Key Success Factors for Offshore Outsourcing to India

In today s sourcing business, many companies are offshoring IT services and projects to India, some as a Captive Center (employment of own Indian staff), others choose external service providers for delivery.

While a few years ago such offshore decisions have primarily been made to save costs, today these decisions are more often included into a global multi-sourcing strategy, where overall sourcing goals determine the right sourcing method. And, offshore outsourcing (e.g. to India), is still a good solution for specific situations.

A challenge for decision makers is to profit from lessons learned other companies have experienced, since companies are typically not willing to openly admit and share their failures. Thus, information on key success factors are mostly collected by consulting companies or in-house, while even in-house knowledge is often not shared.

The underlying article comprises a series of key success factors that can be observed in almost any mid-size to large-size offshoring project focusing on India. The question is: how is success measurable?

The answer to this is very simple: from the very beginning, KPIs should be defined to measure the success of the project. In addition, it is advisable to institutionalize regular satisfaction surveys that measure the perception of the engagement across several stakeholder levels.

The success of an offshore outsourcing engagement should be pro-actively addressed. The following list is a key collection of criteria to ensure a successful offshore engagement:

1. Cultural awareness: In most cases, there is tremendous time pressure to offshore services or projects. The tight time schedule of a project plan forces the management to save costs quickly. The consequence is that often knowledge on already existing offshore experience is not sufficiently shared, not even within the company, and therefore, with respect to cultural awareness, this is very important. A misunderstanding of the Indian culture will result in higher costs later and can at times result in cost deficit disasters. Indian staff working with Western staff (on each level) and Western staff working with Indian staff must be trained on cultural differences. Very helpful for effective working relationships are mutual visits in the other country. This has shown drastic improvement on each others understanding and quality of work. Furthermore, it is beneficial to have a specific percentage of Indian colleagues work onsite (e.g. 20% onshore - 80% offshore). The assumed higher costs mostly compensate for costs that arise otherwise (see below).

2. Strong Management & Sponsorship: For offshore outsourcing projects, a strong management team (onshore and offshore) and a fully dedicated sponsorship are crucial to enable fast decisions and clear directions. The continuous drive and proactive attitude must come from the service recipient. For large-size projects, it is inevitable to have a Program Management Office (PMO) in place that ensures all communication is bundled, interpreted and available. The PMO ensures that respective rigor is given throughout the overall engagement, that the right communication is done in time and that problems are de-escalated appropriately.

3. Governance Framework: Watching the market, it has proven that most offshore outsourcing initiatives fail with their goals unsatisfied because of the fact that a clear governance framework has not been defined. The governance framework ensures that all managerial rules, regulations and processes are explicitly stated and will be followed by all stakeholders. It is considered as the backbone for an engagement. Typically, it is aligned to internationally accepted quality models and adjusted to the project needs.

4. Offshoring Readiness: Several questions need to be addressed in order to evaluate offshoring readiness. Is the internal staff ready for offshoring? Extensive knowledge and training are required prior to transfers and need to be consistently supported; strong resistance might adversely affect a company s success. Are processes mature enough to be offshored? Have the processes been scanned and evaluated carefully, considering maturity and risks to ensure they are suitable? What is the documentation level of the processes? In most cases, this question will be answered with "90% documentation done" while the reality shows that instead "30% documentation is done". Documentation is a time intense activity and mostly underestimated.

5. Experience: The bigger the offshore outsourcing initiative the more important it is to have the right experience available. Identification of risks and foresights are crucial to ensure a successful engagement offshore. Wrong decisions and wrong expectations can easily result in a back transfer of the services to onshore.

6. Quality Adherence: Services are typically offshored to save costs. Although most experienced consultancy companies today discourage this perspective, nevertheless, many offshore businesses are motivated primarily by cost advantages. It is often realized late in the process that quality is one of the top two to three driving factors for a successful offshore engagement. Lacking qualities have an impact on performance and reputation of the engagement. Poor qualities can cause considerable follow-up costs, which in turn have a negative impact on the business case.

A close adherence to Industry Standards, such as ITIL, ISO9000, SixSigma, CMM, etc. is highly recommended, as well as regular quality audits and continuous quality improvements. Quality initiatives should be a standard asset for successful delivery.

7. Expectation Management: Outsourcing engagements have a supplier (also in-house) and a recipient, which causes different expectations. The fact that a service is delivered from India, complicates the expectations. Expectations are often becoming unrealistic and sooner or later, these wrong expectations become problematic. It is important to close expectation gaps which lead to dissatisfaction.

One typical example for expectation gaps is when service owners are in doubt about the service provider s capability and hesitant to give services offshore, while the service provider (also in-house) might feel unchallenged by dealing only with standard, unchallenging topics.

A good expectation management will ease communication and sets expectations right. This can be accompanied by innovative approaches - initiations by quality management, for example.

8. Contract: In case the services are handed out to an external service provider, a respective contract management is needed. If there is no in-house legal department available, external legal advice is inevitable to ensure that the business is built on a stable base.

Over the past several years it has proven that "built for change" contracts are most suitable. More and more companies are starting to negotiate penalties for lacking service quality or specific situations.

9. Onshore-Offshore Ratio: A 100% offshore model (all resources working from offshore) is very challenging for both the service provider and service recipient. Interactions and exchange opportunities are missing which often leads to functional, technical, and cultural misunderstandings. Frequent exchanges or a ratio of 20:80 or 10:90 can be recommended and assumed to be covered in the business case.

Offshore outsourcing is seen now as one out of several sourcing options. It can be selected in alignment with the overall company Multi-Sourcing strategy. India, as one of the choices for offshoring, is constantly becoming more and more expensive. While it is not clear when stagnation can be expected, India has a few advantages to offer. Today, the key players in India can offer very good experience, skilled management staff, a good infrastructure and a decent understanding of the Western IT market and needs.