Regardless of today’s media play and politics about offshore outsourcing, there is no denying that many U.S. companies are moving faster than ever to globalize their services delivery model by outsourcing to a third-party service provider or by building a captive delivery or shared service center in a low-cost market.
Whether you are building a captive center or outsourcing to a Joint Venture or third party, the transition period is the point in time in which both expenses and the risk for failure are the highest. How do successful companies manage these variables properly? Managers at these companies rely on the lessons learned and shared by those who have experienced transitions, both good and bad.
In a domestic outsourcing arrangement, much of the transition is administrative to the extent that the affected employees switch hats to begin working for the outsourcing service provider. Those employees bring their knowledge to the new employer, so, in relative terms, the transition is pretty straightforward.
However, in an offshore scenario, you transition process knowledge without the personnel who hold that knowledge. That makes the transition much more challenging. Consider the knowledge-transfer issue with the added complexity of travel distance, cultural disparities, languages, economic differences, geopolitical risks, and time zones. If that’s not enough, add in organizational change management, communications, and social issues, and you have some very hard work to do.
Offshore transitions work best when processes are mature and well documented before the transition starts, and the offshore (receiving) teams (either outsourced or captive) have a high degree of industry and service-domain expertise. Unfortunately, this is rarely the case. Getting a process ready for transition involves utilizing people with domain expertise in the functional areas that are in scope as well as the offshore operating model. These folks should assess the current environment and capabilities of the domestic (sending) operations and the receiving operations. A plan should be put in place to determine which processes are suitable to move offshore, and what needs to be done to transition efficiently and without service-level reduction.
Predictably, transitions run into problems when the receiving team is new to the industry and service, and the sending organization has few defined processes and an ad hoc way of delivering the services. Some managers believe that if they have a dysfunctional process at home, then transitioning that service to an offshore location with a process-oriented vendor will fix the problem. In reality, they still have a dysfunctional process, only it’s much farther away and harder to fix.
A VP of IT at a Fortune 500 travel company who has extensive offshoring experience says that the manner in which a transition is carried out will have implications in the short term and for years to come. “Both parties have responsibility to ensure a smooth transition. If the transition is not well planned or unexpected events occur, such as lost embedded knowledge, you will still be paying the price five years from now.”
“It’s important to get past the vendor’s sales and marketing teams to understand the true capabilities of the offshore receiving organization,” says the manager of a large PC maker’s offshore customer-care and technical-support center. “In the course of the vendor-selection process, we developed expectations that the transition was going to be smooth, since the vendor had so much experience with other PC makers like us. In hindsight, it would have been a good idea to dig deeper into their capabilities and develop a plan to support them better on our end. Doing that would have kept performance levels higher during the initial transition, which in the end builds confidence in the relationship. My advice to others ... conduct due diligence and establish a transition team with deep knowledge in the processes that are in scope.”
How do the most successful companies move work offshore?
Begin With The Transition In Mind
Assign a transition owner who is responsible for the overall offshoring planning process. If this is an outsourcing endeavor, this person should understand the capabilities of the service provider and destination country, and compare those with the capabilities of the client organization. If developing a captive center, the transition owner should be involved in mapping the processes of the sending team, securing the facilities, and hiring the receiving team. There should be a suitable baseline of current financial and performance metrics before the transition begins so the costs and actual service levels can be compared during and after the transition.
Transition The Work In Stages
Understand the capabilities and limitations of the offshore delivery center as well the capabilities of the domestic center that is currently performing the processes. Break up the work into “transition waves” and prioritize. The easiest work should go first. It doesn’t matter if you’re transitioning to your own captive center or to a third-party contractor--when the process is new to the offshore delivery team, it takes some time to gain the knowledge needed to perform well. Moving it all at once or in the wrong order can create performance problems and ultimately tarnish the success of the relationship.
Develop A Retained Organization Design
Understand what the overall organization will look like after the transition. Chances are that roles, policies, and processes will change significantly after a major offshoring initiative. If the company is going to focus on architecture and design and work with a delivery organization in a remote location, how will the company design itself to focus on that competency? Understanding this early on will help determine the required skill sets and the future roles key employees will play.
Establish a Transition Team
The transition management group is responsible for the workstreams of the transition. This group oversees the project plan, identifies any gaps, and gains the executive sponsorship needed to solve problems. Common areas this group focuses on are process mapping, transition and management of in-flight projects, contractual issues, service-level monitoring and customer-service monitoring. In an offshore transition of any significance, the transition team should appoint an appropriate number of subject-matter experts to the offshore delivery location to assist in knowledge transfer and sign off on acceptance of service-level responsibility. Additionally, these subject-matter experts will help the receiving team acclimate to the company culture of the sending team. The functions of the transition team are temporary (six to 12 months,) and eventually become the program management office (PMO) for the governance organization.
Focus On Knowledge Transfer
The knowledge-transfer process is a difficult and expensive part of the transition. It usually involves “job shadowing,” meaning that people from the receiving team will travel to the sending team’s location and be trained by the person who is performing the process in scope. Transitioning institutional knowledge is a subjective and time-consuming process that involves training personnel on issues of judgment and company culture. There are many factors associated with doing this in an offshore initiative, not the least of which is resistance within the affected workforce. Also, the H-1B temporary work visas that have made job shadowing possible have been restricted, making it difficult for overseas workers to come to the United States for job training. Some companies, such as Accenture and Capgemini, are trying technology as a solution to the knowledge-transfer process. Whatever approach is used, the cost of knowledge transfer can easily eat into the business case for offshoring if it’s ineffective or prolonged.
Process Redesign
Processes that work well in a centralized, domestic-delivery model don’t work well in a decentralized, offshore-delivery model. Therefore, it’s important to factor transformational activities into the offshore transition plan. A few years ago, many companies were rushing to move broken processes offshore, hoping to lean on the vendor’s SEI-CMM-Software Level 5 process-maturity expertise. After a few years, these companies learned that even though the hourly labor costs were lower, they had an inefficient operating model that was now farther away and harder to fix. It’s much better to plan ahead and redesign the process either before or during the move offshore. Organizations that do this will invest slightly more in the transition and transformation, but the real savings will be made with productivity gains and better service a few months after the transition is considered complete.
Change Management And Communications
The loss of key people before, during, and after a transition can ruin—or at least derail—the potential success of an offshoring project. Without the availability and cooperation of certain people, knowledge transfer is difficult, time consuming, and costly. This can be avoided with proper attention to communications and change management. A retention plan should begin early by identifying the people who are critical to the organization and making sure they know that they’re needed. Some companies may offer stay-on bonuses, but more and more companies are considering specific training to enhance needed skills. There are also external stakeholders to consider. There is a lot of interest these days in what companies are doing with displaced workers as a result of offshoring. Whatever is decided, the way that a company communicates with and treats its displaced employees is strongly scrutinized by the media, policy makers, and shareholders. Good social responsibility benefits the company and employees.
Distributed Governance Models Improve Success
After the transition is complete and the organization is in “steady state,” the governance organization should move into an operational role. In an offshore model, the governance organization should have relationship-management functions that face both the business unit and supplier. This means the governance group should have local resources to work with the supplier delivery teams. Sometimes it makes sense to rotate client resources in and out of the delivery locations in three- to six-month increments and other times hire a local resource to be based on-site, full-time. The quality of life in the offshore location is usually a factor in getting qualified resources to relocate for a period of time.
In summary, offshoring is growing at a faster pace than ever. Companies that once were limited by uncertainty and transition risks are moving offshore faster than anyone ever predicted. The competitive advantage is not only moving work offshore, but moving work offshore faster and sooner than the competition.
The transition is a defined period of time that happens to be the most costly, highest risk, and most critical component of moving work to a low-cost location. Failure in any of the steps in the transition process can lead to years of problems and lost productivity. What’s the bottom line? The larger the scope of work, the more difficult and critical it is to build a comprehensive, well-defined offshore transition plan.
Cliff Justice is multishore practice leader at EquaTerra, an offshore
advisory service. He is reachable at Cliff.justice@equaterra.com.
