It takes a tremendous amount of detailed management on both the client and supplier sides to realize the expected benefits of offshore outsourcing of IT work. Here are 15 best practices that can accelerate learning and make the strategy eminently worthwhile.
Senior executives dream of creating agile networks of global information technology service providers to lower costs, increase quality, implement seamless sunrise-to-sunrise production, reduce response time and disperse risks. Such agility allows organizations to enable flexible IT staffing while protecting business innovation.1 And indeed our research on 21 large U.S. offshore clients found that global outsourcing enables agile responses to business needs. (See “About the Research.”) For example, one U.S. financial services company has various joint ventures and fee-for-service relationships with 14 Indian suppliers. This network of suppliers enabled the company to adapt quickly to the immense surge in mortgage applications during the refinancing boom. As the refinancing boom subsided, the company was able to scale back resources immediately — all without affecting its domestic IT head count.
But agile IT networks require an immense amount of hands-on management. Our research found that U.S. clients micromanage their offshore suppliers to a much greater degree than they manage their domestic suppliers. The increased oversight is needed to mitigate higher risks, to build trust with new suppliers gradually and to coordinate delivery teams that are more remote and culturally diverse. Our research shows that, whereas U.S. clients require domestic-suppliers to submit status reports on one- to two-week cycles, many U.S. clients require offshore-suppliers to submit daily ones. While U.S. clients review résumés of domestic-supplier employees before they are assigned to teams, many U.S. clients personally interview every potential offshore-supplier team member to ensure that they have sufficient communication skills. And while U.S. clients trust domestic-supplier staff to ask for clarification when needed, they spend additional time questioning offshore-supplier staff to ensure understanding.
Micromanagement significantly increases transaction costs and can erode overall savings.