7. December 2022 By Dr. Jochen Benini and Valerie Thülig
So near and yet so far – how to ensure successful cooperation in offshoring
It sounds so wonderfully simple: you recruit a team of employees through an offshore partner in India and get the same level of performance for a fraction of what you would have to spend on an in-house project. But why does this often not work? We want to shed some light on this question by using a few key challenges as our basis.
What does offshoring mean? A business dictionary Gabler Wirtschaftslexikon defines offshoring as transferring operational activities to a country abroad. The terms ‘nearshoring’ (see also adesso Smartshore) and ‘farshoring’ are types of offshoring and refer to outsourcing to a country that is geographically close (near) or outsourcing to a country that is geographically distant (far). The term ‘outsourcing’ itself refers more to organisational outsourcing than to geographical aspects.
So what makes it all so challenging?
Companies that outsource projects to offshore partners need to embrace cultural differences and set realistic expectations about budgets and timescales. They face numerous hurdles and challenges that can cause their offshore project to fail right at the beginning. We want to take a look at these challenges in the sections to come and address them honestly.
Challenge 1: The quality requirements do not meet your expectations
We hear horror stories of skyrocketing costs and offshore partners who apparently do not deliver the same work results we are used to with in-house projects in terms of quality. But why is that?
Offshore partners’ employees usually have a comparable skillset in terms of training and certifications. However, when it comes to specific professional topics, it cannot generally be assumed that processes and professional business abroad are identical to the circumstances at home; in some cases, there are even no comparable circumstances.
The level of detail contained in the project-relevant documentation should be higher than it is in an in-house project in order to leave less room for interpretation, which means that there is also less room for possible errors. Specifications need to be discussed with the offshore partners, and open questions need to be clarified in advance. Presentations, training courses and workshops can be helpful in providing the necessary domain knowledge –
because only once the offshore partner has understood what is required do they have a fair chance of meeting the expectations.
Challenge 2: There is no transparency
The traditional software development model sees projects being handed over, with a finished result expected – but this unfortunately does not always lead to the targeted goal.
There is no clarity as to what will happen on the offshore partner’s side until the deadline. This calls for internal project management.
Offshore projects must never be allowed to be completely outsourced, and responsibility for them should remain firmly anchored internally. Checks of the quality of the respective work that has been completed protect against unpleasant surprises.
Using jointly coordinated processes and applying agile methods makes it possible to identify problems at an early stage and set the project moving in the right direction. For example, greater transparency can be created by holding regular agile meetings, such as sprint reviews. In return, you also get to know the work methods of the offshore partner’s employees and are able to adapt to them.
Having dedicated project leaders (bridgeheads) on both sides simplifies communication in and with the teams. Ideally, they should always be on site, but they should at least be there at the beginning of the project and in critical phases. Their presence is able to further shorten and accelerate the communication channels.
Challenge 3: General framework conditions/guidelines
Data protection as well as IT security are subject to comparatively strict requirements within the EU, and they cannot always be met when engaging in offshore partnerships.
Such technical requirements should be defined and validated before initiating a project – even better, during the bidding phase – in order to determine the appropriate provider or implementation method. Technological precautions, such as anonymising test data, as well as special customer contracts make it possible to find a remedy in this regard. Required lead times must be taken into account when planning the project.
Challenge 4: Cultural differences
It is often the case that onshore employees find it a challenge to engage with the new colleagues who work for the offshore partner. The offshore teams also face interpersonal challenges in much the same way. There are still frameworks, behaviours, beliefs and traditions that need to be mutually respected, even though advanced globalisation is blurring the boundaries more and more. Apart from that, external circumstances such as time differences and different working hours can cause problems, as well.
The employees must engage with the new team members. To this end, everyone involved should familiarise themselves with the cultural behaviours of the other country before starting an offshore project. Mutual respect must be maintained. The best way for the distributed team to get to know one another is at events, such as a joint workshop or team building event. Even though a face-to-face meeting is always the preferred means of creating a sense of familiarity, it can also take place virtually. You are able to react to them better and cooperation becomes easier if know your counterpart.
Challenge 5: The focus lies too heavily on the lowest offer
One of the main reasons offshore projects fail is that many companies are too naive in their approach. Companies that choose their offshore partner on the sole basis of whether the price is low can assume that the project is very likely destined for failure.
A very favourable price is often due to the fact that the service to be provided is being underestimated or the requirements were not fully understood because the offshore partner does not have the required knowledge to do so.
Offshore projects should not only be seen as a tool for saving costs, but rather much more as an opportunity to work with excellent teams, which are sometimes are not available domestically due to the shortage of skilled workers or are not currently available.
Depending on the project, fixed budgets and fixed project durations are a risk factor that should not be underestimated. The specifications or requirements often change during the project. In order for the offshore partner to have a chance to react to these changed framework conditions, billing according to time is a better alternative. Then it is also possible to save money without sacrificing quality.
Challenge 6: Communication
Communication is an area that entails additional potential pitfalls. For example, asking questions in some cultures is seen as a sign of weakness and incompetence. This can lead to occurrences such as a critical bugs or defects not being communicated.
You must remove this fear from staff and encourage them to ask questions. A bridgehead can help facilitate communication. Because this person comes from the same culture and company, they understand how to appropriately address critical issues.
Challenge 7: Demanding projects
One of the most common misperceptions in offshore projects is the expectation that when a specification is submitted, the result will be perfect and costs will be significantly reduced from the outset. Employees who work for the offshore partner are more cost-effective but in turn require more professional support, especially in the initial phase. This initial additional expense pays off in the course of the project and with time. Collaboration with offshore partners should therefore be considered in the longer term and gradually strengthened.
A non-critical project is suitable at the beginning as a proof of concept to test out a potentially longer collaboration. This makes it possible to gather initial experience and iteratively optimise cooperation. A successful initial test run necessitates close cooperation as well as controlling of both time and quality. Communication should be managed closely. The possibility for greater freedom and working independently opens up once both sides have proven themselves reliable.
If such a pilot project was successful and there is mutual trust, larger projects can be tackled – namely with the project leaders who led the first successful project, both the ones at home as well as those employed by the offshore partner.
Offshore partnerships entail a lot of potential pitfalls but can also return many benefits. Collaboration only works when you have an underlying internal strategy as well as the right offshore partner and by controlling the project in a way that is detailed and rigorous but ultimately fair. Building a partnership on equal footing with mutual respect will lead to a boost in motivation. Companies that take the aforementioned points to heart will quickly be able to integrate the advantages and opportunities of offshoring into their own IT strategy and benefit from them in the long term.
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