Saturday, July 19, 2008

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Like outsourcing, but over more time-zones in different languages and cultures, offshoring is a huge step to take if you haven't done it before. Getting it right can open up new avenues for increased productivity for a whole host of your organisation's processes. Getting it wrong can mean the "O word" is never mentioned again and your organisation is burdened with costs that competitors divested long ago.

Offshoring Models - Take Your Pick

Should you be considering a lower risk & reward partnership with a Big Four consultancy who own the offshore relationships, or a more "do it yourself" approach where you put all the offshore supplier relationships in place? On the other hand would you prefer to acquire or establish a business offshore? The typical risks and rewards of the models can be significantly different, so take a bit of time getting this decision right. Some companies take a progressive approach; they get help with the earlier offshored processes, and then ultimately transition to establishing their own organisation offshore.

Before You Do Anything

If you haven't offshored before, consider offshoring "back-office" rather than "front office" processes first and don't try to reinvent the wheel. Start by selecting the right project manager; someone who's "been there" and "done that" before. If you're not partnering with a "Big Four" consultancy and you can't wait for headhunters, give some thought to interim management as an alternative. Whatever route you take though, don't risk using someone who looks good, but actually hasn't done it before. You'll need someone who knows what actually happens, who really knows the key risks and how to mitigate them; someone who knows which are the emerging markets and those which are more mature.

Once you've found your experienced offshorer, give them unambiguous terms of reference and then build a full time multi-disciplinary offshoring team around them. If you think you can't afford to build a multi-disciplinary team, for the duration of the project, think again. Can you afford not to?

What's The Worst Case Scenario?

Before you go much further, get the team to work out what the likely benefits will be and also what your offshore disaster recovery plan is going to look like and cost. The latter may be a rapid re-onshoring of the process, but whatever it looks like, it's best to know what the worst case scenario is and decide whether the risk-reward ratio is right sooner rather than later.

Consider Re-Engineering Before Offshoring

In the rush to offshore, most companies overlook this, but whichever model you choose it's better to optimise your processes before you offshore them. This has several benefits. It ensures that the key steps to process success are documented formally, rather than them remaining carefully guarded secrets in your employees' heads. Understanding current process performance also helps to develop confidence about what level of improvements are likely to be achievable. The application of lean techniques can reduce the cost of a business process (before offshoring) by between 20-30% and reduce in process inventory levels and lead times by 50%. That way you capture the savings before the transition to offshore, otherwise your eventual supplier will retain them. Importantly simplification will help to make the process more robust, whoever's ultimately operating it.

Engaging With Offshore Suppliers

Identify what the key success factors for an outsourced relationship are, and issue a Request for Information (RFI) to potential suppliers. From this identify what additional benefits the offshore suppliers should be able to provide because they are specialists in the field.

Be absolutely clear about what your performance expectations are from the beginning. Set these as objectives when you first meet with long-listed suppliers, and repeat them for conditioning purposes at every important meeting. Back this up with a contract which includes comprehensive service level agreements (SLAs) as schedules; and where you want ongoing performance improvements draft clauses with win-win incentives.

Make sure that you get your "supplier quality assurance" assessments right. Run in-depth diagnostics inside the short-listed suppliers' businesses and let your process experts find out how suppliers really do things.

If you've comprehensively specified your requirements, give serious consideration to using e-Sourcing (e-Request for Information, e-Request for Quotation & Reverse e-Auctions) to minimise suppliers' prices, but don't forget to take account of any fixed costs which will be left behind and will have to be shared amongst the remaining onshore cost centres.

When you've selected your supplier, run "on-shore" trials with "offshore" employees to prove the concept and develop and train supplier "super-users", then run "offshore" pilots, before rolling the solution out on a grand scale.

Then when the relationship is established put full time supplier relationship managers in place, who understand in detail how the onshore process worked, and will work inside
your offshore suppliers to drive continuous improvement against the SLAs and maintain service quality.

Conclusion

Yes offshoring has its risks, but a carefully managed project led by someone who really knows what they're doing, can open up an entirely new range of opportunities to improve your organisation's performance.
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