10 steps pub

CKSD Outsourcing Solutions

10 Steps to Outsourcing Success

Researched By Jonathan Oaten head of Business Strategy
CKSD Outsourcing Solutions Making Outsourcing Work for You

Table of Contents
• Introduction:
• Overview.
• Define clear objectives.
• Set realistic expectations
• Count the costs
• Understand and actively manage the risks
• Use an effective outsourcing model.
• Choose complementary business partners.
• Start slowly, build gradually.
• Monitor and evaluate your progress.
• Keep it personal

CKSD Outsourcing Solutions

10 Steps to Outsourcing Success

Jonathan head of Business Introduction
Strategy
A warm welcome, and thank you for taking the time to
My name is Jonathan Oaten. I have worked in either download this book or reading it online
the outsourcing community for the last 3 years
helping SME’s across the globe venture into the The purpose of this book is to give some sound advice
exciting world of BPO. Mostly my clients come and tips on a successful journey to the world of out-
from Australia and New Zealand but as our sourcing.
reputation expands I now find myself with a
host of American companies, but the story is I hope that the information contained within becomes a
always the same but rarely the solution. useful resource as you begin your businesses quest.

10 steps to outsourcing success will cover the different
models of outsourcing, how to reduce risk, find a good
outsourcing partner along with other relevant infor-
mation which as a business owner or project manager
you will need to pay heed to.

My strengths are garnered from 20 years of So with no further a do a bit you a fantastic & fruitful
working in the financial markets across many journey.
different roles from forex, commodities to ven-
ture capital.

As I grew in my career it bought me in contact
with many different financial solutions from
forex with IFX in Prague venture capital for the
oil industry in sunny Spain and ending in Gene-
va Switzerland working with brokers, banks
IFA’s and independent traders

This has taught me one thing how to deal with
companies and understand their individual
needs & to date have helped over 100 compa-
nies successfully steer through the muddy wa-
ters of the early stages of outsourcing.

CKSD Outsourcing Solutions

About CKSD Outsourcing Solutions

Our goal is for every product we create and culti-
vate, our corporate culture, and relationships to
live up to the tenets of our CKSD code. We
acknowledge that we are entirely responsible for
our own reputation, the level of success we achieve,
the brand image we create, and the contributions
we make to the business world. They’re all a direct
reflection of our mission to be as Transparent, Au-
thentic, Generous, Fun, Empathetic, and Excep-
tional as possible.

Overview

CKSD Outsourcing Solutions is a global outsourcing partner who understands your
individual business requirements and can deliver workforce solutions that are ex-
tremely scalable, cost-effective and tailored to your specific needs.

Offshore outsourcing can sow the seeds of great success for your company. Howev-
er, the inherent risks in an unsuccessful offshore project can cause great problems.
Follow the CKSD outsourcing Solutions 10 steps to minimize those risks and max-
imize the opportunities to succeed.

A successful, offshore outsourcing strategy can provide benefits and cost-savings
for your company — process improvements, expanded talent pools, cost contain-
ment, improved focus on core business, and reduced time-to-market to name a
few. However, the inherent risks in an unsuccessful offshore project can compro-
mise the anticipated benefits. How do you minimize those risks? First, don’t expect
miracles at the beginning, and second, make an informed decision.

If your company is initiating an offshore strategy for the first time — or is looking
for a better way to manage your existing offshore program — the following set of 10
steps will help you to minimize the risks and maximize the opportunities for out-
sourcing success.

CKSD Outsourcing Solutions

Define clear objectives

A successful offshore outsourcing strategy begins with clearly defined objectives
and measurable goals.
Objectives state the reasons for an offshore program, illuminate its business value,
and provide a working framework for making decisions about which vendor to
work with, which outsourcing model to use, what projects to outsource, and what
levels of risk to assume.
Objectives also provide the context in which to evaluate how successful or unsuc-
cessful your strategy is. Measurable goals are the events and functional metrics by
which management can monitor progress, take corrective action, and project fu-
ture performance.

—————————————————

The truth is, outsourcing is not the solution to every business problem or
opportunity.
Initiating an offshore strategy without carefully defined business objectives can
lead to ambiguous or miscalculated management decisions, uncertain perfor-
mance characteristics, and unrealized business value. In fact, an unfocused or
mismanaged offshore outsourcing strategy can lead to higher IT costs, wasted re-
sources, and lost business opportunities.

CKSD Outsourcing Solutions

Set Realistic Expectations

Set realistic expectations. After establishing your
goals and objectives, you need to revisit them to
make sure they’re realistic.

Replace those fabulous claims of saving 80 percent or more labor costs by humbler
projections of 40 to 60 percent, and then only after an initial startup period. 70 per-
cent savings or greater have rarely been attained, and vendor selection costs, in-
creased communications costs, redundant oversight, lessons learned, infrastructure,
and a host of other “hidden” costs will minimize your first-year performance.

This doesn’t mean your offshore program is unsuccessful. Rather, it means you need
to consider this a long-term investment with considerable long-term benefits. As
teams mature, corporate culture acclimates to new business processes. As onshore/
offshore management is streamlined, the benefits of a well-managed outsourcing
strategy accrue. Unfortunately, unrealistic expectations of large immediate savings
have spoiled many outsourcing engagements. It’s important to realize that there’s a
delayed and compounded effect. A cautious, realistic set of expectations ensures
continued support for your offshore strategy. You need a careful ROI analysis reflect-
ing a conservative approach and timing of the benefits.

———————————————————————

An ROI analysis can become a very complex calculation that brings together many
variables and attempts to predict how those variables will interact with each other.
In its simplest form, an ROI reflects how much a company must invest in total costs
(including compounded interest), the timing of those investments, and the value
and timing of all benefits that come from those investments over a fixed period of
time.

A greatly simplified ROI calculation would look like this: ROI = [Total Bene-
fits] – [Total Costs].

CKSD Outsourcing Solutions

Count the costs.

Just as important as setting realistic expectations is that your expectations reflect
all related costs. With so much pressure from senior management to cut costs by
putting expensive skilled labor positions offshore, it’s easy to underestimate the
true costs involved. These hidden costs add to those of the actual work:
• Selecting a vendor: expect this to take several people several months
• Attrition of existing workforce: costs associated with removing existing staff
• Dealing with cultural differences: cultural training is obvious; 40 percent re-

work because you thought “no” meant “yes” is hard to estimate
• Ramping up: expect initial projects to be learning tools; don’t forget about or-

ganizational change management
• Having redundant management, infrastructure, and communications

costs: initially, many more layers of management, servers and communications
systems to purchase and install, and ongoing infrastructure maintenance costs
• Managing an offshore contract: the costs of maintaining a finished contract
can be surprisingly high

CKSD Outsourcing Solutions

Hidden costs can range from 15 to 60 percent of the outsourcing contract itself —
sometimes more. You can minimize these costs with careful management and the
right approach, but you must account for them in the total cost of an offshore out-
sourcing strategy before boasting of the savings to senior management.

As a practical matter, it’s best to centralize the majority of your overhead costs ra-
ther than to distribute them to individual project budgets. This approach provides
a degree of insulation between the execution teams and the decision to embrace a
certain business model. It encourages projects to take advantage of the benefits
and cost-savings of reduced labor rates without burdening early adopters with an
inordinate share of the startup costs. If you don’t allocate these overhead costs
away from individual project efforts, few of the early pilot projects will be initiated
based on the merits of their own performance, team moral can deteriorate when
hard workers feel penalized by the decisions of senior management, and precious
time and experience will be lost.

CKSD Outsourcing Solutions

Understand and actively
manage the risks

A successful offshore strategy is well informed
and employs an aggressive risk-mitigation strat-
egy. It’s not enough to simply keep a list of po-
tential risks and be aware that things might go
wrong along the way. Rather, you need to prioritize and aggressively manage your
risks based on their expected impact. Keep up-to-date mitigation plans in place,
actively monitor risk development, and take proactive measures to ensure that
risks do not materialize. If risks do appear, act quickly to implement the mitigation
strategy or fallback plan for that particular risk. Keep senior management engaged
in risk management, and escalate issues early when you have the best opportunity
for corrective action.

An aggressive risk-mitigation plan is thorough, well thought-out, and time-
consuming to produce and manage, but it is well worth the investment when ma-
jor risks are effectively managed. An aggressive risk-mitigation plan begins with a
thoughtful strategy to identify risks. Fishbone diagrams work well within a brain-
storming session that includes a wide cross-section of stakeholders, from senior
management to front-line developers. After the risks are carefully defined, de-
scribed, and categorized, their potential impact on the offshore strategy should be
fully documented.

CKSD Outsourcing Solutions

Then, these risks should be carefully rated on a fixed
scale in each of the following categories

• Impact: How greatly can each particular risk affect
the desired outcome of the strategy?

• Probability: How likely is each risk to materialize?
• Ability to control: To what extent can the risk be

controlled if it materializes?
• Effectiveness: What is the team’s level of effectiveness in actually controlling

the risk?
From these rating factors, a calculation will produce the amount of exposure that
your offshore strategy has for each risk. This exposure value lets you prioritize the
risks and give the most attention to mitigating the greatest risks. The final aspect
of a risk-mitigation plan is a clearly defined course of action to prevent the risk
from materializing, minimize its impact, and work within this context if it materi-
alizes.
Some risks, such as geopolitical instability and global economic conditions, are
probably beyond your control. But the majority of the risks to a successful offshore
outsourcing strategy — selecting the right vendor, negotiating a favorable con-
tract, receiving high-quality deliverables, and controlling cost and schedule toler-
ances — are well within a company’s control through careful planning, manage-
ment, and adoption of an aggressive risk-mitigation strategy.

CKSD Outsourcing Solutions

Objectively measure and track the benefits.

The corollary to counting costs is to objectively measure benefits. It’s tempting to
inflate benefit claims or assign unrelated benefits to your offshore strategy, but
don’t do it! Let the numbers speak for themselves. If benefits are short of expecta-
tions, you need to know that to take corrective action. If performance is extraordi-
nary, don’t downplay those results, either.

If you separate overhead costs from regular project costs, it’s important to recom-
bine those costs when you communicate the actual benefits. Some organizations
prefer to level out the highs and lows in an offshore strategy and only communi-
cate the mean results. Of course, the overall result is what contributes to the bot-
tom line, but failing to recognize the highs and lows is a critical misstep. You need
to be able to identify and maximize best practices while you take corrective action
to optimize offshore benefits and limit liability for long-term results.

CKSD Outsourcing Solutions

Use an effective outsourcing model.

Another critical factor in executing an offshore outsourcing program is the use of
an effective outsourcing model, one that has proven to be successful, meets your
company’s business model, and fits your current circumstances. You can choose
from a variety of outsourcing models, each with its own strengths, weaknesses, and
appropriate applications. Offshore vendors may have a model they prefer to use
and may tell you that this is the way to go. True, any single model may be the right
one for some company, but it’s important to make sure the proposed model appro-
priately fits your company’s outsourcing needs and offers you the best opportunity
to meet your high-level objectives and particular goals, rather than those of the
vendor.

CKSD Outsourcing Solutions

Models are as numerous, complex, and diverse as the companies and vendors that
use them. An outsourcing model has many variables, such as scope, distribution of
responsibility, contractual flexibility, and duration, but the main variables that de-
fine a model are the distribution of responsibility between the company and off-
shore vendor, and the scope of the outsourcing effort. The major outsourcing mod-
els are shown in “Primary Outsourcing Models,” below.

Primary Outsourcing Models

Staff augmentation: This model has the same characteristics as a traditional on-
shore staff-augmentation model. You hire contractors to perform a particular task
or role, such as ABAP developer or Basis administrator. The contractor receives
work assignments directly from your company, the same as all other developers on
the team, and performs the work remotely. You drive this model and the scope of
the work is limited. However, the staff-augmentation model has the advantage of
having the lowest risk and being the easiest to implement as it can be executed
with a single offshore resource for a fixed task and duration.

CKSD Outsourcing Solutions

Typically, overhead costs more than offset the potential cost-savings of engaging a
single offshore resource, but for purposes of assessing an offshore vendor’s capabil-
ities or finding an immediate resource that can’t be acquired onshore, this is a safe
starting point. As you add more resources and they remain engaged with your
company, the overhead costs will be distributed and the model will be more cost-
effective.
Offshore vendors tend to shy away from this model and many strongly discourage
its use due to the shared overhead costs and limited upside for the vendor. Howev-
er, depending on your company’s circumstances and overall objectives, it could be
to your advantage to find an offshore vendor that willingly provides staff-
augmentation services. If you are dedicated to an offshore outsourcing strategy but
lack the process maturity that is required by other models, this may be the model
that fits your company best.
As the scope of work and number of resources increase, the model moves toward
either the project-outsourcing or the dedicated development center.

CKSD Outsourcing Solutions

Project-outsourcing: This model is a self-contained engagement with fixed start
and end milestones where a dedicated offshore team is responsible for delivering a
complete project according to your specifications. The model can vary depending
on the distribution of responsibilities and the extent to which the vendor is re-
sponsible for defining requirements, designing the solution, developing code, test-
ing, and implementing the system. Frequently, a company retains responsibility for
business-requirements definition and design work, while the vendor produces
technical specifications, code, and testing deliverables.

A small, well-defined, isolated, pilot project makes a good starting point to test the
waters in a new offshore relationship. You learn the level of process maturity and
overhead costs required to execute such a strategy successfully with a particular
vendor, and the vendor learns how best to work with your company. If the project
is small, the risk is relatively contained and both parties figure out the intricacies
of an effective business relationship.

This model is more appealing to many offshore vendors and represents a more sig-
nificant benefit for both your company and the vendor because the model can be
scaled up to more and larger projects. However, this model also represents more
risk, and the process-maturity entry point may be beyond the ability of some or-
ganizations to achieve. Careful management and a focus on process improvement
can mitigate this risk. Most offshore vendors bring a level of process maturity you
can leverage.

It’s important not to lose sight of your original objectives. It’s easy to get caught up
in a process-improvement campaign, which may be successful in and of itself, but
achieves none of your stated objectives and ultimately contributes to the failure of
your offshore strategy by diverting your resources

CKSD Outsourcing Solutions

Dedicated development center: This model has a pool of resources co-located
at a vendor’s offshore site, resources that are dedicated to your company’s use. The
arrangement can be specific to a particular development role (ABAP developers),
or it can represent multiple functional areas and a combination of roles. Typically,
you maintain a significant level of responsibility for managing the offshore re-
sources. As your company matures in its relationship with an offshore vendor, this
is a logical next step in growing from either a staff-augmentation model or a pro-
ject-outsourcing model.

This model allows the same resources to be retained for multiple successive pro-
jects and reduces the loss of intellectual capital prevalent with the project-
outsourcing model. It requires that you maintain a fixed level of staffing at the off-
shore development center, but it also has the potential to increase your benefits in
a well-managed offshore relationship.

Functional outsourcing: This model outsources an entire business function, pro-
cess, application, or department. This tends to be a high-risk, high-reward endeav-
or. You must be confident in your vendor’s ability to deliver significant business
value and minimize the risks of business disruption before entering into this kind
of relationship. However, offshore vendors that specialize in a certain business
functional area can often provide a higher level of expertise than you can — at a re-
duced cost.

This outsourcing arrangement truly represents the greatest value for a company
that can take advantage of its benefits. But it also represents the greatest risk due
to the potential impact on your company if outsourcing objectives are not realized.
Unfortunately, few vendor relationships mature to where a company is comfortable
outsourcing an entire business function.

CKSD Outsourcing Solutions

Choose complementary business partners.

Even more important than selecting an appropriate business model is choosing a
complementary business partner to execute it. Many vendors have a predefined,
new-customer initiation model and want to rush through an engagement’s prelim-
inaries to get a signed contract without considering your high-level objectives and
outsourcing goals. Resist this temptation by keeping your strategic objectives in
focus and making those objectives central to your evaluation of a potential offshore
business partner.
When evaluating offshore vendors, don’t skimp on the request for information
(RFI)/request for proposal (RFP) process. Start by identifying all the vendors
equipped to meet your technical and functional requirements. As you begin to fil-
ter through this initial list of candidates, send out an RFI stating your objectives
and goals for establishing an offshore strategy and let the vendors take the initia-
tive in proposing a solution to meet your needs. Evaluate their responses based on
their ability, commitment, and approach to meeting your objectives.

CKSD Outsourcing Solutions

Use the RFI process to construct a vendor compatibility scorecard to assess areas
such as business philosophy, corporate values, corporate culture (how relation-
ships are defined and decisions made), professionalism, customer focus, creativity,
problem-solving ability, ability to execute, and integrity. If all the remaining candi-
dates have similar industry experience and execution track records, the offshore
vendor that is most focused on helping you solve your problems and can bring de-
pendable problem-solving ability to the engagement will be your best long-term
business partner.
After completing the RFI process and evaluating vendor compatibility, use the RFP
process to solicit competitive bids on a structured pilot engagement from top off-
shore candidates.

CKSD Outsourcing Solutions

Start slowly, build gradually.

With little input from the teams managing execution of the offshore outsourcing
strategy, senior management often decides how quickly to move forward. Ulti-
mately, this decision should be determined by the rate of success of each successive
project. Don’t fall into the trap of being compelled to achieve an enormous return
on the first project. Start out by considering it a lost leader and the entry fee for ac-
cess to future offshore outsourcing benefits. Take your time and make sure you es-
tablish a solid foundation for future executions. Begin small with a single, well-
defined self-contained pilot project. A pilot minimizes your initial risks and allows
both onshore and offshore teams to begin to acclimate to one another.

If an offshore outsourcing strategy is to be successful long-term, management at
the highest levels of the company must demonstrate a tremendous commitment to
the process from the very beginning. If executive commitment is less than enthusi-
astic, middle management’s commitment will be superficial, and the resolve to
work through the bumps of a new business model, new business relationships,
cultural differences, and competing interests (both internally and externally) will
be absent from the start. As your company’s management and that of the vendor
work together and demonstrate a mutual commitment to success, you will estab-
lish relationships and gain the experience that allows an offshore strategy to grow
organically within your organization.

CKSD Outsourcing Solutions

Monitor and evaluate your progress.

As a company begins to execute an offshore engagement, it’s important to keep
track of meaningful measurements to understand the relative success or failure of
your overall offshore strategy, as well as particular parts of it. To do this, you must
begin with an established baseline of current performance using the same score-
card metrics that you will use to evaluate offshore performance. Choose metrics
that measure the specific goals and objectives of your outsourcing program, and
define them in terms of who is to measure them, when to measure them, how and
when to report them, and how to audit them. Before signing a service-level agree-
ment (SLA) or Statement of Work, make sure that the metrics are clearly stated in
the contracts and that all parties agree to them.

Function points can be too vaguely defined to be meaningful. Statistical purists
certainly have to compromise to define reasonable (and cost-effective) perfor-
mance metrics. Regardless of the productivity measures used, you need to measure
performance based on total cost (baseline estimates vs. offshore actuals), efficiency
(productive output per labor hour, productive output per dollar, productive output
per time period), quality (defects per productive output unit), customer satisfac-
tion (number of customer-support calls, amount of rework), and team morale.

Avoid using high-level metrics such as cost per consultant hour or onshore/
offshore staffing ratios. Although these numbers may look impressive, they seldom
contribute to a meaningful evaluation of how well the offshore outsourcing objec-
tives and specific goals were met. Ultimately, performance metrics need to answer
the question, “Is work being done faster, cheaper, and better than it was before ini-
tiating the outsourcing strategy?” If the answer is no, the metrics need to provide
enough information to point management in the right direction to correct the

CKSD Outsourcing Solutions

Keep it personal.

Although the advice to maintain
a degree of separation between
onshore and offshore resource teams may seem reasonable, it will result in subop-
timal performance for both groups. The most important aspect of achieving off-
shore outsourcing success with a particular vendor is to keep the relationship per-
sonal. In a process-intensive activity, such as offshore outsourcing, it’s easy to lose
sight of the personal aspects of offshore engagements. While processes are useful
to constrain risks and ensure consistency in performance, ultimately it is the peo-
ple that make an engagement successful or not.
The greater the extent to which personal relationships are fostered among onshore
and offshore team members, as well as project and executive management, the
more chance you have for success. Any personal weaknesses on the team can be ad-
dressed and compensated for only if they are identified. A process might identify
such a problem, but people working together are much more aware of the relative
strengths and weaknesses that relate to performance. When engagements face
difficult times, as they all do, it’s unlikely that teams will dig deep, make personal
sacrifices, and find additional motivation out of loyalty to a process. But personal
relationships, built upon mutual trust and respect, warrant that kind of loyalty, es-
pecially when all parties are personally committed to the same end goals.

CKSD Outsourcing Solutions

BOOK A DISCOVERY SESSION

CKSD will help you gain an understanding of the vari-
ous outsourcing options and models to best fit your
company, Our recommendations balance both long-
term strategic goals and short-term tactical priorities
grounded in a comprehensive understanding of our
clients’ vision, key business drivers, and constraints.

Contact Jonathan or visit our website at
www.cksdsolutions.com

CKSD Outsourcing Solutions

Unit B, DMC Building
Don Pepe Henson Avenue
Angeles City, Pampanga 2009

AUS: +61 386691576
UK: +44 2031292495
US:+1 3109294027

Email: [email protected]