avoid writing plans that have to be discussed secretively. A hint of secrecy could fuel rumors that may soon spread beyond control, encouraging a speculative and pessimistic work environment. Instead, sharing information candidly with all groups that need to be informed will leave a good impression on staff and the management. Be prepared to iterate your proposal. The “start small” approach works well as a starter, but the seeds of long-term growth must also be sown. Long-term growth is ensured through value addition and quality. Global companies maintain their market share by either providing better quality at the same price or the same quality at a lower price. Therefore, they expect exemplary standards of quality from their vendors and partners. The search for savings creates growth in the short term, but in the long term it is always quality that grows businesses.

Pursue Quality, Savings Will Follow

Introduce quality standards: Quality standards need to be implemented at every step in the workflow and at every stage of ramp up. As the market becomes more defined, quality expectations become more detailed and assume more prominence in service delivery. Value-based output correlates more with the quality of service than with the service itself. It is imperative, therefore, to obtain quality certification of processes (ISO 9001:2000), customer satisfaction (COPC 2000), information security (BS 7799), and efficiency (Six Sigma). Additionally, we advise the following proactive stance:

• Brainstorm to generate ideas for process improvement
• Develop the business case for improvement opportunities, including high-level implementation plans
• Prioritize opportunities based on size of prize, difficulty to implement, and timing of expected benefits
• Develop detailed plans to capture benefits
• Quantify the benefits for proposed changes
• Define pilots in two to three key areas to begin capturing value and to prove opportunity
• Measure results of pilots and track progress against goals
• Refine pilot activities based on actual results
• Monitor results following four to six weeks of piloting to gather data on actual impact.

To see how many steps are involved, take a simple but critical process in KS: request intake. When a request arrives through a phone call or e-mail, it must be efficiently handled, e.g., by filling in a form bearing a request code and name, e-mail address and phone number of the requester. Quality control is also critical in the next step, clarifying deliverables such as the scope of the task, estimated time to complete it, resources to be used, and the format in which results are to be delivered. Quality checks are also needed once a request is received, e.g. through a quick check of the feasibility of the research/analysis required. Once all this is done, the requester is asked to verify or clarify the request and preliminary deliverables and deadlines must be confirmed.

Focus on productivity: At the beginning, it will be prudent for clients to budget for lack of productivity in the offshore location due to a lag in building skills and process knowledge. However, since locations like India allow hiring of staff with requisite (or more) skills, it is possible to quickly “catch up”. Outsourcers are well served by focusing on productivity. WNS, for example, has proprietary productivity measurement and enhancing tools. The WNS Productivity Enhancement Tool treats gross contribution as the productivity defining metric. Gross Contribution is bifurcated into inputs (direct costs) and output (revenue). The model traces back variances in the gross contribution 7 to variances in input or output factors, after which special initiatives are adopted to correct negative variances.

Ensure payoffs - Show them the money: Cost savings drive offshoring. An offshore third-party unit can achieve savings of 35 to 55 percent largely due to wage differentials and shared resources such as databases and software licenses (a critical cost for investment banks, consulting firms and market research companies). Let people see that the benefits outweigh the threats. The client should expect at least five pay-offs:

• Bottom line improvement by 50 to 60 percent
• At least 10 to 15 percent of research capacity freed for higher value added research
• Increased capacity and readily available domain expertise
• Turnaround time reduced by up to 50 percent through simultaneous task processing
• Round-the-clock or overnight services

Having put stringent quality standards in place and ensured some crucial dollars are being saved for your parent company (or client), you need to turn to the next important step: getting the best out of your most valuable asset – your employees.

Put People First
Employees are a key asset in this service-oriented business. In the long run, investment in your employees translates into output of much higher value. Moreover, outsourcers know that BPO attrition rates are touching 40 percent. Fortunately, KS is an exception with lower attrition levels of 10 to 15 percent. Ways to retain talent are not obvious. A Watson Wyatt study on compensation and benefits shows that, although monetary benefits matter, non-monetary factors are far more crucial in attracting and retaining talent. Professionals in this sector want careers, job satisfaction and enrichment, a pleasant work culture and training. And they want to be appropriately compensated for hard work under trying conditions. This means you should:

• Build allies: You need to hire articulate and striving people to progress towards your goal. Set up a board consisting of key senior managers to sponsor the offshoring effort. At the consulting firm, the board gave the initiative enough credibility to enable us to include people who would be influential in the future. It is important to involve key people as advisory board members, trainers or pilot customers. Offer roles and responsibilities to people who matter but are holding out, to get and keep them engaged.
  
• Give your people careers, not jobs: The Watson Wyatt study corroborated that employees rated career growth as one of the most important factors in attraction and retention. The consulting firm found that offshoring knowledge services resolved the problem of high turnover of its research workers caused primarily by the absence of a clear career path. Relocating research workers into a relatively large independent unit with a different organizational structure and different processes allowed them to work up to leading teams and becoming managers. Third party providers can move people from one strategic business unit to another, providing their employees with increased flexibility and exposure.
  
• Give your people job satisfaction and recognition: As stated above, in the Watson Wyatt study, employees rated a flexible work schedule, job enrichment and recognition as important factors in retention.

What Can You Do To Achieve This?
Create a beguiling work culture: An attractive work culture was ranked the first of the two most significant nonmonetary factors in attracting knowledge workers (the second being brand equity) in the study. Creating a pleasant work culture is an art, not a science. Professionals like balancing challenges and fun so it is critical to create a “work hard, play hard” culture. Employees respond well to challenging approaches such as an “Extending your Enterprise” model, where teams work closely with the client and are given client names and often client e-mail addresses. A social calendar including team dinners, monthly beer bashes, quarterly parties and annual balls create the emotional bonds that these professionals look forward to.

Invest in training: Professional development is important to talented people and so training is essential in Knowledge Services. WNS Knowledge Services organizes at least three weeks of training a year for every KS employee. Different training programs provide company orientation and help develop or sharpen skills including oral and written communication, financial analysis, database searching, request handling, and project management. Training requires investment of time, money and personnel, but the returns surpass the investment by far.

Meet benchmark compensation rates: Compensation might not be the only parameter in retention but is definitely an important motivator. A competitive compensation structure will go a long way towards retaining your “star employees”. Many successful third-party providers pay less than their not-so-successful peers. But your salaries must measure up to benchmarks in the industry.

Lead from the front: While external benchmarking can help you set standards for training and compensation, work culture is determined by leadership. Managers should lead by example and clearly demonstrate their commitment to the team. Additionally, to ensure employee motivation and loyalty:

• Provide cross-functional training and job rotation
• Sponsor employees for educational programs
• Offer flexibility to employees in terms of work schedule and vacation, wherever possible.

Following these guidelines will yield exponential gains from offshoring in the form of higher productivity, an enhanced top line, focus on core operations, etc. However, such gains can be sustained only if investments are made in innovation in existing processes, technology, human capital, and infrastructure – to gear up for the next level of growth. Without this spirit of “continuous improvement”, success at any level will show stunted growth.

This is a preview of Painless Offshoring, a white paper on knowledge services by WNS to be released in April 2005