5 Steps to Reduce Global Outsourcing Risk

Global IT outsourcing will grow to $399 billion in 2014, according to recent figures published by Forrester Research—a trend driven in part by the four-pronged trend of social, mobility, analytics and cloud (SMAC, for short).

In their recent report Three Trends That Will Influence Your 2014 Outsourcing Plans, Forrester said that technology initiatives focused on SMAC will result in “the supplier mix becoming more complicated as new service models, delivery mechanisms, and skills sets become essential to their success.”

The concept of the traditional enterprise is being turned on its head. Companies that were traditionally vertically integrated and could be identified geographically (General Motors was always identified as a Detroit company, for example), are now almost virtual companies. Man walking tight rope

They may have a headquarters office in Detroit, but their operations, sales, marketing and manufacturing are dispersed around the globe and across companies.

Vendors are taking on roles as strategic partners whose business fortunes are intimately tied to the business success of the enterprises that outsource their key business processes to them.

The Growth of Global Risk
The growth of globally dispersed enterprises and strategic vendor relationships has freed up today’s corporation, enabling them to cut costs where it’s needed, or to outsource to the most skilled providers no matter where they’re located.

But many corporations are moving from the old vertically integrated, geographically-specific model of the past to a new geographically specific model. In other words, many enterprises seem to be putting all of their eggs in one global bucket, opening them up to a new can of worms.

The existence of global risk, factors, such as natural disasters, environmental crises, political upheaval, and war, can negate any advantage of overseas outsourcing if all you’ve done is replace one geographic area, e.g. your home country, with another geographic area.

Recent examples in strategically important parts of the world have made this point painfully obvious:

  • Natural disasters: The Phuket earthquake, Japan Earthquake and Tusnami, and Fukushima meltdown, affecting areas of Southeast and East Asia, economically critical areas of the world
  • Regional wars: The Russia – Ukraine conflict, Gaza conflict and the Syria and Iraq battle with ISIS, areas of strategic importance for oil and international shipping
  • Environmental crises: Beijing air pollution catastrophe, which is making life for expatriates and natives alike almost unbearable in one of the most important manufacturing and outsourcing areas of the world

If all of your software development was outsourced to Eastern Ukraine, for example, your application development deadlines might be slipping a little bit by now.

Segment Technology Initiatives and Identify Strategic Partners
Though global risk is often unpredictable and mostly unavoidable, it’s important to keep in mind an important principle described by productivity expert Stephen R. Covey: focus on your Circle of Influence, not your Circle of Concern.

“Instead of reacting to or worrying about conditions over which they have little or no control, proactive people focus their time and energy on things they can control.”

For example, an enterprise with a plant in Eastern Ukraine cannot broker a peace agreement between the separatist rebels and the government of Ukraine.

But they can diversify their operations geographically – and they can choose which vendors to work with based on criteria over which they do have control.

Risk Diversification, a primer on Global Sourcing In her recent webinar for Softtek, Senior Analyst for Forrester Renee Murphy provided five criteria to help enterprises identify strategic partners to help mitigate global risk.

1.      Segment Projects
Segment future projects into high and low-end work (strategic versus tactical), segmenting your providers the same way.

2.      Analyze Service Transition
Think carefully about which services can be transitioned to what type of vendor.

3.      Price per Segmentation
Look to pay prices associated with these segmentations.

4.      Forge Strategic Connections with Vendors
Identify strategic projects and ensure that on these projects your strategic vendor is directly connected to business stakeholders.

5.      Identify “Co-Innovation” Partners
Identify a short list of providers you consider “co-innovation” partners for driving key front-facing initiatives.

Let these criteria guide you in your search for vendors, regardless of their location. Look at all areas around the globe, instead of the traditional areas such as South Asia and Eastern Europe.

Nearshore alternatives, such as The Americas, including México and South America, for example, offer unique proximity benefits for a comprehensive diversification strategy.

Conclusion
Social media, mobile, cloud computing and big data have essentially freed enterprises from any last vestiges of geographic and vertical dependency, while allowing tight integrations between enterprises and their strategic partners.

But many enterprises are replacing the vulnerabilities of their old geographic dependency with new geographic dependencies—or are failing to continually reassess their readiness plans with vendors.

Buyers that take the proper steps to thoroughly assess their global sourcing program to develop a global diversification strategy are better able to avoid global risk.

For more on global risk diversification, get the recorded playback of the Softtek webinar with Guest Speaker Renee Murphy from Forrester Research:  “Risk Diversification, a primer on Global Sourcing,”