Off-shore Outsourcing – Opportunity or Trap?

Introduction

Maximizing shareholder value has been driving organizations to consider outsourcing non-essential functions for a while.  Increasingly, globalization has introduced off-shore outsourcing as a key component in maintaining competitiveness.  While outsourcing by itself has risks associated with it, clearly off-shore outsourcing has introduced risk elements that have not been thought of before and are not incorporated into current practices.  Significant dissonance between the buying community and the provider community has both sides perplexed, yet eager to generate mutual value.

The Challenge

Our primary research with the buy side, the sell side, industry analysts and industry advisors has validated our postulate that off-shore outsourcing offers a tremendous value creation opportunity, as long as robust risk mitigation strategies are utilized as an integral part of the process.  These strategies must incorporate the very real and very unique risk elements that are inherent in such relationships.  Unfortunately, currently available advice, tools and processes are not yet equipped to handle his diversity of risk.  According to Gartner, the unique risk profile of these relationships must be attended to immediately.

Observation

Our significant amount of R&D effort in developing our capability to address this issue has led us to think of the required competencies under the following framework.

The three process areas must be attended to across all four stages.  It is critical that the entire relationship be designed and executed in a manner that ensures that the enhancement stage is reached and that it is reached as early as possible. 

The approach must acknowledge cultural differences and geographical separation and not only minimize the risk associated with them but use those differences to enhance the relationship.   

Absolute insistence on robust change management planning ensures a smooth process.  Tight integration of Relationship Management, Risk Management and Change Management must be a cornerstone of the approach.  Ongoing compliance monitoring by independent off-shore observers further minimizes risk.  You must demand the development and institutionalization of this competency in your organization through insistence on transfer of skill and knowledge from your advisory firm.

Dalip K. Raheja is the President & CEO of The Mpower Group.  He is a well known authority in the areas of strategic sourcing and outsourcing and has both a multi industry and a multi national background.  Dalip can be reached at Dalipr@thempowergroup.com.