Chuck Rosenfield, Senior Consultant at Alsbridge recently posted an article called the “Seven Non-Economic Barriers to Sourcing”. It’s important that he classified them as non-economic, since we could go on and on about the economic pros and cons for outsourcing. But there are also many reasons that stop firms from sending work offsite, that may be tied to the fact that executives find it too difficult to account for all the unpredictable variables, or they don’t know where to start. But once you identify these issues, you’re halfway to solving them:
1. Goals and scope – We’ve all heard the mantra “Know what you want from your project before you send it offshore”. The degree of specificity to which each firm answers that question will often determine their success. For example one executive will simply answer “cost savings”, while another will lay down exactly how much savings he can expect as balanced by the overheads and wage burden. It’s also critical that this question be answered internally with your team, before you put out and RFI or RFP, or ever sit down with a vendor. If you know what you need, you can narrow down your vendor selection much easier.
2. Aligning your team – We know that in order for an outsourced project to be successful, both your inhouse team and the offshore team need to be fully on board and working in sync. However Rosenfield says that “at the start, a small amount of discontent can actually be beneficial. As long as objections are accompanied by ideas on how to improve the process, you can uncover opportunities for continuous improvement.” But once a decision is made, everyone must be fully committed.
3. Negotiation strategy – While the first point above is still true, and it’s important to know what you want before you negotiate with your vendor, your strategy should be based more on collaboration than on beating him down at the bargaining table. If you’re thinking a long term relationship with the provider, this is absolutely the way to go, and will set the tone for your outsourcing relationship going forward. The same applies to problem resolution – it should be based on working together to resolve issues as they come up. The vendor should not be afraid to pick up the phone and tell you of an aspect of the project giving him trouble.
4. My processes can’t be sourced – I’m not sure I fully agree with Rosenfield here when he says that “Through industry experience and leveraged models and technology, sourcing companies are able to perform unique functions at a lower cost and higher service level.” You should always keep your secret sauce or your core competency in house, and even be cautious about outsourcing functions that are approaching mission critical levels. However it is true that vendors often have a lot of industry experience that can be used to your advantage. For high value IT work or R&D, there are very few locations in Latin America that have that niche competency – I would say Chile, some areas of Mexico and maybe Colombia.
Stay tuned for Part 2 where we’ll discuss three more obstacles to sourcing that C-level executives are often concerned about.