Managing Scope and Cultural Differences: Communication & Risk

Spend Matters would like to welcome a guest post from Vantage Partners. Click for Part 1 and Part 2 of this series.

This is the third segment of a five-part series focused on managing scope in offshoring relationships. So far we have covered how cultural differences in making commitments and tolerance for ambiguity impact scope management. Today's post will focus on directness of communication and risk.

Directness of communication
Of the respondents to a 2010 Vantage Partners survey who said cultural differences impact scope management, more than half (55%) also said that directness of communication poses a challenge in their relationship. That's because customers and providers across geographies have different approaches to how they communicate with their counterparts.

In general, customers believe they tend to communicate directly. When something needs to be said, they say it explicitly. But customers feel their provider tends to communicate indirectly, perhaps explicit discussions of project roadblocks or the need to charge for additional services for fear of upsetting the customer. In fact, only 24% of customers believed their provider communicates directly. This perspective is particularly acute among customers in India offshore deals. 60% of customers that offshore to India said their provider prefers indirect communication; only 40% of customers that offshore to other destinations described their provider that way (see Figure 1).

Figure 1: Customers ascribe some unique characteristics to Indian culture, as compared to other cultures
Just as providers are much less likely than customers to believe they are over-eager to make commitments, so are they significantly less inclined to feel they communicate indirectly. More than half (56%) of providers said they believe they communicate directly (see Figure 2). One risk of indirect communication on scope is misalignment about the services to be delivered. The contract often gives rise to different interpretations, particularly since many people involved in a deal are not familiar with its terms. Failure to communicate directly with contract managers and service delivery managers about intended scope boundaries in the contract increases the likelihood they will draw significantly different conclusions. The result¬ing disconnect about whether and which new services will cost extra may lead to disagreements. As new people enter the relationship, a shared understanding of scope boundaries becomes even more important to prevent misalignment.

Figure 2: Customers view their provider differently from how providers view themselves
Customers' perception that providers favor indirect communication and providers' sense that they do not suggest that offshore partners are frequently misaligned around the appropriate level of communication for the relationship. It may also suggest that there is not a clear process to deliberately address scope issues. Customers concerned about indirect communication of scope issues may wish to take extra care to ensure they are aligned with their provider. "Our organization could do a better job of clearly laying out expectations to better manage scope," says Dr. Krishna Kushwaha, a U.S.-based customer that offshores application development to India. Failure to do so in his projects, he notes, has resulted in significant scope overruns.

A majority (52%) of respondents who said cultural differences impact scope management also said that risk poses a challenge in their relationship. Both customers and providers agree that customers tend to be more risk averse. 62% of customers said they are risk averse, and 51% of providers described their partner that way. Both customers and providers are less likely to describe providers as risk averse.

Many customers believe that getting less than what they think they are entitled to is a major risk of outsourcing. This strong aversion to scope risk sometimes drives customers to create elaborate reporting schemes, implement an abundance of metrics, and bring on additional headcount to assess provider performance and delivery to contract terms. While metrics and reporting certainly have their place, when these measures become excessive, they divert provider resources from critical activities and may thereby create problems they were designed to prevent.

The next part of this series will discuss how scope challenges make it harder to achieve the full value of the deal.

- Danny Ertel, Partner at Vantage Partners

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