Five truths about offshoring that every business consultant should know
If you are a management or business consultant then this article will provide you with enough information to be able to discuss the benefits of offshoring operational roles with your engagements
Published 21 Nov 2018
Management and business consultants provide expertise, guidance, strategies and direction to entrepreneurs, leadership groups and organisations but the is a risk that any opinion or idea suggested in this type of engagement comes from a place of authority and experience. As we know, management consultants should be at the forefront of strategies that add value, reduce costs or improves the culture of the organisations that they engage with.
In this article, we will break down some of the important aspects of offshoring that every management consultant should have knowledge of prior to providing advice on the topic, so let us begin!
Offshoring vs outsourcing
The first point may seem like an obvious one, but offshoring and outsourcing are very different things. We wrote a "what? why? where? when? who? how?" article previously describing the differences between these two approaches and went into detail about when it was appropriate to use each.
If you are in a rush the key differences between the two are;
- Offshoring you build a team of talent that you manage and have responsibility for including; their location, their salary (usually), development planning, workload and daily tasks.
- Outsourcing you deliver pieces of specific, defined work to a partner who gives you the (hopefully) the expected outputs. You lack control over who does the work, how much they are paid and the conditions that they work under.
There is a misconception that offshored roles should be "low value", something that we strongly disagree with. This misconception threatens to inhibit the potential of offshoring initiatives. In fact, from our experience, the objective of an offshoring initiative should be to progressively, and in an agreed structured approach to moving higher value tasks as your team is comfortable and you have matured your operations to incorporate an offshored team.
The truth is the closer you can get to an idealist organisational chart, the better your operations will run. For example, in a software or application development team, if you can build a team where each member can do all of the tasks, you are in a great place to adopt and realise the benefits of an agile environment. Siloing knowledge based on location is not only counter-productive, but it will also absolutely result in frustration and challenging team dynamics.
Think big picture, think ideal scenarios and then put strategies in place to achieve them. Take a look at some of the roles that we or our partners have experience with placing for our customers.
As with roles, there are some misconceptions about the locations of offshored teams, you have options and should explore them accordingly. We have seen teams built (to varying success) in China, India, Sri Lanka, Malaysia and of course the two regions we've focused on the most, Vietnam and the Philippines. My last article was actually about the rise of the BPO industry in Vietnam!
Do not make assumptions without researching or exploring, or asking the question of someone, like us, who have done that exploration themselves.
Business process offshoring providers are particularly common in locations like the Philippines and increasingly so in Vietnam. These BPO providers can help you build your team without the overhead of business registrations, office space and fit outs, HR and legal requirements etc. Instead, you pay the BPO provider monthly and a portion of that payment is paid to your team as salary and benefits. For teams up to 40 this is an ideal arrangement, however, we do caution you to ensure that you develop a strong culture within your team, they should ideally say they work for you, not your provider.
We have a few providers that we work with, those we have vetted to ensure alignment with cultural values and willingness to work with their partners to achieve their goals. These may be generalists, technical, back office, sales, marketing or accounting focused, to name a few, but they are proven to deliver to our expectations.
Nobody is nieve enough to suggest that an important justification for offshoring is not the cost savings for an organisation but do not get too focused on pure salary savings because there's more to it on both sides of the equation.
Do not ignore these important cost considerations;
- The cost of recruitment; in Australia that's often 10-15% of your staff's annual salary
- The additional costs of employment such as; office space, infrastructure, super / retiring payments, benefits, tax
- Importantly, ensure that you include the costs of travel and time spent developing your offshored team too
Salary is a good indicator of potential savings but a more thorough analysis should be conducted and a realistic assessment of the time and effort to make these initiatives work effectively.
If you are a management or business consultant and would like to discuss any of the above, or other aspects of offshoring for one of your engagements, do not hesitate to contact us today and schedule a free consultation.