Each sourcing conference brings a new set of countries marketing themselves as the next big thing in offshoring. China, India, Ireland, Malta and South Africa all have active marketing campaigns underway.
Yet senior executives who offload problematic operations in the hope that they will improve in another climate are likely to be disappointed. A more compelling area for managers to focus on is confirming to what extent the savings promised by offshore service providers are realistic, sustainable and whether they will enhance the experience for internal stakeholders or external customers.
Analysis of mature offshoring operations by Compass Management Consulting is uncovering examples of organisations locked into long-term agreements, deteriorating service levels and higher costs than anticipated. Specifically, over the long term, service levels are being compromised and changes in volumes and labour costs mean that the offshoring decision is failing to deliver the level of savings anticipated. In short, we are seeing organisations facing the double whammy of service quality being compromised and a failure to deliver the level of savings anticipated.
Despite extensive evidence emerging from early offshoring contracts, organisations continue to regard the practice as an easy way to reduce costs and remove troublesome operations to faraway postcodes. This ‘lift and shift’ approach prioritises moving the operation offshore as soon as possible in order to take advantage of lower labour costs.
In this scenario, managers rarely pause to undertake a root and branch review of the operation in order to optimise processes and solve inefficiencies ahead of the offshoring. Rather, the freedom to avoid confronting such issues is often seen as an attractive by-product of the offshoring decision. The expectation is that lower wages in the offshore location will mean that additional personnel can be assigned to the process to iron out problems at little cost. Compass has seen organisations reducing operational costs by up to 20 per cent in the first year using this approach.
The questions to ask
Rather than asking, “Which country is right for our offshore operations?” a better set of questions for organisations to consider is:
What is right about this operation/process and what needs fixing?
How do we compare with the best performing operations in our sector?
What can we learn about operational efficiency and making changes from other sectors?
What elements of our operations are already streamlined, have low customer/stakeholder contact and could benefit from a lower wage environment?