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In the second part of this series on offshoring, research consultancy Ventoro presents a checklist and a step-by-step process map for organisations looking to move some parts of their operations to offshore centres.

Should I Move Offshore?

The decision to move offshore or stay onshore is an incredibly charged question in today's market and should be made carefully. Through experience, we have found this decision must be made by answering the following three questions:

1. Is your organisation ready?

   In most cases, simply improving core processes will yield significant results. As an example, most organisation have developers capable of writing great code but the organisation fails to define sound requirements and fails to manage scope during software projects causing cost to skyrocket. Unless the organisation can shore up requirements and effectively manage the entire project lifecycle, an offshore strategy will not yield an ROI. When considering an offshore solution, carefully audit the performance of your onshore team and honestly assess how mature your organisation is. If your problems are primarily caused by a lack of execution or discipline, an offshore strategy will not pay out as well as simply fixing the problems with your onshore team.

2. Do you have a sound business case?

   We do not believe in blanket offshore strategies based on artificial drivers. We have found firms that identify a quantifiable problem and have clearly established a specific offshore solution as the best option are the most likely to succeed. When making the decision to move offshore:

   • Take time to identify specific items for consideration;
   • Take time to identify root problems; and
   • Prove a specific offshore solution to be the best option.

   Unless you can build this clear business case, you do not have a reason to move offshore and should not take such steps.

3. What do my customers say?

   Prior to moving offshore, you must poll your customers and understand their thoughts and concerns. Although you will find opposition to the idea of moving offshore, you should not kill your offshore plans just yet … take time to fully understand what your customers are saying and prioritise their issues. You will find their concerns fall into two categories:

   A. Philosophical

   There is a growing philosophical objection to moving jobs or fulfillment to offshore teams. Although there may or may not be merit to these arguments, you must listen to them carefully and ask your customers a simple question: "Are you willing to pay a premium for a solution developed locally?" If the answer is "yes!", reconsider moving offshore.

   However, our research indicates this is not likely to occur. When polling Executives that have presented this question to their customers, over 92% responded customers are putting aside their philosophical issues with offshore outsourcing to buy a lower cost product. While customers are passionate about the offshore debate, their purchasing patterns do not indicate they are serious about the issue.

   B. Practical

   A focus group trial is strongly recommended

   There are many practical issues your customers will identify when presenting a potential offshore model and you must pay close attention when moving any function offshore that traditionally has involved a great deal of customer interaction.

   If you are moving a highly customer interactive function offshore, we strongly recommend conducting a focus group trial of the offshore experience. At the end of the trial, you will find moving the function offshore will cost you a minimum 2% of your customer base. Take this loss and factor it into your anticipated savings.

If you find the loss of your customer base to be too great, reconsider moving offshore.

If you can state …

1. "My organisation is ready."
2. "My problem can best be solved by a specific offshore solution." and
3. "I know the impact moving offshore will have on my customers and I am willing to move forward."

… you have made the decision.

So, what do we recommend?

A brief summary of what we recommend to our customers (and what we found to be the most reliable through our research) is as follows:

1. Set Performance Goals

   Begin the process by recording quantifiable performance goals you want to achieve through your offshore strategy.

2. Identify Candidates

   After you have recorded specific performance goals, identify all potential candidates (functions, projects, products, teams or other) for moving offshore. With each, record baseline performance metrics and list all potential issues preventing the candidate item from achieving the defined long-term goals.

   You will find many of the items you may consider moving offshore have fundamental internal team execution issues that may not be resolved by an offshore strategy. Honestly assess candidates and if an offshore strategy will not help you achieve your performance goals, remove the item from the list.

   Similarly, you will find many of the items listed as candidates for moving offshore are already performing relatively well. If moving the item offshore will not have a material impact to the overall performance, we also recommend removing the item from the list.

3. Qualify

   For each candidate item on your list, complete a scorecard type assessment consisting of the following items (minimum):

   • Risk
   • Customer opinion
   • Peer support
   • Employee impact
   • Customer interaction
   • Complexity
   • Interdependency
   • Level of “business” understanding needed
   • Maturity and preparedness of the item

   Once you have completed your scorecard, make an honest judgment call for each item.

4. Compare

   Once you have completed a scorecard for all items you are considering moving offshore, research all potential alternative solutions. For example, if you are considering moving your medical data entry to an offshore team, investigate options such as:

   • Optical character recognition
   • Onshore data entry team optimization
   • Electronic capture devices for doctors

   Review each option and if at the end of the assessment, you can demonstrate an offshore solution is the best business solution, proceed.

Scope

The question of how extensive your offshore initiative should be is an extremely complex question and must be addressed on a case-by-case basis. That stated, there are a few points that must be noted:

1. When starting out with a new vendor or new business model, pick a small, independent item to move offshore. Regardless if you are working with an offshore vendor or not, your organisation will go through a fairly sizable learning curve during the first few projects. If this is your first offshore engagement, take this advice into special consideration.
2. Over time, you will find your onshore and offshore teams will settle into a fairly consistent working relationship and larger or more complex tasks can be moved offshore. You will find if you can move a series of interrelated items to your offshore team, you will gain additional cost savings and will likely to see a higher quality product from your offshore team.
3. We are now seeing the outsourcing of vast business functions with varying degrees of success. While we have found that moving an entire business process, function or product line offshore produces the highest ROI numbers, it is also one of the riskiest items a firm can undertake. In our research, we found less than one in three firms undertaking such a widespread offshore strategy will generate a material ROI at the three-year mark.

Further Information

For a full complimentary copy of Ventoro's Offshoring Outsourcing 2005 Research Preliminary Findings and Conclusions Report, visit Ventoro's website at: www.ventoro.com.