by Arpit Kaushik

Making Sense of Offshore Outsourcing 2.0

Jan 13, 20095 mins

As outsourcing continues to evolve, new yardsticks are needed to assess successful engagements and measure ROI. These tips will help you capitalize on the benefits offered by offshore, nearshore and onshore outsourcing.

The phrase 2.0 has been bandied about since 2004 and it has become the de facto appendage to make a service offering slick, cool, hyped and worthy of attention of media and venture capitalists. But what does 2.0 mean? What is this new wave or generation or model of outsourcing all about?

First a quick recap of what various players mean when they use the phrase:

  • Outsourcing Institute’s Frank Casale uses 2.0 to indicate a new way to buy, sell and manage outsourcing relationships which involves greater collaboration, collective wisdom, better communication among virtual teams and greater access to information.
  • Wipro talks about 2.0 being about strategic impact, mature relationships, multi-sourcing, risk-reward sharing and a joint approach instead of a typical client/vendor relationship.
  • A self proclaimed “global leader in Outsourcing 2.0” mentions its agile programming skills coupled with risk sharing and outcome based contracts as the key elements.

Other terms used to describe outsourcing 2.0 include:

  • Multiple languages, small time differences, independent specialists and cultural proximity.
  • A model that moves away from cost and efficiency towards value, effectiveness and innovation.
  • A model where one company acts as the front-end program owner, but all delivery is done through a network of low cost, best-fit partners.

And let’s not even consider those who talk about outsourcing 3.0 and 4.0. Though it’s worth mentioning that one author stipulates that in the 3.0 model, no more that 20 percent of any business’ global headcount should be in the U.S., while another says the third wave is about “Indian outsourcing vendors swallowing entire departments of global corporate bigwigs”! (Both of which mean bad thing for IT jobs in the U.S., should they come to pass.)

And some analysts who say we are already in the third wave of outsourcing, where 1.0 was about IT outsourcing, 2.0 was about business process outsourcing and 3.0 is about knowledge process outsourcing.

Obviously, the choice of defining what it actually means lies with us. And at the same time, to be true and consistent with the original intention of the innovators and adopters who created Web 2.0, and to alleviate customer pain and confusion, it is also essential to follow a broad and standard set of principles.

What are these principles?

Web 2.0 talks about a platform based approach, moving away from silos to the network as a platform. It propagates harnessing collective intelligence and treating users as co-developers through an architecture of participation and democracy that encourages them to add value to the application as they use it. In Web 2.0., operations become a core-competency and lightweight, syndicated models become the norm. Finally, the market is a conversation with a rich user experience.

I think we can adopt these principles very well into offshore outsourcing 2.0:

1.) Offshore as a platform rather than the delivery channel.

We thought of offshore as shifting headcount to a cheaper location, but are realizing now that that alone does not generate value. It takes analysis, planning, management, nurturing and a lot more to deliver value, and that comes when you shift the focus away from offshore as the offering to offshore as platform for the offering. Onshore becomes equally, not more, important here.

2.) Globally syndicated delivery networks.

Up until now, delivery centers were disconnected task silos. It really wasn’t possible to engage multiple centers on one piece of work or to dynamically balance capacity or resources across centers. 2.0 is all about collaboration, integration and syndication—multiple teams across multiple locations on a single project, and the ability to shift resources across centers…the game is not about ‘which’ shore you use but how you collaborate and balance to maximize value.

3.) Rich user experience: Success as the measure.

Metrics about quantity and machine-like qualitative aspects: Number of people deployed, how productive they are (lines coded/tested per hour etc.), how few errors they make (deviation, errors per thousand lines of code etc.), customer satisfaction ratings, what certification level they have….are all fine in 1.0. But the yardstick for measurement in 2.0 is customer success.

4.) Rich user experience: Relationships, not complex contracts.

Last mile linkage and front-ends are often cited as the primary reason for outsourcing failing to deliver results, and guess which element do they refer to—yes, human interactions and relationships. No amount of contractual lingo, no penalty or indemnity clause, no target SLA ratio, no empty promises, no solid resume…can ever mitigate risk the way a relationship can. Rather than spending months contracting, companies should spend time and energy in making sure they have the suitable relationship managers from their suppliers. Contracts actually serve their purpose only when things go wrong—if you have the right relationship, well, things will not go wrong in the first place. It’s about bringing the focus back from documents, data pipes and computer screens, to relationships.

5.) The engagement as a conversation: Co-creation, not blame-game.

The debate is no longer about whether suppliers can do a job better than the customer, or the supplier saying “tell us what you want, give us what we want, and then we’ll have a go at it”. 2.0 is about working and winning together to address challenges.

Customers and service providers alike would do well to bring in a sense of consistency and discipline in the use of the appendage 2.0. And the model of course would be worthy of being called so, only if it changes people’s lives and brings about the tectonic shift in the way we do things, the way Web 2.0 did. If not that, it’s all thin air. Over to the innovators now…

Arpit Kaushik runs the London-based outsourcing service design firm, Crystals, that helps forward-looking companies to realise the promised benefits of outsourcing.