Global Outsourcing Myths & Mistakes:  
Regaining Control (Part 1 of 2)

myths

[As a global outreach firm, Auerbach International provides a full spectrum of language and translation services as well as research, strategies and methods of conducting business worldwide. This article presents other challenges of global business.]

By far the most common justification for companies’ hiring offshore service providers is to save money — usually, a lot of money. Yet surprisingly, those big savings often turn into nickels and dimes (or euro cents). “I don’t know what happened,” one outsourcing manager said recently, “but we’ve gone at least 25% over budget for the past six quarters. This whole program is out of control.”

Many executives considering or engaging in outsourcing soon confront issues that can damage their individual or corporate reputations in home markets. These mistakes can inadvertently expand their costs and make the whole venture less profitable than initially anticipated.

  1. “Low bidders” usually become a high-cost solution
    Many companies find that the overseas service provider is not delivering as originally expected: product schedules begin to slip and customer satisfaction provided by the offshore group starts to decline. Customers feel the product is moving away from their needs or the call center doesn’t seem to “understand our needs.” Sometimes this begins to happen right away but quite often it happens after the initial honeymoon period.What this means is that you spend additional time and money from your budget to fix the problems, and recover from projects. It is money you did not plan to spend and hence an additional hidden cost to you.

    Analysis and Recommendations
    Why does this happen? This begins with the outsourcer’s choice of service vendor. Too often hiring companies negotiate the cheapest possible deal. As a result, they almost guarantee poor service. Evaluate your vendor based on your priorities and a set of criteria beyond price: size, culture, expectations, the provider’s staff competency and ability to meet future needs.

  2. Excessive employee turnover at the provider creates
    cost overruns
    for you
    You invest valuable home office staff time to train the offshore team and put in a lot of hard work to do trial runs. At this point, several months have passed; you now conclude that they understand your issues, you reassign and/or remove staff at your home location because you can afford to duplicate staff only for a limited period.Not much longer after this move, you learn that key (software, etc.) developers and/or team leads have left the offshore team. Even though the offshore organization says that they will address these major staff changes, you realize that there is no way that they can do it without your investing additional resources.  Another unplanned expense!!

    Analysis and Recommendations
    a) Examine attrition metrics
    Metrics provided by the outsourcing vendor refer to their entire organization. You need to understand metrics as they apply to your particular organization.

    b) Examine the type of work offshored
    It makes a critical difference whether you offshore only routine tasks or give your offshore team challenging assignments. One of the motivators for the offshore staff is to gain the opportunity to learn and progress. On the other hand, you have routine tasks that someone has to do and most likely you have offshored these tasks to begin with; in such a case, establish a planned progression for key performers so that they can see that by staying with you, they will continue to have the opportunity to learn.

    c) Examine the offshoring model
    This is not intuitively obvious. Some companies have gone offshore and established a subsidiary of their own without considering the minimum size necessary for effectiveness. In the current outsourcing environment where demand for skills is high, if you do not have host-country branding and if your total size is less than say 500 people, it will be hard to retain key personnel; they can see better career opportunities at a larger organization.

    d) Incentives
    You can set up incentive plans for individuals or groups as part of an overall retention plan. But make sure that this is done in close partnership with the vendor and that you are compliant with your home-country tax regulations.

    e) Overstaffing
    Some outsourcing providers, at their cost, train and keep ready additional staff to suit your needs to deal with turnover issue. Check out this option.

  3. Lawyers often negotiate defective offshore contracts
    Most contracts define rates and legal issues. They allow loopholes and are vague about performance metrics (e.g., “the vendor will apply its best efforts to …”). For example, if the operating manager at the outsourcer is not free to specify the level of staff experience, say three to four years’ – the outsourcing vendor is free to provide less experienced people. This incurs additional home office cost in training and productivity.Analysis and Recommendations
    a) Involve home office business and operations experts in contract discussions from the beginning.

    b) Set up explicit provider metrics: for example, Staff retention, Planned rotations, and Outcomes.

    c) Consider rewards for good performance and penalties for under-performance.

    d) Be very clear and specific on the kind of staff that you as the outsourcer expect.

  4. The outsourced service provider escalates all the hard work to your staff
    Especially relating to offshore call centers, the outsourced vendor’s staff handles easy calls but escalates most complex issues (which take more time to resolve) to your in-house team. You need to devote more staff locally. Another unplanned expense!!Analysis and Recommendations
    Quite often this behavior is not intentional on the part of the vendor’s staff.  It is difficult for the vendor’s staff to choose between angering a customer by keeping him or her on hold too long vs. escalating too soon which will force you to increase staff at headquarters. To address this dilemma, you should:

    a) Benchmark. What kind of specific issues should be escalated upward? When?

    b) Train offshore staff and managers how to determine those benchmarks and what responses to give.

    c) Provide objective feedback: “Call center Person X handled this call well, but Person Y did not give the full answer the customer wanted. He should have said …”

SUMMARY AND NEXT STEPS

While many companies are frustrated with offshore results, you need not be one of them. The first step is to assess how well the offshore initiative meets your objectives and which of these issues apply in your situation.