Managing Performance in Offshoring Relationships

Spend Matters welcomes a guest post from Vantage Partners. This is the first part of a six-part series focused on managing performance in offshoring relationships.

Managing performance in an outsourcing relationship requires determining how to define and assess/monitor performance, how to promote exceptional performance, and how to address poor performance. Without performance management, it is difficult for customers and providers to achieve the objectives of their outsourcing deal. Unfortunately, parties frequently fail to define and measure what truly matters and struggle to institute metrics that provide visibility into all aspects of the relationship and properly account for the customer's contributions to performance. These challenges are formidable in any complex outsourcing relationship, but particularly so in offshore deals when customers and providers bring different working approaches to the table. To manage performance across geographies, customers and providers must grapple with the obstacle that hundreds of study participants identified as the most significant challenge of working with an overseas partner: cultural differences*.

In offshore deals, cultural challenges make managing performance harder
Onshore or offshore, performance management presents an ongoing challenge in complex outsourcing relationships because customers and providers frequently struggle to manage critical elements of the relationship. But in offshore deals, customers and providers often approach these activities from fundamentally different perspectives, and possess minimal experience in managing such differences with an overseas partner. Many thus struggle to manage performance expectations, fail to collaborate to resolve service delivery issues, and communicate ineffectively about sub-optimal performance. And in some cases, the notion of performance management itself may seem foreign. "In Finland, you trust that people will do the work, and perform it rather autonomously," says Anna Viannello, senior outsourcing manager at Nokia. "You don't really monitor even your subordinate much. That doesn't work that well in my opinion with some offshoring engagements."

Because of the added difficulty of managing a global relationship, 83% of survey respondents said customer-provider differences in offshore deals have at least some impact on service complaints from end users.** Specifically, commitments, directness of communication, and dealing with conflict are among the cultural dimensions believed by survey respondents to have the most significant impact on managing performance.

Making commitments: misaligned expectations lead to missed deadlines and service complaints
Of the respondents who said cultural differences impact their ability to effectively manage performance, three-fifths also noted that making commitments poses a challenge in their relationship. Customers typically complain that their provider tends to agree even when not sure it can deliver, a potentially significant cause of the provider's failure to meet the customer's expectations for quality, efficiency, or continuous improvement. In fact, of customers whose providers deliver services from India***, 66% said their partner tends to agree even when not sure it can deliver, while only 13% described their own organization that way (see Figure 1). This customer perception, however, isn't confined to providers delivering from India. "The Filipino culture is very service-oriented," says Karen Kennedy, based on her past experience as Director of Vendor Management at Vonage, Inc. "Therefore they say they are willing to do anything you ask, which is where most of the issues happen."

Figure 1: Customers ascribe to their India offshore provider a tendency to agree even when unsure it can deliver

Providers, however, do not share customers' view of their willingness to say they can do anything; in fact, only 26% believe they tend to agree even when not sure they can deliver. Perceived deterioration in service quality may result from providers' overzealousness to agree--or because customers do not do enough themselves to manage commitments. Commitments in offshoring relationships require attention from both parties because requirements, circumstances, and deadlines frequently change.

"A lot of performance issues have to do with changing requirements and the lack of communication in getting that across," says Godfrey Pinto, based on his past experience as Director of Offshore Outsourcing at a gaming software company. "Our Polish captive center are employees of the company, so they're much more likely to hear about things than the vendor in India. If requirements change and they don't get communicated [to the vendor], it definitely impacts performance."

The next part of this series will address communication in offshoring relationships.

- Danny Ertel, Partner, and Sara Enlow, Principal, Vantage Partners

* Vantage Partners. Managing Offshoring Relationships: Governance in Global Deals, 2010.
**Question: Compared to deals without such differences (e.g., customer and provider are more similar), how do these cross-cultural challenges manifest themselves? For "service complaints from end users," 83% of respondents selected 2, 3, 4, or 5 on a 5-point scale (1=no difference compared to onshore deals; 5=much greater impact than in onshore deals).
***All customer and provider percentages are calculated from the subset of customer and provider respondents who said that cultural differences impact performance management.

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