In a pandemic-driven business landscape, doing business can be challenging if organizations don’t find a way to adapt to the current situation. The business landscape has changed through the years, but with the current state of affairs, it has been in a constant state of flux. Businesses have found it necessary to be innovative and find ways to circumvent obstacles—both old and novel. While offshoring or business process outsourcing isn’t a new approach by any means, it has become a go-to solution, especially now, as businesses navigate the challenging landscape brought about by COVID-19. It helps reduce labor costs, which is arguably one of the largest expenses of a growing business. Offshoring also expands your talent pool and provides greater availability by tapping regions in different time zones. The IT industry is one of offshoring’s biggest markets, and the estimated value of the global IT outsourcing market by the year 2026 is $425.19 billion, a 4.5% growth (CAGR) from $318.5 billion in 2020.
While offshoring helps maximize a company’s resources, the process can be a challenging one, especially because you need to build a strong relationship with a supplier or third party. Before transferring business processes and knowledge to another organization, you must ensure that expectations are aligned and that communication lines remain open in case any issues arise.
The Common Pitfalls of Offshoring
Today, even small businesses outsource at least one of their business processes to increase overall efficiency. Startups have also resorted to offshoring or outsourcing business processes in an effort to cut costs and fast-track growth. However, it’s not as simple as hiring freelancers or contracting with a third party. There are several things to consider first before taking the offshoring path. Below are the common challenges of offshoring.
Not Choosing the Appropriate Location and Supplier
Before signing a contract with an offshore service provider, first consider the location. There are several other aspects tied to a physical location, including skill availability, attrition rates, legal issues, geopolitical issues, and currency fluctuation, among others. Culture compatibility should also be considered; this should be attained at a corporate, process, and day-to-day interaction level.
Loss of Control Over Processes and Knowledge Transfer
This should be discussed and agreed upon at the onset; there will be a perceived loss of control over processes as some of them are handed over to the service provider. This and the consequent transfer of knowledge can present internal challenges that are better addressed before contracts are signed and agreements are finalized.
Not Considering Cost Overruns
The reason why most offshoring ventures fail is because they fail to assess and realize the overall total cost of the process. It’s a mistake to focus solely on the wage cost arbitrage when taking your business processes to an outsourcing company. Consider all costs and expenses—both direct and indirect—to avoid perceived cost overruns.
Underestimating the Transition
The most challenging period when offshoring is the initial transition process, especially when offshoring for the first time or with a new outsourcing company. As with any new venture or transformation effort, this process should be rigorously planned, flawlessly structured, and should have the full commitment of senior management. This would help in the procurement of the resources necessary to make the initiative successful.
Non-existent Data Security Protocols
Business process outsourcing and knowledge transfer entails providing access to certain critical data to a third party. There should be strict data protocols that your chosen provider adheres to unconditionally. This is vital because a data security breach can lead to more serious problems that could affect both your business and your customers.
Mismatched Expectations
Expectations should be aligned even before considering a partnership with an outsourcing company. The misconception most companies have is that they are offshoring roles or personnel, which isn’t the case. In an outsourcing venture, they are offshoring processes, services, and activities.
Mismanaged Communications
Communication is an oft overlooked but vital aspect of offshoring, and mismanaging it can lead to catastrophic consequences. Every aspect of communication should be managed to the littlest detail; the timing and level of communication is very important. Providing information too early raises apprehension; providing it too late could run the risk of misinformation. You should also ensure that you are talking to the right person regarding certain aspects of the offshoring venture to save time and make communications more efficient.
Avoiding Pitfalls and Addressing Offshoring Challenges
Who does what from where is not as important as how it’s done and how the outcomes are measured. As such, there needs to be a clear and specific process that can be followed by both the client and provider before the offshoring process begins. The specific processes may vary depending on the organization, but they can be summarized into the following:
Prepare meticulously.
Offshoring requires that an organization have clear financial targets and defined outcomes so that priorities can be set. These priorities should then be validated constantly throughout the entire offshoring process. The reasons for offshoring and leveraging global delivery should also be clear to everyone in the organization, especially senior management. Below are a few key activities that should be done before proceeding with an offshoring arrangement:
– Secure buy-in and support from senior management.
– Craft a clearly defined strategy that specifies objectives.
– Define areas and processes that set the scope of the offshoring arrangement, specifically core (business-critical) and non-core (non-business critical) processes.
– Establish KPI’s for both the transition and steady phase.
Get to know your service provider.
Talking with your provider over the phone or via a video call isn’t enough; you should visit the provider’s offices and get a feel for their processes and see how they work. Seeing the process firsthand will allow you to audit the provider and make some tweaks into certain parameters like HR processes, working standards, and compliance with local regulations. In reciprocation, you should also allow your provider to get to know your organization. During the planning stages, providing them pertinent data about your processes, tools, and applications will help them during the transition phase.
Manage the transition process.
Startups shouldn’t underestimate the transition process when engaging with a third-party provider. It’s advisable to have a dedicated program management office that both parties can use in fulfilling requirements and dealing with issues and challenges along the way. Both parties should be represented in said office to ensure effective reporting and solutions that are in the interest of both the organization or client and the service provider.
Ensure smooth operations after the transition.
Even as the offshoring venture moves into “operational mode,” you should still make an effort to ensure that established processes run smoothly and without a hitch. Learn from your experiences during the transition period and ensure that everything is clear-cut when it comes to incident management and change requests.
As with any change, there will be an adjustment period as you try to find the balance between doing things in-house and offshore. Having the right partner will help make the transition smoother, simpler, and quicker.
Explore how nXscale can help you build your team and scale your business while avoiding the pitfalls listed above.