Moving work offshore: It’s more than just numbers
Some time ago I got a call from a client I met at a conference last fall. His company had been acquired and he was part of a sourcing strategy team charged with reducing internal IT headcount. As they were asked to meet a target number that seemed unrealistic, he wanted to know the average number of jobs that mature outsourcers transfer offshore.
The nature of his question made me wonder whether the company’s priorities are a little askew. I asked if they had assessed current staff roles and responsibilities to find out the impact of outsourcing throughout the company’s IT organization. They hadn’t. I also asked if they had a retention plan. They didn’t.
Afterwards, I began to wonder if the scenario the client presented was just an example of a company failing to follow established staffing best practices or if current assumptions about “outsourcing maturity” were a bit premature. Curious, I contacted an Infosys colleague who is involved in large-deal pursuits and asked him if the prospects and clients he works with are as focused on headcount numbers as the caller’s company. He said that invariably one of the first questions asked in kick-off meetings is “how many internal jobs do you think we can cut?”
Cutting costs by reducing staff and transferring work offshore is and always has been one of the chief motivations of global sourcing. From an HR perspective, however, the most important questions for a company entering the field are “what will be the role of our internal organization and what should it look like?”
Focusing on headcount cuts and raw numbers at the outset is like putting the proverbial cart before the horse. Still, many companies start out that way, usually by assuming that if it takes N number of internal resources to perform a task, then an equal or greater number of vendor FTEs will be needed to do the same work.
One outcome of this approach is that companies delay achieving or even fail to achieve the desired cost-reduction targets. Worse still, sometimes the staff cuts are so severe that the baby (institutional knowledge) is thrown out with the bath water. Inappropriately large cuts are also the result of failure to take into account the need to manage outsourced tasks and/or service provider staff.
Headcount reduction or to put it more positively, optimizing resources to not only cut costs but also focus on core activities and gain flexibility requires an understanding of and planning for both external and internal factors and contingencies.
At the minimum a successful sourcing strategy requires a retention plan that takes into account the need for internal knowledge to plan for and execute knowledge transfer and transition activities, manage vendor relationships and projects, and ensure that processes and knowledge developed by vendors are transferred back to the company.
There are enough HR challenges in outsourcing without adding another one, i.e., failure to develop a positive resource retention plan. It may be that the client’s call and my colleague’s experience are outside current norms and most companies have acknowledged the need to balance both internal and external resources. I’d be interested in hearing about what others are experiencing.
Comments
I think the real opportunity in outsourcing is thinking through how work can be redone to improve productivity of organization and drive revenue.
Not simply moving jobs from one location to the other.
Shawn
www.walkersresearch.com/executivelists.asp
Posted by: Shawn Mills | September 4, 2008 11:18 PM
Strategizing, planning and execution are three steps which need to be followed to make the best use of outsourcing. It is pertinent for the customer to first strategize the reasons for the outsourcing. Moving jobs to cost effective places for execution achieves the strategic objective.
Besides cost, there can be several reasons for outsourcing. Looking at the dearth of the skilled resources in developed countries is one of the objectives. Providing 24X7 services to their end customer without compromising on the work-life balance of the employees can be another objective especially if it is a global organization.
Out-sourcing without a concrete objective might lead to a big failure for the customer. It is recommended that a business case/strategy documents needs to be first prepared for any outsourcing exercise to proceed.
Posted by: Manish Agarwal | October 8, 2008 04:36 AM
As per CIO magazine, along with cost reduction, there are two major trends emerging in outsourcing especially in these uncertain economic environments:
1. Shift from people driven to value driven outsourcing
2. Portfolio rationalization by customer hereby the vendors will be chosen based on their capabilities and needs of the hour
I also feel that there will be emergence of multi-tier-sourcing model in IT outsourcing whereby a single vendor will have the primary responsibility to manage a second tier of vendors with customer overlooking and facilitating the primary vendor.
Posted by: Manish Agarwal | February 9, 2009 01:57 PM