It doesn’t seem that long ago outsourcing was something no one really wanted to talk about or acknowledge doing, and certainly not doing for any reason other than cutting costs. It’s different now; I hear more and more companies talk about outsourcing as a strategic part of their business, changing the reference to service providers from the other team to partner.
Times have changed. And they’re changing still.
For decades, companies experimented with different forms of outsourcing and associated business models. Everything from offshore, near-shore, internal outsourcing and a combination thereof have been put to the test. So have business models such as co-sourcing, multi-sourcing, and joint venturing. Overall, the results have been positive, but not without some concern and failed attempts.
When I look at the history of outsourcing and the number of quality companies who have engaged in it with varying success, I can’t help but wonder: Why do some companies have more success with outsourcing than others? The answer appears to be that companies that struggle with outsourcing lack fundamental communication and good processes within their outsourcing relationship.
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Outsourcing challenges
Speaking with companies and people involved in outsourcing, a number of clients commonly voice a series of issues and concerns, most commonly time zones, cultural differences, communication problems, and quality. All are valid concerns of any business relationship, but there may be something larger that leads to or even creates these issues.
Companies who are successful with outsourcing typically create a unique approach to selecting a service provider and managing the business relationship. On one hand, that makes sense: A company develops an internal process to define its outsourcing need and to vet a prospective service provider.
On the other hand, the self-created process creates a series of on/off engagements. Success is often based on the narrowly defined task at hand and the direct involvement of the people who lead the initial engagement. The challenge in this approach is sustaining the relationship beyond the initial project, and it may be a leading contributor to many outsourcing relationships failing within two to five years as the initial project expires and follow-on projects continue with processes not idealized for their scope or outcome.
There are too many one-off elements in many outsourcing relationships based on the initial project, and not enough structure to replicate and sustain ongoing success in subsequent engagements. In other words, the initial project drives the structure of many outsourcing relationships, but that structure can’t adequately support new projects and initiatives.
What’s likely needed to head off potential issues and concerns found in poorly performing service provider relationships is a more structured partnership than a relationship built around narrow tasks and tactical cost reduction. The client’s concern of geography, communication and quality may be nothing more than a symptom of a faulty foundation of the client/service provider relationship.
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Lessons from early outsourcing
IT professionals have long acknowledged an ad hoc approach to software development will not deliver desired results. You can’t reinvent the wheel on every project and consistently deliver quality products on time. Interestingly, early experiments with outsourcing did just that: Each project was initiated, managed, performed and delivered ad hoc. The result was often disappointing.
Several companies I talk to have admitted some of the dissatisfaction they experienced with outsourcing were in part self-inflicted by a lack of intimacy between client and service provider, not allowing either party to share risk, fully exchange knowledge, or communicate in a manner that brought the best of both companies together to solve a problem or meet a market opportunity.
For outsourcing to deliver on its promise of a business model capable of delivering greater market efficiency and effectiveness, clients and service providers both need to standardize their relationships and establish processes that not only meet the needs of an initial engagement, but also support lasting and replicable success, project after project.
The future of outsourcing
In my experience, a common success trait of those engaged in outsourcing is a tightly integrated relationship between client and service provider whereby each partner has a vested interest in the other. The two parties act as one in a business relationship that goes beyond simple interest in cost reduction to function as a true partnership. The goal of both parties is shared success.
This tight coupling of companies moves outsourcing to a strategic level that allows the skills, expertise and experience of the service provider to fully benefit the client’s business. In my experience, this results in a true business partnership that delivers on the greatest hope and expectation of outsourcing: sustainable, profitable and replicable market success.
It’s easy to talk about partnerships, shared responsibility and good communication. The hard part is making it work project after project. The only way to achieve replicable success is to embrace a standard approach and set of processes that drive the initial and subsequent engagements. In simple terms, the only way to deliver consistent quality products, limited defects, outstanding user experiences and customer satisfaction is to have a set of processes that successfully support each and every project, processes that tie both client and service provider to shared goals and objectives.
In order to achieve shared success, both service providers and clients need to enter each project knowing who, what, when, why and how success is to be defined, measured and sustained. This is the foundation of replicable success. Ad hoc outsourcing needs to be eliminated.
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The obvious path forward
Evolved through decades of refinement brought about by numerous experiments based on price, geography and levels of trust, commitment and corporate involvement, outsourcing is now widely accepted as a proven business model, capable of lasting success. And if there’s one thing clients and service providers have learned from these experiments, it is the need for greater communication, shared goals, and a level of transparency that are required to produce a true partnership in business that produces consistently positive results.
Without improved communication, shared risk, and deeper understanding of both the service provider and client’s measurement of success and strategic goals, it’s impossible for an outsourcing relationship to fulfill its greatest promise of lasting profitability.
The secret to outsourcing success, if there is one, is to base the relationship on a set of standard processes to aid good communication, knowledge exchange, and risk management that can serve both clients and service providers project after project. Eliminating ad hoc, task-oriented engagements is the critical first step to creating long term outsourcing success.
Khrystyna Kosyk is an outsourcing consultant at SoftServe. She is based in Ukraine.
