Managing Risks in Offshore Outsourcing

New Thinking 14 July 2014 Katrina Clokie

In this presentation of her Master’s research, Parvathy started by defining ‘offshore outsourcing’. She explained that a New Zealand organisation with its own call centre in India would be ‘offshoring’, the same organisation with a third-party call centre in New Zealand would be ‘outsourcing, and if the third-party call centre was located in India, the organisation would be ‘offshore outsourcing’.

Parvathy’s research began with interesting observations about the current state of an offshore outsourcing arrangement at a leading New Zealand telecommunications provider. Despite continued investment in offshore outsourcing, this organisation had seen very few cost reductions or operational improvements. In addition, the number of successful projects had decreased over time.

Parvathy’s study surveyed people from both the New Zealand telecommunications provider and their offshore outsourcing service provider in India. She then developed a complex causal loop diagram that reflected four broad themes – offshore attractiveness, cultural and communication barriers, firm heterogeneities and dependency on service provider.

After a strong academic focus, it took a few minutes for people to gather their thoughts. Then the discussion started to flow.

One attendee kicked off by querying whether an outsourcing arrangement was really a cheaper option for organisations, which led to:

  • Cost is not just financial
  • The New Zealand market cannot always cope with the scope of demand – i.e. a request for 90 people within three weeks
  • Cost can depend on the balance of internal vs. outsourced resource
  • ‘Cheaper’ is a function of time. Something that is cheap in the short term, won’t necessarily be cheaper forever

A point was raised on the cultural and communication issues of offshoring, suggesting that these are long term and may never be solvable. The discussion that followed raised:

  • That resource mix is important, allowing customer and vendor staff to learn from one another

  • An example of a customer bringing a representative from their offshore vendor to New Zealand to ‘translate’ cultural differences

  • A suggestion that the barriers to communication can be down to simple problems like different time zones

  • That an initial face-to-face meeting could create a long-lasting working relationship

  • That assumptions in a cultural space are dangerous and some confusion can be resolved by explicitly defining a common language upfront. What does ‘yes’ or ‘done’ mean?

  • That it’s not just the offshore vendor who has a specific culture, but that New Zealanders have their own idiosyncrasies

A question was asked about how we measure the success of an offshore outsourcing delivery, querying whether it is possible to see quantitative improvement in the speed or quality of testing. Responses from those gathered were:

  • Measuring quality of testing is tricky all the time, not just in this situation

  • The customer could audit test reports provided by the vendor

  • Attempt to determine cost savings from vendor provided test automation

  • A thought that measurement of success doesn’t matter if the customer will continue to invest in offshore outsourcing, regardless of whether there’s a good outcome

An observation was made that the current trend was for organisations to move back in-house which lead to:

  • Organisations that move away from a waterfall development methodology will often need to change their outsourcing model. Agile means that in-house is preferred

  • An experience where a move to in-house was due to poor quality, rather than failure to deliver in a timely fashion

  • An observation that there may not be a move to in-house in general, but India as an offshore destination is losing appeal

The group was then asked for their suggestions on strategies for improving outsourcing. Those offered were:

  • The client organisation should retain tight control over test strategy and process

  • An opposing view that the client should allow the vendor to operate as a black box, so long as the vendor delivers exactly what was asked for and meets their deadlines

  • A counter that it’s impossible to make everything explicit, so this wouldn’t work

  • A suggestion that too much vendor competition is a problem

  • A supporting anecdote that customers who offer a vendor duopoly create healthy competition without severe price undercutting at the expense of quality service

A question was asked on how people judge whether to build in-house talent of outsource. Ideas from the group were:

  • It depends on the timeline for the piece of work. Long-term outsourcing is less likely

  • It depends on the time to market. More change of outsourcing if you need it quickly

  • It depends whether it relates to the core competency of the business. Only invest in training in areas that pertain to the main interests of the organisation

  • Cost is a consideration, but if you can outsource it and the vendor is still making money from the arrangement, then it suggests the client could do it cheaper themself

  • It depends on the level of expertise in-house and the willingness of staff to be trained

After everyone filled up on pizza, there were just a few open threads for discussion. We spoke briefly on how outsourcing could work with Agile development. We also talked about crowdsourcing as a type of outsourcing, although few in the room had experienced this first-hand within New Zealand organisations.

Thanks to Assurity for hosting another WeTest Workshop of interesting discussion and challenging debate. We’re looking forward to our next event on Wednesday 30 July on Hiring Good Testers.