Many U.S. companies have sent IT-enabled services to global venues, and many more will do so over the next several years. Midsize U.S. companies are now gearing up for sending their IT-enabled services beyond America's borders to take advantage of many of the same things that the larger firms have already experienced. Lower labor costs, improved technical skills, an expanding reserve of experience, and a large pool of skilled workers are all attractive benefits.

The now-growing U.S. economy will not slow down the offshore migration. The bar is rising for those skilled resources, and with this growth will come more scrutiny and comparison to the offshore talent pool. A key step for businesses will involve aligning an offshore strategy with their corporate strategies.

Devising a successful offshore strategy is not without hurdles, and it involves executive commitment, risk management, offshore business-model selection, offshore operating-model development, navigation of the geographic and service-provider maze, identification of service portfolio opportunities, instilling governance, and cultural integration, to name just a few. (This is the case whether a company is going offshore for the first time or expanding existing operations.) A road map can help to leap these hurdles and execute with reduced risk while supporting an overall corporate strategy.

The Maze Of Decisions

Different terms are often bandied about when describing what exactly goes on in offshore operations. "Offshore outsourcing" and "offshore business-process outsourcing" are two of many terms out there. When consolidated under the heading "offsourcing," the terms all mean the same thing: the contracting of IT or IT-enabled services internally or externally from a remote geography that capitalizes on labor arbitrage opportunities around the globe.

Having a set of clear objectives, both short and long term, helps guide the process. Is the offshore strategy truly a long-term strategy, and will it be integral to the overall corporate strategy? Or is it a tactic that will simply achieve some cost savings in the near term? This understanding and expectation must be clarified from the top of the organization to effectively select the right options for investment, operations, business and operating models, and the level of change that the organization will be required to make.

Should a company develop its strategy for a direct (using pure-play offshore firms), indirect (leveraging offshore via a U.S. firm), or captive operation (subsidiary operation)? These critical options have a dramatic impact on savings and the overall operating model that is to be implemented. Transition costs and levels of investment will vary quite dramatically as well, but so will the benefits.

Additional key considerations involve using single- or multiple-sourced solutions and single- or multiple-geographic scenarios. Navigating these will have a tremendous impact on the level of savings opportunities that will present themselves, the level of risk, level of internal competencies required, and amount of change that it may take to achieve success.

And depending on the operational strategy, the complex task of selecting a vendor or partners is necessary. But promises from potential suppliers are not always grounded in reality, and supplier size or promises do not dictate success. Vendor selection in an offshore environment involves gathering far more data than is customary in a domestic environment, because the variability of quality is likely to be higher and the personal relationships that can be leveraged to validate information are likely to be fewer. The contractual and financial options and alignment with the required results are a challenge to achieve, and they require the right experience and understanding. Ensuring that the right terms and conditions exist to address change, issues, and the potential of future transition to other suppliers is another important variable. Negotiating the right contact and ensuring that win-win scenarios are in place are both extremely important factors; competitive financial arrangements are easy to discuss but very difficult to execute.

The offsourcing success story is one that hinges on critical success factors including governance, operational efficiency, quality, process, training, management skills, clearly defined roles and responsibilities, clarity of objectives, retention, commitment, vendor integrity, and offshore knowledge. Achieving the desired results requires a very comprehensive planning and execution process with the right experience base.

An Offshore Road Map To Guide Through The Maze

Moving from concept to operations requires a very thorough road map (see Figure 1) to ensure that the offshore strategy aligns with the corporate strategy. The offshore road map, detailed in Offshore Ready: Strategies To Plan And Profit From Offshore IT-Enabled Services, involves a comprehensive analysis and a set of deliverables for the financial, process, contractual, organizational, change management, governance, and transition areas. All of these areas are critical to understand and align to the business tactics and corporate strategy that is requiring offshore to be executed. Numerous questions must be considered when adapting such a road map:

These basic questions beget even more activities, such as determining which groups will be involved in developing and implementing the road map, identifying an executive champion, educating the operations team that will be affected, and deciding whether to seek outside support to develop and implement the strategy. It is critical to follow a well-defined process and ensure that the process will determine the solution, not the current political environment. It is advisable to focus on the facts and necessary results set by the corporate strategy, not the emotions of change and the potential of job losses. (In many cases, the loss of jobs is quite minimal because companies are either moving or eliminating positions based on past performance or cost/performance characteristics.)

Regardless, the transition can be difficult. Companies contemplating going offshore can benefit from an experienced global adviser to help customize the road map, take the emotions out of the decision process, and ensure all of the critical success factors are defined and folded into the final operating and business models.

At the crux of the road map is the development of an offshore entry strategy. It helps answer the question of how, when, and on what scale the organization should initially go offshore. Different scenarios are created based on financial merits, the time to market, long-term flexibility, time to productivity, maturity, and operational complexity.

Data collection is also an important part of the road map to help understand the process landscape, costs, and organizational structure. Interviews will also be necessary to validate information gathered throughout the process. Analyzing the information taken from both interviews and source documents is necessary to piece together an accurate depiction of the current operating environment, its maturity, and high-level requirements for the target model.

Once requirements are arrived at, modeling can then proceed. Modeling incorporates a wide variety of scenarios that account for associated financials and organizational structures. Models are devised for process, organization, governance, technology-platform requirements, infrastructure, and baseline metrics.

The next step in the road map is implementation, which is best carried out in a phased approach. A phased approach can allow for lower operational and financial risks, the validation of operational assumptions, organizational learning, model refinement, and vendor analysis. One such three-step approach begins with a pilot (which proves the efficiency and reliability of the business model), moves on to implementation (which includes a target date to determine if execution is successful), and finally includes optimization (which uses performance metrics to determine where improvements are needed).

When executed well, the road map delivers a seamless plan to the organization for making the transition to offsourcing not only possible but also with dramatically reduced risks.

Using The Road Map In Support Of The Corporate Strategy

The road map can take as few as four weeks and as long as six weeks, depending on the size of the organization and the scope of offsourcing that is envisioned. Experience will accelerate the ability to identify options; address transition plans; and deal with the many contractual, change management, and cultural integration issues. To help ensure the road map supports the corporate strategy, firms can ask themselves:

Ultimately, the key to ensuring that the offshore strategy aligns with the corporate strategy is to have a clear understanding of the planning activities and areas that must be addressed in preparing for a successful offsourcing initiative. The offsourcing road map can address all of the key areas required to ensure a smooth transition, as well as maximize the probability of success.

Greg Blount, a TPI project director, is the co-author of Offshore Ready, which is available at www.apqc.org/pubs. Greg is also serving as the subject matter expert on the consortium benchmarking study “Proven Practices in Offshoring,” which kicks off on Aug. 17. For more information on this benchmarking study, visit www.apqc.org/studies.