Outsourcing Governance – Does it make sense for SMBs?

You want to govern what? Outsourcing? You mean what I outsource – and what i dont outsource – and who i want to outsource you – you will decide? That is what all this Outsourcing governance is all about? Stop kidding me! Laughter would trail off…  This would be the scene in one of the offices of some SMB who is planning to outsource their work to China, India, Phillipines and other similar geographies with a lower per capita.

Outsourcing Governance is new and it is here to stay, but that is if, outsourcing stays. And it seems like, outsourcing surely will.

Larger enterprises across the world understand this problem better. Reason – because of their involvement with outsourcing industry and with the experience of dealing with Indian and other locations’ software companies. They know that many companies who offshore their IT/Product Development to Russia, India, China, etc. face challenges during the projects execution phase. They spend significant management overhead in managing their vendors. They may need to make multiple trips to the outsourced location to resolve issues. So there are significant costs/pains involved.

The full cycle of software outsourcing involves researching about the vendors and knowing more about them and the cycle contains vendor negotiations,  structuring the engagement and delivery models till the project execution starts. For large enterprises, once the vendor is decided, there are remote chances of a total overhaul of vendor and its people unless something major goes wrong. And this cycle itself is a time taking process.

For SMBs, things are completely different.

First of all, the scale at which SMBs operate does not justify economically a trip to the outsourced vendor’s office. Even if it is done once, resolving issues with the vendor requiring the client to visit outsource location is the last thing in the client’s mind. But then if things have to go wrong, they do. And then the client decides to call off the entire engagement or make more investment of travel and fix things. (If you refer my earlier post – you would know things can be done which can help avoid all this but that is a story to be taken up another day once again).

Another alternative to travelling to India, China, Russia or Phillipines to oversee work can be hiring an independent “Outsourcing Manager” who would be a direct hire by the client who would work closely with the offshore vendor in his timezone. That way, a major chunk of headache is passed to the outsourcing manager who keeps everything in track. This is what we call outsourcing governance where the client authorizes a third party individual or company to manage the coordination overhead and governance overhead on his behalf. But yes, the outsourcing manager comes with a fat wallet, needless to say. Often it is more than the cost of travel by the client to the offshore location. The only thing saved is the headache.

Being an SMB ourselves, we know that we operate within tight budget and tighter margins. Hence, most SMBs can’t buy outsourcing governance services from E&Y or IBM or the likes, then how do they solve the problem with outsourcing governance? Well, most of them don’t and unavoidably they pay for it with ongoing frustration, high cost of engagements, and exceptionally high rate of failure. Neither the self-travel mode nore the outsourcing governance mode works for SMBs. This takes us back to our prime core issue – How do SMBs then outsource to a vendor without falling into the pigeon hole of all these issues?

The third alternative, I repeatedly keep hammering on, is research, research and research. Ask for references, ask to talk to people who have worked with the company in the past. Ask to talk to the senior most member of the team to gauge his competence. Ask to know which developer would be working on your project. Ask if he developer would directly talk to you or not. Ask if the developer fails, how would the scene be handled. Ask all this ALWAYS! You are the client and you have every right to know about all this.

If you want to ask me, I would be glad to share what we have done since the last 12 years at Mindfire which has avoided scenes as these and why our clients who visit us, actually come for a “India” visit rather than a visit to their outsourced vendor. Send me an email and will get back to you. Hope to talk to you soon!

Cheers

Sam

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