Having posted on the Seven Deadly Sales Suppressors, the Seven Deadly Supply Chain Sins, and the Seven Deadly Supply Chain Wastes, it should be obvious that I’d pick up on Baseline’s 7 Sins of Offshore Outsourcing.
When outsourcing, organizations that focus on short-term cost reductions often rush through projects without adequate planning, due diligence or consideration of the long-term implications of the inevitable changes in business requirements or offshore market conditions. This not only causes them to overlook most of their savings opportunities, but often leads to project failure. However, an organization that knows what to look out for can avoid the mistakes that others have made in the past, mistakes that can be understood in the context of the seven deadly sins: pride, sloth, avarice, lust/extravagance, envy, gluttony and anger.
Many organizations succumb to the sin of false pride and plunge headlong into an offshoring initiative without performing due diligence. They assume that they (already) have the internal capabilities necessary to plan and manage an offshore operation, when this is often not the case. They also seriously underestimate the management resources required to successfully set-up and run such an operation.
You can’t just move an inefficient operation offshore and hope that lower salaries will result in cost savings. “Lift and Shift” doesn’t work, and, when the process is inefficient it will, in fact, often increase the personnel resources required to do the job, wiping out the cost savings the organization expected to achieve.
Many organizations will not be concerned enough about the ultimate fate of the business, or, even worse, possess disdain towards the offshore operation. This makes it difficult for the offshore operation to retain knowledgeable and productive staff, leading to quality problems and cost overruns as greater numbers of inexperienced resources need to be thrown at the problem.
The desire to solve a problem by taking on more, cheaper personnel is extravagant and wasteful and has serious implications for service quality. It’s important to remember that many offshore operations have lower productivity and excessively high turnover, reducing cost savings. Don’t give in to the impulse to compensate for low productivity with more bodies: It’s a false economy. Before you offshore the process, make sure it is efficient. If necessary, re-engineer and improve the process first. Furthermore, even after your processes are off-shored, it’s important to continuously apply performance improvement initiatives.
Don’t assume that offshoring automatically comes with big savings and be envious of your peers who are already doing it. Most of the claims you’ll find by the promotors of the strategy don’t take into account the lower productivity that comes with offshore personnel, higher communication costs with an offshore team, and the additional overhead required to govern an offshore process. Actual savings are often only half of what is claimed.
Don’t offshore as much as possible as quickly as possible, like a glutton, with the ill-formed belief that this will maximize savings. Don’t overlook the average organization’s capacity to digest change, and even smaller capacity to digest offshore change — because organizations that offshore too much too quick often spend the majority of their time firefighting. The key to success is selective offshore outsourcing, following a careful analysis of what processes are the most likely to lead to savings if outsourced.
Don’t blame the outsourcer when the savings don’t materialize, especially if you committed one or more of the sins above. Blame-wise, at least half will always rest with you, and if you committed multiple sins, all the blame rests with you.