Offshoring can be seen in the context of either production offshoring or services. After joining the World Trade Organization 2001, China emerged as a popular destination for production. After technical progress in telecommunications improved, India became a leading offshoring provider. Ten years after the WTO, the U.S. should examine the cost of the initiative in terms of job loss, loss of expertise and reduced quality. If offshoring served as a 10-year lesson on what not to do, it should have encouraged American companies to optimize quality, improve efficiency, and compete globally with American labor.
The economic logic is to reduce costs. If some people can use some of their skills more cheaply than others, those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce. However, the cost of reduced quality and the costs associated with managing an offshore or process need to be considered early in the plan.
A common shortcoming in both captive and outsourced operations originates from unrealistic ramp-up expectations, and a failure to communicate U.S. Standards and market requirements and ensure that they are delivered. Project planners try to start up too much new offshore process too quickly.
Quality could be sacrificed for cost and quantity but has been corrected over time. What has not been addressed is job and skill loss in America
The most important lesson that new project managers should to learn is that quality must be achieved before up large numbers of seats — or quality will never be achieved. Risk factors in quality usually should include customer satisfaction. Customer sat with remote call centers, fulfillment, language and time zones should be carefully scrutinized at the planning phase and reviewed after roll out to continuously measure results.
The planning and implementation processes for moving work offshore is similar for back office, customer service, and knowledge process outsourcing. Firms should plan to choose between outsourcing and opening a captive facility once they have completed an assessment of the types of work that could be shifted. Key decision points are identified — to enable them to be recognized and formally presented to a senior management authority. Describing work plan format enables it to be quickly translated into an implementation document. Once the initial management goals have been set and planning have been completed it make take between six to twelve months to establish an offshore presence and have transferred operations up. Time frames for a new offshore operation to “go live” vary according to the size of the project, complexity and training.
It is also important to ensure that labor savings alone are not used to create the business model and the ROI. There will be additional costs of managing an offshore or outsourced organization that will counter the cost savings. Manufacturing appliances and textiles has succeeded offshore as have electronic. Software developed offshore has had mixed results. Arguably, software will be more important strategically than textiles or appliance in the future.
Twelve Step Program for Successful Offshoring and Outsourcing Should now Be used to Wean U.S. from China and India to Onshoring Again
1. Set business goals with senior management for expected benefits of offshoring (cycle time, cost, quality, customer satisfaction) and make sure these are measurable metrics.
2. Identify the low-hanging fruit in the project – seek an initial process that marries reasonable exposure to risk with an attractive ROI
3. Use Business Process Mapping (BPM) to map the existing process and simulate it VISUALLY. Ensure that business stakeholders buy in to what exists today. Consider using a Lean “Kaizen” approach to ensure that team members, not just management have input into what the current process is and the new process will be.
a. Ishikawa or ‘Fishbone’ diagrams are also useful for root cause analysis.
b. healthcare related processes must comply with U.S. privacy and security rules under HIPAA and the HITECH Act
4. Use Business Process Mapping (BPM) to map the new process, and simulate the new process in a VISUAL way for senior management and ensure that they buy-in to the new process, costs, timing, and change management process.
5. Socialize metrics for success with the team
6. Catalog and baseline work that could be shifted offshore
7. Assess infrastructure requirements
8. Develop tax and other compliance strategies
9. Develop a labor strategy and personnel procedures
10. Determine whether to “make” your own presence offshore or partner
12. Roll out first process