Eight Best Practices for

Strategic Outsourcing

Rajan Narayanan

May 2006

C - 2006. All rights reserved by MindTree Consulting (P) Ltd.

Best Practices for Strategic Outsourcing

The advantages of doing certain jobs in offshore locations for cost and quality reasons are so
compelling that most industries are engaging with offshore vendors at a rapid pace. India is by
far the most preferred location. However, the results are varied with both good and not-so-good
experiences. Some companies such as IBM and EDS are continuing to expand their Indian
operations rapidly, while some have been in a sense disappointed with missed deadlines, cost
escalations, effort overruns, employee turnover, etc. This article highlights some of the issues
and then presents some Best Practices for offshoring and working with Indian partners.

1. Partner for Success

Probably the most important issue is the engagement philosophy and the rational for use of
offshore services. Both organizations must enter into an engagement on a 'partnership'
model rather than a conventional customer-vendor relationship. This translates to
fundamental aspects of transparency, attention, planning and joint ownership. There needs to
be an 'Executive Sponsor' or 'Relationship Director' at both levels and regular 'Executive-level
Steering Committee' meetings.

When your company is forming long-term offshore outsourcing relationships with another
company, the foundation and principles of the success of this partnership should be laid
during the negotiation period itself and must culminate as service level expectations in the
contract.

2. Build Enduring Relationships

Developing enduring relationships between key management personnel of both teams and the
usefulness of the relationship depends on good understanding and strong working ties
between them. Outsourcing success stories have clearly demonstrated that working
chemistry in management and peer friendships among employees are important
determinants in forming long-term relationships that yield real value.

3. Establish Face-to-Face Contact

Although costs are a factor and cost saving is an important objective, offshoring
companies have realized that a face-to-face contact when starting the relationship is a wise and
worthwhile investment. This is also probably the best opportunity to know all the
partner members and possibly a 'kick-off' meeting of some sort. Most large companies that
outsource will also undertake travel during the partner selection process to visit and
experience the facilities, capabilities and skills of the organizations.

Thereafter, travel ideally takes place in both directions, with visits from India to the host
organization for project planning and/or knowledge transfer or training, and visits by

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technical experts or project managers from the host organization to the partner sites in India in
order to get to know and better assess the capabilities of the expanded team and for
review meetings and planning.

4. Conduct Periodic Reviews

Periodic reviews maintain successful relationships. Formal review meetings (either weekly or bi-
weekly or monthly) are essential to the continued success of the project and the
relationship. Project reviews and deliverables, issues, plan for the period ahead is discussed
during these meetings.

There needs to be a formal “Management” level or 'Steering Committee' meetings where both
sides can discuss the performance of both teams and determine the future objectives or goals of
the company accordingly. Keep in mind that performance objectives may need to be
continually revised according to changing market conditions.

5. Communicate  Communicate  Communicate

Communication really is the key to a healthy relationship. Communicate well and often. This will
also help bridge cultural differences. The employees of both the partnering companies will
belong to distinct cultures, and these differences have to be accepted and bridged.The
cultural understanding between the two organizations can be enhanced by organizing social
events, educating about company background, participating in each others' quality
programs, etc. It is also critical to send the right candidate to the host organization to be the
central point of contact, onsite project manager, onsite coordinator.

Establishing a regular pattern for checking in with each other, regardless of whether there are
any outstanding problems or not, is also desirable and this creates a positive context for
addressing problems when they do arise. Such a regular rhythm of communication can also be
supplemented and enriched by using multiple forms of communication
(video conference, instant messaging, e-mails for confirming action steps after meetings) to
ensure a steady flow of information and early identification of problems.

6. Lay Ground Rules for Team Interaction

Establishing fundamental and ground rules for team interaction can also help to reduce
conflict and ensure that potential issues are tackled in their early stages. This will include
agreement about how quickly the whole team should be notified after a potential problem is
identified. This, for example, makes it easier for Indian team members to voice their
concerns. Many of them have a strong sense of duty towards their work that can override their
reluctance to bring up problems. Other ground rules regarding turnaround time for
responding to messages, the days of the week and hour of day when calls will be held, and
rotation of calls to "share the trouble" between time zones can all contribute to team clarity and
therefore, more efficient working patterns.

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Many Indians have learnt to communicate in indirect ways and find it difficult to raise issues,
objections or event comment in open meetings in the presence of senior managers. One
solution to this problem is for the project manager to have regular one-on-one meetings with
the team members and to check with the key members before and after meetings with the host
organization. An effective approach is for managers in both the onsite and offshore
locations to collect the issues from their respective teams before the meetings to be
incorporated in the meeting agenda.

7. Define Expectations

Trust is a key element here and it takes time for trust to be established. It is therefore
important to make the nature of the working relationship clear in the beginning. Seasoned
offshore partners will recommend a process for setting goals jointly and measuring progress
towards milestones, with gradual delegation of responsibility and trust based upon
performance.

Initially, we begin with tightly spaced goals and deadlines and monitor these with close
consultation and supervision. As milestones and objectives are met and performance is
displayed or demonstrated, control is gradually reduced. It will be undesirable to start with an
offshore operation where trust is granted based on initial assumptions on capabilities,
processes and resources and then to deal with the situation when the first disappointment
occurs. Throwing tasks over the wall and hoping that they will get done properly is seldom a
recipe for success in a new offshoring relationship.

8. Create Visibility

Quite often offshore team members would have tried various approaches to resolving an issue,
yet will not provide visibility to the host organization. Instead of saying “It won't work”, it will be
better to provide a brief report or explanation of the steps that have been tried.
Offshore project teams find it useful to share spreadsheets or any other report that visibly track
progress towards completing tasks, including descriptions of measures that have been tried in
order to address outstanding issues. Providing this kind of visibility to the progress helps to
reinforce due dates and deadlines. Deliverables can be highlighted to signify the current
status. This way, the focus is on the resolution rather than discussing on “if and where” is the
problem.

Offshoring has become a reality in a competitive global economy. Organizations will need to take
into account both the needs and perspectives of the host company and the partner and
implement the best practices across the organization to maximize the benefits. This will also
facilitate the reduction of surprises and limit any negative thoughts. When overseas
companies are treated as partners who can add greater value in increasingly complex and
demanding projects, the employees are likely to be motivated by the learning opportunities and
will be prepared to take on more challenging work in their current jobs.

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 Rajan Narayanan is currently a Sr. Vice President at MindTree Consulting based at
Bangalore, India and heads the IBM Technology Solutions group that focuses on
Mainframe and iSeries. He can be contacted at rajan_narayanan@mindtree.com.

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