Outsourcing & Offshoring: Considerations for a Successful Global Enterprise
The words outsourcing and offshoring provoke many different reactions. Some hear these terms and consider them a natural aspect of globalization, a way to leverage talent given the “flattening” of world business through advanced communication technologies. Others find such trends to be threatening, leading to lost jobs, a reduction in product or process quality, and increased complexity in actually getting work accomplished.
Reactions and approaches to outsourcing and offshoring vary by industry, job function, organizational level, and geographic location. It is increasingly rare to find a company that has not at least considered these options for some aspect of its business activities. It is the question of how it gets done that is vital. The approach that an organization takes to relocating important functions abroad often shapes the ultimate success or failure of employees as well as the business.
Business Process Outsourcing: Considerations for the Client Organization
Employees of client companies (the companies that are transferring/outsourcing work functions to vendor companies) often find that the initial stages of an outsourcing relationship complicate their daily work life in mysterious ways. This can be especially true for individuals with limited cross-cultural business experience. Their common questions include:
- Why don’t the vendor company employees ask questions?
- Why do they seem to have difficulty raising problems and issues in a timely fashion?
- Why does the project manager speak on behalf of the vendor company employees even when he/she does not have subject matter expertise and the true subject matter expert is actually on the call?
- Why is it difficult for the vendor employees to say “no” to our requests or respond with the proper degree of urgency to deadlines?
“In outsourcing, culture carries implications more complex than mere differences in language or time zones. It is something no software can totally address.” — Offshore Outsourcing World
Business Process Outsourcing: Vendor Company Viewpoint
Employees on the vendor side of the equation (those taking on the outsourced work) have their own frustrations. While senior management in the vendor companies may have extensive international experience, more junior employees, while well-educated and talented, may lack practical business and cross-cultural experience. If asked to travel to international locations with limited preparation, they may find themselves in work situations where they are not welcome, lack the skills to interact effectively, or feel isolated or separated from client company employees. They may find themselves in what they perceive to be ambiguous situations, unclear about the roles and responsibilities of the people they come into contact with and what their reporting relationships are.
High turnover levels at vendor companies are often attributed to:
- Constant travel and rapid movement between projects, leading to a lack of a sense of belonging with client company colleagues and fellow employees.
- Lack of a clear career path and training opportunities commensurate with the expertise they need to demonstrate, both technically and cross-culturally.
- A desire to interact more closely with client company counterparts but the feeling of being “blocked” by those above them in the hierarchy or project management structure.
Outsourcing and Offshoring: Unique Challenges
There are distinctions to be made between outsourcing and offshoring ventures (more detailed definitions of each are offered in the article appendix). Therefore, it is important to distinguish the challenges associated with each.
With offshoring, for example, once the decision to establish a “captive” or wholly-owned subsidiary is made, interactions between organizational leaders, managers and employees can change substantially. While many of the leadership decision points and focus remain the same as in an outsourcing model, leaders need to take increased responsibility for meeting the offshore employees’ expectations in terms of developmental and promotional opportunities.
The question becomes which organizational and human resource processes to globalize and which ones to localize.
- Does the company use the same performance management process to give feedback to their offshore employees as they do with employees at other locations? Or, do they localize the process, taking into consideration local communication styles and different attitudes toward mentoring, etc?
- What strategies are put in place to make offshore employees feel motivated and included within the larger organization rather than feeling that they are nothing but “low-cost” resources?
In the offshoring scenario, managers often directly manage remote employees or share management responsibilities with a local manager. In hierarchical and relationship-oriented cultures, the roles, responsibilities and behaviors expected in these relationships need to be made extremely clear. Otherwise, the remote manager may lack clear authority or find his/her requests superseded or contradicted by local management.
Managers who are suddenly responsible for attracting, selecting, motivating and retaining offshore employees might find themselves interviewing potential employees who tend to speak in terms of team rather than individual accomplishments. They may also find that their offshore colleagues use very different criteria to determine employee qualifications and fit within the organization.
The offshore employees, on their part, are often looking for a long-term commitment to their well-being from the recruiting company. For a company establishing a new wholly-owned site, the first cohort hired may have very high expectations related to their promotion and leadership potential — expectations that the company will need to understand and manage in order to retain that person.
Typically, as companies establish a captive site, more employees find themselves in ongoing direct contact with their new colleagues across time zones and distance. One of the key issues is that work may now be ongoing and not limited to transitioning a single process or project. Attention needs to be paid to developing long-term, sustainable and systematic solutions to building effective working relationships across time and distance. Even when employees and vendor company staff members have had previous contact with one another, making the shift to becoming part of the same company changes the relationship, particularly from the perspective of the offshore staff. Again, the desire for long-term commitment, fairness and the nurturing of careers may lead formerly vendor-status employees to subtly demand more from managers, team members and colleagues than they did as vendors.
Keys to Success
Based on our experience working with many multinational clients across diverse industries worldwide, here are six (6) critical considerations for outsourcing required in a financially rewarding Global Sourcing strategy:
1. Create a high level of clarity and communication from leadership regarding the impact that outsourcing and offshoring will have on employees at all levels.
Organizational change management efforts need to go well beyond communications planning by staff members. The higher the level of executive involvement in leading the transition period, the more receptive the organization is likely to be. Resist the impulse to have employees from the offshore locations be the sole leaders in the initiatives. Diverse representation on the project management team creates the sense that the changes benefit the entire organization and not one specific group or ethnicity.Example: With one company, in a recent series of meetings across Europe, we observed an executive vice president of global sourcing who proactively met with the managers of those impacted by the change. She readily confronted questions and was honest about her own challenges working in the new organizational reality. The effect of her candid, hands-on approach was overwhelmingly powerful and positive.
2. Acknowledge and respond proactively to the uncertainty and possible tensions that outsourcing and offshoring involve.
Example: A Subject Matter Expert (SME) conducting two months of internal help desk support training began the training by demonstrating through practice call scenarios some of the stereotypes, anger, and sarcasm the offshore employees would likely hear expressed by their customers. Moving beyond technical skills, the SME focused on developing a sense of teamwork and empathy between the offshore employees and their corporate colleagues, and helped them to understand the sources of what might seem to be “unprofessional” behavior from their colleagues. While the SME received initial pushback from leadership on the length of the training required, he made the business case that development of communication and conflict resolution skills along with a collaborative mindset were critical for successful implementation and essential for overall employee morale.
3. Recognize the impact culture, time and distance will have on all stages of the outsourcing partnership and operation of the offshore location.
Example: In the early stages of a recent offshoring initiative, one company provided training to onshore and offshore employees in virtual teaming and communication skills. Participants on both sides were encouraged to make explicit working agreements around meetings, e-mail protocol, daily work handoffs and progress reports. Transparency in metrics and reporting relationships were established immediately upon team formation. Best practices were identified, recognized and shared across the globe.
4. Understand the different expectations of vendor and offshore employees and consciously develop systems and structures to address the differences.
While a vendor company employee may adjust to the culture and expectations of the client company, an offshore employee may expect mutual or balanced adaptation. Emphasize the potential for learning and development across locations and celebrate synergies.Example: Junior employees of one offshore business location in India expressed deep pride and organizational loyalty when numerous best practices they developed were adapted by the organization as a whole. Instead of being led from the U.S., offshore employees were tasked with leading a highly visible employee exchange initiative globally. The organization also offered visibility to the offshore employees by giving them credit on their contributions to market research presentations delivered to their world famous leadership team.
5. Coach managers and key employees to help them acquire the knowledge, tools and strategies they will need to bridge cultural and generational gaps.
Example: Coaching was provided for mid-level Indian offshore employees managing a team of U.S. women who had been working together for 10+ years. One Indian manager learned about elements of his communication style that may have been misunderstood by the women and proactively developed new approaches for leveraging the team’s considerable expertise in a positive and respectful manner.
6. Offer employees multiple technologies to enable effective virtual communication including instant messaging, online meetings, video and teleconferencing, etc..
Be clear that even though multiple technologies are in place there will be situational limitations on the effective use of technology because of infrastructure differences.Example: It is common that offshore employees do not have laptops, reliable internet connectivity or phone connections at home. Employees often need to stay long after working hours to participate in calls that people in other locations may make casually from their own homes. It can be useful to increase understanding of the infrastructure challenges that offshore employees face though photos and videos of their work and environmental conditions. Creating organizational norms for the use of communications technologies as well as encouraging teams to establish explicit working agreements for technology use are two other worthwhile steps.One way to offer employees the support they need is to work with a company offering business outsourcing services. These firms will have the technology, training, and staff needed to offer global outsourcing services and can deliver customized solutions for your specific needs.
Business offshoring and outsourcing activities have been a part of business globalization strategies for decades now. As a result, the business community is more savvy and agile, less clumsy, in the assessment of opportunities and management of transitions. There is now a wealth of stories from the trenches and best practices to learn from so that companies engaging in such pursuits can avoid common pitfalls, be more keen in judgment of if and how to proceed, and make the most of the venture.
Aperian Global offers a diverse suite of training solutions to help individuals recognize the impact of culture and support the development of strategies needed to bridge many types of work-style gaps – including cultural, generational, and functional – that arise in outsourcing and offshoring environments. Contact us to discuss your specific needs or explore our Learning Solutions to learn more.
Defining Terms: Outsourcing & Offshoring
Many companies have eliminated the words “outsourcing” and “offshoring” from their organizational lexicon, preferring terms like “global services delivery,” “global sourcing” or “global partnerships.” Yet there is value in understanding how these terms are defined and how outsourcing and offshoring impact employees at multiple levels within organizations.
In the current environment, the term outsourcing means using a vendor company to perform IT, Business Process Outsourcing (BPO), and Knowledge Process Outsourcing (KPO) related activities. While much of the focus in the past has been on outsourcing call center and IT support functions, processes can range in complexity from simple financial services transactions to high end market research and analytical functions. These vendor companies may be the giants of outsourcing such as India-based Infosys or Wipro, or niche-oriented small entrepreneurial companies with employees numbering in the dozens rather than thousands.
Offshoring is when companies set up a wholly owned “captive” site to perform business processes. The motivation to offshore rather than outsource may be based on limitations on the types of functions that can be legally or contractually conducted by vendor companies (especially prevalent in the financial services and insurance industries), lack of realization of expected cost savings, or a desire to directly manage employees and the processes without going through a vendor company project management structure. High rates of turnover at the vendor companies may be a motivator for establishing a captive site, along with a desire to increase cooperation and interaction between the onshore and offshore employees to enhance productivity, quality and customer service.
The trend is for companies to utilize a hybrid approach: outsourcing certain functions to vendor companies and offshoring others to captive sites. This allows for a high level of flexibility and leverages the strengths of each approach while minimizing risk. Many companies are in the process of moving previously outsourced functions into offshore operations that they can directly control. In some cases, functions are being returned onshore from outsource or offshore locations because the initial efforts did not achieve desired results.