May 28, 2018
It is quite evident that outsourcing has an enticing charm and this can be ascertained by the fact that what used to be a strategic operational initiative for a few big companies a few decades back is becoming accessible to everyone. Several mid-size organizations also are moving to outsourcing. Information technology outsourcing, in particular, has seen a high traction. An article from MarketWatch published this year stated that the global IT outsourcing market stood at $314.92 billion in 2015 and is expected grow at a CAGR of 6.2% to reach $481.37 billion by 2022. That is a considerable size.
Obviously, the temptation of getting more out of a dollar spent, more efficient operations, ability to launch products in the new market and cheap and efficient human workforce is good enough a motivation for the companies to go ahead with outsourcing their functions or operations in a viable foreign land. Understandably, offshore outsourcing in India has only kept gaining pace.
While this all sounds positive, the picture is not all rosy.
There are numerous big and small companies on whose minds the horrors of outsourcing failures may still be fresh. More often than not the prospects of short-term gains and cost reduction blur the vision of the companies, leading them to potential pitfalls. These failures are quite common in offshore outsourcing software development. For example, Studies revealed that IT outsourcing witnesses a failure of as high as 70% across various industries.
This blog will talk about five major pitfalls that the myopic businesses vision brings and how these pitfalls can be avoided.
“It takes two to clap.” This saying never gets old. This happens to be a failure at the most basic level and often brings the most devastating results. An improper selection of the offshore development company may impact the quality of the work negatively and tarnish the image of the company. It can potentially trivialize the advantage of reduced costs as the client may have to pay again to get the substandard work done in the right manner.
Solution: A successful outsourcing model requires a compatible outsourcing partner who can understand the objectives and requirements of the outsourced project. That is why it is recommended for the outsourcing company to first run a thorough research on the outsourced company to check whether they have the ability to estimate the workflow and resource requirements, awareness of the policies and compliance, and required software and network management. Client testimonials or approaching the companies they have worked with can be of great help.
Ineffective communication between all stakeholders of the project from both the parties is another serious pitfall. This creates a hindrance in communicating the project objectives, staying on top of the developments and timely gauging any deviation from the roadmap and taking appropriate measures. Poor communication with the offshore outsourcing center also leads to bad coordination between the companies, ultimately impacting the overall productivity and service quality. Several outsourcing companies do not invest time in preparing detailed guidelines which in turn brings an additional burden on the in-house team.
Solution: Smooth and regular communication is certainly a key to success in this context. There needs to be a communication platform which every stakeholder of the project can utilize. There should be periodic meetings between the on-shore and off-shore teams. These meeting must be short, focused and do not have to run for long. Furthermore, frequent communication between the teams can also mitigate the dysfunctional behavior.
Many companies fall victim to the over-expectations from their outsourced operations. Contrary to the general belief, rather misbelief, offshore outsourcing services do not save as much time and money as perceived. As the reality sets in after some time, the realization comes as a shock to the companies which they often are not ready for. Several financial omissions and considerations at the planning phase accumulate to a humongous variation in the later phases. According to a CIO magazine article published in November 2017, “Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10 % above that figure to set up the deal and manage it over the long haul.”
Solution: While outsourcing does offer cost advantages, running operations offshore, performance measurements and managing coordination consume dollar too. Moreover, the operational cost also tends to increase every year. For example, offshore software outsourcing may be cheaper as compared to when done in developed countries, but its set up and sustainability may just stand at the same level as it is in-house. It would defeat the entire objective. Therefore, before executing the outsourcing thought, the companies should introduce all the allowances and factors that have a grip on the operational costs and revisit their cost structure. As accepted generally, a well planned and executed outsourcing model brings around 60% cost savings.
It can be no less a sin in the outsourcing world to ignore the cultural differences between the stakeholders involved in an outsourcing set-up. These differences are critical factors that have a bearing on interactions, communication, interpretation, understanding, and productivity. Many a time, inability or carelessness to address these differences has proven detrimental. Cultural gaps have many a time kept offshore outsourcing services in India from reaching their optimum level. That is why cultural mismatch has been agreed to as one of the strongest barriers to offshore outsourcing.
Solution: In a partnership with a model such as outsourcing where there are multiple stakeholders from different geographies, everyone has to work with everyone to understand work and coordinate with each other effectively. Key people who are the faces in an outsourcing relationship should ensure that they do not fall for assumptions as it could be detrimental. They should verify the communication to ensure its understanding even if it means explaining the obvious. These key people should also undergo a training on cultural differences and how to bridge them.
Not knowing beforehand where to go and how to go is vision-block and can bring forth many adverse unforeseen situations. This is especially true when you are getting into the businesses with an offshore outsourcing software development company. Ignorance to keep a detailed plan of the process and operations in advance is another factor that hits the outsourcing expectations severely. The lack of an organized roadmap may result in confusion and chaos, affect coordination between the parties and make way for unwanted consequences in a project.
Solution: There needs to be in a place a detailed plan for both the parties which is approved by their executive committees and leadership. An organized approach also includes ongoing involvement of the human resource and legal teams from early stages. HR staff can keep the staff informed and updated and legal team can address the complexities of laws pertaining to employment and contract laws.
To avoid the above-mentioned and several other possible outsourcing pitfalls, it is advisable that the companies considering outsourcing follow a small checklist of items to get the most of offshore outsourcing solutions.
At the very primary level, they must conduct a comprehensive feasibility analysis which involves a detailed research on the options of outsourced partners, services they offer and their performance history. The analysis should also consider hypothetical if-and-but scenarios, possible outcomes of business operations, provisions for cultural differences etc. In later stages of operations, there is a grave need for continuous coordination with the outsourced company and clarity and regularity in communication between both the partners. It requires the active involvement of both the parties for outsourcing to be a success. As mentioned before, the list to follow isn’t long and promises a long-term sustainability of an offshore development outsourcing model.