Outsourcing to an Off-shore company – finding the right vendor
Posted by decipherinfosys on July 16, 2008
This post is non technical in nature. We are posting it here because recently we helped one of our clients to go through a selection process of choosing an off-shore company for their development and QA activities. This was our third such engagement in which we have helped our clients get the most value from a consulting engagement. Outsourcing to an off shore company has a lot of advantages as well as things to be vary of. A lot of material is available on the internet in that regard so instead of writing a dissertation on it, we will point you to the IAOP (International Association of Outsourcing Professionals) site which has a lot of good whitepapers in this regard. You can access it here.
The process that we took the client through consisted of these steps:
- Interviewing the key stakeholders to learn about the needs of the company – short term as well as a long term vision.
- Forming the goals statement and matching those goals against a list of outsourcing companies from off-shore locations. A mix of Tier-1, 2 and 3 companies were chosen as well as non-Tiered companies were chosen as well to give the client an opportunity to consider more than one outsourcing off-shore vendor (this has benefits and challenges that we will cover later on in this post).
- Having discussions with the client to discuss the different companies and narrowing it down to a list of top 5.
- Contacted those 5 companies and established the communication between the client and the representatives from these companies. All of them also had a presence in the US.
- Prepared a preliminary agenda for the first conference call between the client and the 5 companies. This was to go over an Agenda that was inline with the client’s needs and to make sure that both sides understood what the goals were.
- The next step was to prepare a RFI (Request for Information) document while working with the client (different departments) and send it to the 5 companies.
- Collected the RFI responses and had discussions with the clients to narrow it down to the top 3. A rating system was developed in three categories: Technical, Operational and Commercial & Legal. All three had sub-sections against which each reviewer (including us and members from the client team) rated the vendors on a scale of 1-5. Weight measures (how important each category was for the success of the company) was also put in on a scale of 0-5 (0 because some sub-sections in a particular category might not make sense for the goals of the employee – there was only 1 such sub-section in this case which related to hosting. The client wanted to host the systems here (an ASP model is followed by this client).
- Next step was to prepare an RFP (Request for Proposal) and to send it to the top 3 vendors. We co-ordinated the questions and helped answer the questions on both sides related to the process and having worked with the client’s IT department, we were aware of the business needs as well.
- Upon receipt and review of the completed RFP from the vendors, we sent follow-up questions that were addressed during the face-to-face meetings with each. An agenda with proper targeted questions was prepared for these meetings.
- The ratings were done again for the 3 vendors against the RFP responses.
- Weight measures were averaged out and where there were significant differences, they were discussed among the team members and normalized.
- References were checked to ensure a recommendation was made to go with two outsourcing vendor companies.
This whole process was completed in 2 months time frame and was a very pleasant experience for both the client as well as the outsourcing vendor companies. As far as going with multiple outsourcing vendors is considered, it is a complex process and has risks associated with it but if managed properly, it does provide a lot of benefit as well to the company. Here are the benefits and disadvantages of such an approach:
- The big bang outsourcing with a single vendor can lead to issues for the company since if the decision turns out to be not working for the company, down the line it is difficult to recover from it.
- By choosing to work with 2 outsourcing off shore vendors, the company can cut costs and also foster a healthy competition between the vendors while taking advantage of vendor specialization and technical expertise. In this client’s case, one of the vendors (a Tier-1 company) was pretty expensive in terms of rates (nearly 3 times the cost prices of the second vendor (a Tier-3 company)) but they did have more business knowledge of the domain.
- The second vendor did not have related business domain experience but did have a rich pool of technical resources and was ranked very well as compared to the Tier-1 vendor in the evaluation process.
- It mitigates the risk for our client since down the line, they could switch from one vendor to the other if things do not work out with a vendor. Since the vendors would have been already engaged on a T&M basis, that transition for the team would be seamless.
- It also gives them an opportunity to engage the Tier-1 vendor with probably a fixed cost project for one of the projects that requires a good amount of domain expertise in order to be successful in a short span of time.
NOTE: As per the Gartner group, multi-sourcing will remain the dominant sourcing model. Organizations like GM, Kodak, P&G have done this quite successfully by managing the relationships better. As per a survey from CIO magazine (from Feb. 2007), here was the break up:
- 3 or more outsourcing vendors: 42%
- 2 outsourcing vendors: 36%
- 1 outsourcing vendor: 22%
- Managing 2 outsourcing off shore vendors is a time consuming and a complex process. It also adds to some cost upfront since the client now needs to have 2 separate resources for managing these 2 relationships. If appropriate governance is in place, then this risk is mitigated.
- If not properly managed and explicitly stated in the contracts, this can lead to a blame game. We can mitigate this by explicitly defining the contract terms.
- This typically requires some extra legal documentation work.
If you have a need for finding an outsourcing partner company at an off-shore location, please feel free to contact us at: firstname.lastname@example.org