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Outsourcing and offshoring of professional services have been feasible due to the rapid advancements of Internet technology.
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Offshoring was initially done to attain lower costs but now it has evolved into a more mature strategic partnership.
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Eventually, the world will have “24-Hour Knowledge Factories” that will involve three or more centres around the world that collaborates closely in a continuous cycle.
The changing economic and labour conditions have motivated firms to outsource professional services and activities to skilled personnel in less expensive labour markets.
Outsourcing refers to the phenomenon of having someone else do the work for you. While offshoring refers to the situation when such work is performed in another country.
For example, if you go to a restaurant to eat, then that is outsourcing since somebody else is spending the time and energy to cook a meal for you. In the simplest terms, outsourcing happens when a company contracts a specific business function to an external supplier.
According to Deloitte, outsourcing by nature means that a specific part of your business function is placed to an external service provider who can apply any of the following:
- Within the country
The service performed in the same country. This usually happens when the labour rates are generally consistent with those where the service is received (e.g. US-to-US, US-to-UK, etc.).
- Nearshore
The service performed in another country near where the service is received. This usually occurs in countries that are close to the same time zone where labour rates are generally lower (e.g. Mexico-to-US, Eastern Europe-to-Sweden, etc.).
- Offshore
The service performed in another country where labour rates are lower, and there may be a significant difference in time zone (e.g. India-to-Sweden, Philippines-to-UK, etc.).
The growing relevance of outsourcing and offshoring
With the advent of the latest high-speed telecommunications technology and the diminishing costs of computers and telecommunications infrastructure, a growing number of companies are choosing to perform increasing types of professional services in foreign countries.
This phenomenon represents an excellent business opportunity to reduce costs and create new strategic relationships. This is why outsourcing, especially offshoring of professional services, is receiving increasing attention at all levels:
- Strategic
On a strategic level, businesses are starting to explore new models of operations and adapting to the changing environment of a diverse global enterprise. Business partners around the globe are working together to provide new models of business operations that cater to a geographically dispersed environment.
- Organisational
At the organisational level, companies are starting to research new relationships between suppliers and buyers. By sourcing vendors around the globe, companies are starting to find the best possible resources at a more reduced cost.
- Technical
On a technical level, organisations need to analyse new paradigms for effective collaboration. This can help mitigate the current overhead costs involving geographically dispersed work centres.
- Economic
At the economic level, companies need to conduct objective cost and benefits analysis for all concerned stakeholders such as the host environment, operating companies, individual workers, and all the concerned states and countries.
The global outsourcing and offshoring phenomenon
There are numerous multinational and transnational companies today that utilise outsourcing services all over the world. The innovations in communications technology, such as the advent of VoIP (Voice over Internet Protocol) technology and the price reductions in telecommunications infrastructure are all facilitating the processes in outsourcing.
As such, outsourcing and offshoring of professional services have been feasible due to the rapid advancements of Internet technology. Internet technology is the pivotal technology that enabled organisations to exchange real-time information in other countries at an affordable cost. It serves as the backbone that efficiently links corporate personnel to customers and clients all around the world.
The rapid adoption of this global phenomenon was catalysed by these major unrelated factors:
- Growing disparity of wages for similar jobs across countries.
- When the European Economic Community made a move from multiple currencies to the Euro.
- Efforts made by developed countries to reduce tariff and non-tariff barriers to the movement of computers and communications equipment across national boundaries.
Offshoring was initially done to attain lower costs, but now it has evolved into a more mature strategic partnership. Eventually, the world will have “24-Hour Knowledge Factories” that will involve three or more centres around the globe that collaborates closely in a continuous cycle.
Avoiding the common pitfalls and ensuring keys to success
A successful outsourcing and offshoring strategy can provide numerous benefits for your company. Cost-saving initiatives such as process improvements, expanded talent pools, and improved focus on core business functions are just some of its many advantages.
However, there are still some inherent risks that can compromise the anticipated benefits of an offshoring endeavour. Here are some of the common pitfalls when entering offshoring arrangements and how to avoid them:
- Misarticulation of the business case
There must be a “clearly defined” business case for every outsourcing project, and it must be articulated between the parties involved. Without this, the measurement of the success or failure of the project will be left to subjective interpretation.
- Expectations mismatch
Clients may have a different perception of what to expect in the offshoring partnership. They may be asking for personnel but are expecting services. Clients should not offshore personnel or roles, but instead, they should offshore services, processes, and activities.
- Cultural gaps
Managing cultural gaps are needed to ensure that the workforce of the offshore service provider is aligned to manage work with the local team. A harmonious relationship with offshore employees and the local personnel is essential to ensure the success of the partnership.
- Managing perceptions
Organisations need to move from having a “fear of the unknown” to “embrace the change” mentality in a structured manner. Pitfalls tend to happen when companies replace their local partners with offshore partners but still engage with the same processes as before.
- Underestimating transition
The most critical part of the outsourcing engagement is the initial transition period. There should be a structured and well-detailed transition period with full commitment from management. Enough transition time and resources should also be allocated to ensure a harmonious partnership.
- Managing communication
The timing and level of communication should be planned down to the last detail. Organisations need to rely on their offshoring partner for support on their core business processes. As such, they are expected to relay timely and relevant information to avoid miscommunication and misinformation on their service delivery.
According to Aperian Global, an SHRM service provider, here are the critical considerations in ensuring the success of a successful offshoring and outsourcing enterprise:
- Create a high level of clarity and communication from management regarding the impact of outsourcing and offshoring in the company.
Managing an outsourcing partnership needs to go beyond communications planning by the staff members. The executive management needs to be heavily involved during the transition period to make employees more at ease with the upcoming changes. Avoid making the mistake of using offshore employees as the sole leaders in the transition initiative. A diverse representation of the transition team creates an impression that the changes benefit the entire organisations and not just one specific group or ethnicity.
- Recognise the impact of culture, time, and distance on the business operations.
During the early stages of the offshoring initiatives, the company needs to provide the necessary training to the onshore and offshore employees in virtual team meetings and communication skills. Participants on both sides need to make explicit working agreements on meetings, e-mail protocols, daily work handoffs, and progress reports.
- Understand and manage expectations of both the vendors and offshore employees.
The vendor company employees may require a certain adjustment period when it comes to the workflow of an outsourced service. This is why it’s important to strive in creating a harmonious working relationship with offshore employees and the clients by emphasising the potential for learning and development between two parties.
- Coach managers and key employees to help them manage and bridge cultural and generational gaps.
Learn how to proactively develop new approaches that will help bridge cultural and generational gaps between the offshore employees and the vendor company employees. By learning the elements of each culture’s communication styles, employees will have the right knowledge, tools, and strategies to leverage their team’s expertise and bring about a successful working relationship.
- Offer multiple technologies to enable effective virtual communication among employees.
Although there may be multiple technologies in place for the vendor company, there may be cases when their offshore counterpart have situational limitations due to infrastructure differences. Make sure that both parties are equipped with the right telecommunications infrastructure to facilitate successful service delivery.
Let us help you manage your outsourcing and offshoring activities.
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We can help you maximise your business’ full potential as we help you drive measurable performance improvements in your outsourcing and offshoring operations.
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References:
Gupta, A. (2008). Outsourcing and Offshoring of Professional Services : Business Optimisation in a Global Economy. Hershey PA: IGI Global. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=208126&site=ehost-live
Offshoring – How to ensure success. (2019). Www2.deloitte.com. Retrieved 18 September 2019, from https://www2.deloitte.com/content/dam/Deloitte/se/Documents/strategy/Offshoring%20-%20How%20to%20ensure%20success%20130902.pdf
