Managing Offshore Outsourcing Supplier Relationships

By: David Foote

Hot Issue:  How can my company build and maintain better relationships with our offshore outsourcing suppliers?

SmartSummary

·          Understand core values and business models on both sides to make best supplier selection.

·          Assign project control and quality assurance to a carefully constructed, properly empowered “anchor team”

·          Give extra attention to the ‘soft’ factors; budget and plan for regular face-to-face visits and communication with suppliers, the offshore team, and managers in outsourced facilities throughout project

·          Set and measure financial, productivity/performance, resource, and relationship/process goals that extend beyond contract SLAs.

SmartAdvice

More than half of offshore outsourcing initiatives fail to meet cost savings and contract performance targets, according to a study of 90 offshore initiatives by Foote Partners.  Poor supplier relationship management is one of the main culprits, in particular the tendency of many companies to abdicate too many management responsibilities to their offshore supplier once the contract is signed.  Here’s how to build and maintain better supplier relationships to ensure maximum cost savings:

1.       Select an experienced supplier and understand the supplier's real business model.  Everyone involved must understand company core values on both sides, and deliver on them.

2.       Go through an exhaustive due-diligence process and examine every possible contingency.  Nail down all the terms before an outsourcing contract is signed.  Understand differing legal standards and cultural norms in offshore deals.

3.       Determine how stable a supplier's workforce is and find out how they measure their attrition rate.  Make sure your provider has career advancement paths in place.  

4.       Ensure buy-in from the beginning to a detailed strategic offshore outsourcing plan, on both yours and the supplier’s sides, from management on down.  Set clear objectives and get consensus before signing any outsourcing agreement.

5.       Set and measure financial, productivity/performance, resource, and relationship/process goals that extend beyond contract service-level agreements.

6.       Establish a small domestic employee "anchor team" responsible for project control and quality assurance.  Select a few people from the supplier company to serve as domestic liaisons, and to assist in project management to avoid problems with project control and business knowledge issues.  Agree on the project management tools and processes to be used, and ensure that the offshore team understands all nuances.  Adopt a structured change management and issue tracking process, but be flexible with respect to the needs of the offshore team

7.       Embrace the offshore team, involve them in your business, share vision and plans, and help them anticipate and better respond to the changes. Develop a communications plan for primary external and internal stakeholders, providing vital mechanisms for feedback, two-way communication, and especially for active follow-up with the offshore outsourcing manager(s) and IT steering committee.

8.       Ensure regular face-to-face communication with suppliers, the offshore team, and managers in outsourced facilities.  Budget and plan for visits to the offshore facility, communicating business expectations in person, and maintaining constant personal contact.  Consider walk-throughs, reviews and testing at the offshore location to be assured that feedback is understood and incorporated accurately, in a timely manner, and in a manner that will motivate the offshore team.

9.       Carefully outline the process for ordering changes to work being performed, and stick to it so that you don’t lose track of change orders in multiple e-mail exchanges with a supplier.

10.   Devote strenuous efforts to managing user expectations. Give users straightforward information about accomplishments, and don't hide bad news. Introduce stakeholders to the offshore team, and don't hesitate to share their concerns.  Agree on contingency plans ahead of time with the offshore manager.  Demonstrate transparency and proactive planning.

11.   Plan for unexpected costs during the early stages of the outsourcing relationship, when knowledge is transferred from people on staff to members of the outsourcing team (e.g.  extensive travel expenses, and cultural or language training).  Deploy additional network bandwidth and security technologies if necessary for important data transfer. Be aware of country-specific communications and data encryption regulations and requirements.

12.   Think through the scenarios and the what-ifs both long- and short-term to anticipate emerging costs, and ensure that the outsourcing provider is delivering the expected services. Treat the outsourcing relationship as a task-based performance contract as well as a partnership.

TAC SmartGrid

SmartActions

To avoid costly surprises, consider quickly completing one full cycle or phase of the IT operation or business process being outsourced, involving all technical, quality assurance, compliance team, and user group principals.  This is not necessarily a pilot, but an exercise to go through all the steps leading up to going live with a large project.  Use the experience as an early test of teamwork, knowledge transfer, communications, project management, and other critical success factors.  

About the Author

David Foote, TAC Thought Leader, has more than 20 years of experience in technology including 13 years as an analyst and consultant at Gartner, Meta Group, and Foote Partners, where he is co-founder, president, and chief research officer. His specialties include a range of private and public-sector IT management practices and workforce trends and issues; offshore sourcing and strategic resource management; enterprise project delivery; organizational transition and transformation; and IT compensation. His editorial opinion columns, articles, and contributions appear regularly in a variety of business, IT, and HR publications, and he appears on radio, television, and global Web casts.