Outcome-based offshore outsourcing

Here is a summary of a recent conversation with one of my clients:

My client: "Sath, we have been offshoring for a few years now. We have grown the operation from nothing to over 250 people offshore. As I take stock of the situation, it has been a simple linear growth of expenses. More work has meant more people. Added to that my offshore staff costs are increasing every year".

Me: "I see this in many companies. What is your concern"?

My client: "I look for innovation and improvement in productivity over time to reduce my cost over time. This is not happening".

Me: "Your current approach is to pay for hours. Your vendor is delivering it. Very efficiently, I might add. By the way, do you realize that your vendor's business goals are different from yours?"

The last part of my comment surprised my client. Vendors' goals are to improve their revenues and bottom lines. If they invest in innovation, tools, technologies not only their cost increases, they also stand to reduce their revenues because they are now doing more with less people. Remember, they get paid on how many people (or hours) they devote to your account. Your business goals are at odds with their business goals!!!

How do you address this issue?

"Outcome-based" strategy may be one option. It helps align goals and dramatically improve savings and other benefits. However, despite the hype by some in the industry, it is not for everyone and every situation. To determine if it is right for you, you need to:

  • Identify both qualitative and quantitative benefits from using outcome-based strategy.
  • Metrics: What metrics should you use in an outcome-based model? How will these metrics incent the vendor's behavior?
  • Organizational Impact: Do you need to change roles between the vendor's and your organization? If yes, how?
  • Contract Revisions: Your current contracts may need to be modified to incorporate outcome-based strategy.
  • Visibility and control: You may need to apply different management processes.

Customized Deliverables

I will analyze your situation and recommend specific actions you need to take with a clear roadmap for implementation.  Armed with this information, you can proceed to implementation -- you can do it on your own your own or I am happy to provide oversight.

Time Line and Cost

About 2 weeks at a modest cost

Let's discuss your situation. Call or E-mail:

         M. M. (Sath) Sathyanarayan
         Principal,  Sath Associates LLC 
         E-Mail: Sath@SathAssociates.com           Cell: (408) 865-0474

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