When Offshoring and Outsourcing Disappoint

Often, executive management initiates the implementation of wholesale global services delivery as a proxy for pushing more difficult and fundamental change in corporate strategy, culture, performance or ways of working

by Deborah Kops

During the last few years, corporate acceptance of services globalization has seen dramatic upward movement. Almost every multi and trans national corporation has heard the clarion call, and is readily convinced of the benefits of globalizing and standardizing processes and technologies.

Yet, informed leadership at the top of the house may be missing. Executive management may latch onto the headlines, assuming that services globalization will quickly move the organization into the pantheon of corporate greats. Ensuring that the results do not disappoint requires the C-suite to understand the role it plays in designing, justifying and communicating the program.

The C-suite sets the tone and direction for changes in business models. Therefore, a working knowledge of the pitfalls of offshoring and outsourcing is critical to success.

How do the top traps stack up?

Ignoring the culture of the organization. There is no standard template for services globalization; what can be implemented successfully in one organization may prove infeasible in another. But there is a link between culture, solution and approach which is often ignored in the push to change the architecture of business-process delivery. Jack Welch’s vaunted “70-70-70” might be the right program for process-driven GE where Six Sigma is the common language, but wrong for a culture that values how people team together over process.

For example, organizations with a rigorously applied supply chain might find that implementing an integrated end-to-end outsourcing deal runs counter to a culture where internal transparency and measurement are applied at proscribed intervals. Or a corporation that places more emphasis on the value of the individual employee may find that the change-management investment required will be extraordinary compared to that of an organization that refers to staff as just so much headcount.

No rationale for implementation or line of sight other than cost reduction. Business lines ask: Where will the savings be redeployed? Will I be able to provide better customer service? Or get to market faster?

Business lines look for an end game from services globalization beyond expected cost savings. Transparency relative to the stream of benefits is critical to keep the corporation focused during the challenges of implementation. Otherwise, services globalization becomes just another initiative driven from the center, which appears to be a taking of business line support for the greater good of the organization rather than a better way of working.

Not establishing a program framework at the top. The statement in the strategic plan that demands support functions and business units outsource or go offshore is merely an aspiration, not a goal. Without clearly defined expectations for performance in the form of horizons and hurdles, reporting requirements and governance principles, business units and support functions are on their own when it comes to developing a business case, aligning interests with providers, and reporting progress.

The impacts of services globalization on risk, reporting, investment and corporate performance are far too critical to leave well meaning units to make it up on their own. At the very minimum, corporate leadership must give direction as to acceptable returns and cost reduction, inputs, business case structure, terms and treatment of stranded costs.

Letting the tail wag the dog. Often, the push to services globalization is used as a test or proxy to re-adjust the power structure of an organization from business line or geographic leadership to the center. Yet, companies that do not know how to work globally will not run to embrace global finance or human-resources provision. This shortcut — focusing on realigning back-office processes in lieu of attacking much more difficult … and fundamental … changes in business unit operational alignment and go to market strategy — is generally a recipe for resistance and failure for the globalization of services. Business lines, which work on a country or regional basis, will not view changes in their support structure as the model for better, more efficient ways of working. Services “tissue rejection” will be palpable, and will be evident in the form of workarounds, set up of shadow organizations and non compliance.

Expecting services globalization to send a message to Wall Street. Wall Street and its foreign counterparts have now read the story and seen the film. Today, outsourcing and offshoring are taken for granted by the investment community rather than considered a big strategic or cost control breakthrough. What the investment community is more interested in is how the company will redeploy any cost savings and avoidance into the structural growth of the business. And, as a corollary, the outsourcing and offshoring scorecard cannot be reported each and every quarter. The horizon for the implementation of a shared-services operation or end-to-end outsourcing is much longer than a quarter; unfortunately with the pressure of public markets’ expectations, double digit savings benefits are expected to appear in single digit quarterly intervals. The smart executive team understands that globalizing services represents a major change in corporate architecture whose benefit will take more than a reporting period to measure.

Underfunding/underinvesting in implementation. The industry knows that the costs of implementation can run as much as 10%–15% of total functional spend, yet the C-suite sometimes expects that existing staff can transform through solution design, change management and process/technology transition, all the while managing operations. It is an impossible task.

During a period of time, which is expected to be as much as two years or more, an expert and devoted transformation team must be in place to successfully effect transformation. Assuming that the retained team can do two jobs is a major error; just dealing with the folks who are now doing their jobs is enough of a challenge. There are no shortcuts.

Making side deals with recalcitrant business lines. Implementing services globalization is no time to balkanize the corporation by committing to deals, special treatment, or carve outs with powerful business-line leaders who just won’t play. This rejection is most likely a signal that the solution was not developed with the end user in mind, or that communication about the degree of standardization, costs, benefits, delivery, and staging is very much short of the mark. Or perhaps the executive suite has not yet convinced itself of the program imperative.

The C-suite, and only the C-suite, can get business-line management on board. Change cannot be pushed and justified by the support functions; executive management must request all business-line leadership to participate for the greater good of the corporation. Allowing groups to opt out without a compelling business reason reduces the impact of services globalization.

Forgetting about adult supervision. Too fast, too slow or just right …. Few organizations can manage to absorb across-the-board change simultaneously in the globalization of key back-office processes. The executive team must play orchestra conductor by identifying the intersections and overlaps of major initiatives, prioritizing resources, gauging the pace of change that the organization can bear, and ensure that timing, scope and phasing of deployment across a range of transformation initiatives does not conflict.

This “supervision” is especially critical if there are major business growth initiatives in the works. Back-office process globalization does not roll out in isolation from a major acquisition or new product introduction. Communicating business changes and understanding their impact upon global services initiatives is the responsibility of executive leadership.

Abrogating design and implementation to consultants. Globalizing services is no longer an event or a one-off, but rather a way of life. Consultants in all shapes and sizes — large technology/process firms, strategy houses, boutique sourcing firms and law firms — are exceptionally valuable at various points in the implementation of a global services strategy.

At the end of the day, when contracts are signed or the doors to the captive are opened, the corporation is left alone with its intentions, captive locations, contracts, risks, its investment and its providers.

Building a central internal team with institutional knowledge that can create solutions, source, manage and govern on its own is critical to successful services operations.

Sweeping failures under the rug. Globalizing services constitutes heavy lifting on the part of the corporation. Much learning comes as a result of failing at one or more aspects of solution development, deployment, change management or governance. Being honest and transparent about what is working and what isn’t, and quickly applying the lessons is the first step to avoiding disappointment.