Offshoring opportunities : strategies and tactics for global competitiveness

259 Pages·2006·2.064 MB·English

by  John Berry

ffirs.fm Page iii Thursday, September 15, 2005 8:33 PM
O
FFSHORING
O
PPORTUNITIES
STRATEGIES AND TACTICS
FOR GLOBAL COMPETITIVENESS
JOHN BERRY
JOHN WILEY & SONS, INC.
ffirs.fm Page iv Thursday, September 15, 2005 8:33 PM
This book is printed on acid-free paper.
Copyright © 2006 by John Wiley & Sons Inc. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Berry, John, 1960-
Offshoring opportunities : strategies and tactics for global competitiveness / John Berry.
p. cm.
Includes index.
ISBN-13: 978-0-471-71673-0 (cloth)
ISBN-10: 0-471-71673-1 (cloth)
1. International business enterprises. 2. Contracting out. I. Title.
HD2755.5.B467 2006
658.4'058—dc22
2005017416
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Reader’s Note: Offshoring Value Delivery
Framework Reference Card xi
Preface xiii
Approach of the Book xv
Structure of the Book xvii
Acknowledgments xix
1 Offshoring and Its Discontents 1
What Is Offshoring? 6
Understanding Offshoring the Way a Manager Would 10
Business Process Offshoring 14
2 Everything You Can Send Down a Wire Is Up for Grabs 18
Setting the Stage for Offshoring 19
Drivers of Offshoring Are Interdependent 26
How Big Can This Thing Get? 27
Cognitive Food Chain 28
Invincibility of the Symbolic Analyst? 31
Offshoring Innovation 32
3 Coase and the Changing Nature of Work 36
Will the Nature of Work Change? 38
Software Industry Offers Hints 40
Offshoring also Offers Hints 41
vii
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viii CONTENTS
Phase 1 Strategy Development: Think 47
4 Pouring the Foundation:
The Offshoring Value Delivery Framework 49
Strategy/Goals Alignment: A Balanced
Scorecard Approach 51
In-house or Out of House:
Issue of Control 64
Chapter Takeaway 75
5 Is the Organization Ready? 78
Strategic Level Readiness 78
Building the Safety Net 80
Argument for a Big Response 82
Operational-Level Readiness 83
Operational-Level Readiness:
The Elements 84
When the Operational
Framework Fails 86
Belief in Empiricism Is the
Answer 88
A Shared Services Perspective 89
Business Case 92
Chapter Takeaway 92
6 Making the Case 94
The Business Case Lives 94
Process of Discovery 96
Captive Versus Service Provider
Business Case 97
Total Value of a Business Case 98
How to Represent Costs 99
Offshoring Cost/Benefit Model 100
Mapping Costs Analysis to the Offshoring
Value Delivery Framework 101
Cost Exploration 101
Cost Benchmarking 105
Subject of Change 105
Chapter Takeaway 106
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CONTENTS ix
Phase 2 Selection Process: Plan 109
7 So Many Choices 111
Selection Criteria Development 111
Evergreen Selection Criteria 126
Chapter Takeaway 139
8 Location is Everything 142
Site Selection 142
Mercer Framework 146
Chapter Takeaway 153
Phase 3 Relationship Building 155
9 An Alliance Is Forged 157
Pilot Project 157
Small Offshoring Scope If Processes
Are Not Project-Based 160
Security Framework 162
Revise Business Case 171
Chapter Takeaway 171
10 Let’s Make a Deal 173
Contracting 173
Service Level Agreements 178
Chapter Takeaway 189
11 Other Relationship Details 191
Chief Outsourcing/Offshoring Officer 191
Good to Great, Then Offshore Versus Offshore,
Then Good to Great 193
Relationship Defined by Pricing 195
Exit Strategy 198
Chapter Takeaway 200
Phase 4 Ongoing Management: Execute and Manage 201
12 Start of a Beautiful Friendship 203
Transition 203
Transition Costs Destroy Value Propositions 214
Performance Tracking and Value Auditing 215
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x CONTENTS
Governance 219
Final Thoughts on the Offshoring Value
Delivery Framework 221
Chapter Takeaway 222
13 Calling All Low-Cost Reps 224
Mixed Attitudes About Contact Centers 225
Chapter Takeaway 239
14 Toward Best Practices 241
Index 245
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xi
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READERS NOTE: OFFSHORING
VALUE DELIVERY FRAMEWORK
REFERENCE CARD
The Offshoring Value Delivery Framework is a concept discussed fre-
quently throughout this book. Although its formal introduction can be
found in Chapter 4, readers are provided another copy of this critical, visual
management concept so they might remove it from the book and use it as a
reference. Because the pattern of the book is to delve deeply into each
phase of the framework, then back out to introduce subsequent phases,
readers might find the process of being introduced into a new phase, diving
deep into all its details, then coming back up to the surface for the introduc-
tion of the next phase a bit disorienting. This reference card acts as a kind
of navigational and orientation tool so that readers can understand at what
point in the evolution of an offshoring initiative they find themselves in as
they read the text.
Feel free to cut out the back of this page along the dashed guideline.
Keep the card on your desk, tack it to an office wall or use it as a book-
mark. Turn to the reference card any time you feel the need to reestablish
your bearings as you explore the principles of offshoring.
xii
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PREFACE
What is this book about? Strategies, tactics, and issues around offshoring.
This book is designed for C-level and operational managers (all others are
welcome too, however) in need of information and decision frameworks
necessary to navigate the thicket of issues surrounding an offshoring strat-
egy. Critics will say that this book is for offshoring and everything it
impacts when, in fact, the book is for the illumination of an economic phe-
nomenon and business trend that can improve a company’s competitiveness
or worsen it. An implicit advocacy of offshoring by dint of providing strat-
egies and tactics to successfully execute it does not mean advocacy for
massive layoffs of U.S. workers, no more than being for mild winter
weather in a traditionally cold climate means advocating that ski lift opera-
tors go out of business because of the absence of snow. The fact is that for a
variety of reasons explained shortly, offshoring is a real economic phenom-
enon and legitimate management discipline. It demands the editorial atten-
tion only a book can provide, so I decided to write one. Managers who
ignore the subject do so at their own peril and that of their employers.
If managers have spent any time researching this subject, they might
have found that the media offers conflicting signals about what is happen-
ing in the offshoring marketplace. For example, CFO Magazine runs a
story that says the pharmaceutical industry is risk averse to offshoring
because of, among other things, its standards of near perfection sought in
all processes involved in the creation of a drug.1 Perfection can be ensured
only if the processes are under the company’s direct control. Walk to the
other end of the newsstand and the Wall Street Journal has published a
story on the front page of the second section stating that the drug industry
1. Alison Rea, “Outsourcing Risks Worry the Wary,” CFO Research Services, October 14, 2004.
xiii
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xiv PREFACE
is offshoring R&D to Asian service providers to meet operational and stra-
tegic needs.2 Which is it? Both. Another example. The conventional wis-
dom says a company should never offshore its core competencies or those
processes that deliver strategic value to the firm. But value hardly gets any
more strategic than R&D, and these key processes are enjoying long but
pleasant journeys to exotic locations with increasing frequency, as readers
will discover. Joining research offshore is the D in R&D. More and more
technology companies are sending product development work to offshore
service providers. Never offshore the strategic says the little man in one
ear; by all means offshore any set of business processes that deliver value to
the organization, says his twin sister in the other. Which is it? Both.
Offshoring is highly contextual, influenced by many business circum-
stances: company cost structure, competitive environment, internal capabil-
ity and resource availability to deliver value, new product introductions and
the time-to-market issues surrounding them, a need for physical proximity
to international customers, and the list goes on. Conventional wisdom is
just that—conventional—and one person’s peach is another’s poison. In
this kind of reality, the only hope from a book such as this is to provide the
ideal, a framework for thought and discussion, and let managers apply it to
the pressure-packed real world in which they toil. If they follow the frame-
work, managers will discover if offshoring presents a compelling value
proposition.
2. See Laura Santini, “Drug Companies Look to China for Cheap R&D,” Wall Street Journal, November
22, 2004.