Offshoring Relationships: Challenges & Best Practices

Spend Matters welcomes a guest post from Vantage Partners. Click for Part 1, Part 2, and Part 3 of this series on managing performance in offshoring relationships.

Performance management challenges make it harder to achieve the full value of the deal
Managing performance becomes a challenge in offshoring relationships when the parties do not effectively manage the challenges described above. And ineffective performance management has real consequences for both customers and providers. When survey respondents in 2010 complained about performance management issues, they also reported that they experienced the following consequences (Vantage Partners, Managing Offshoring Relationships: Governance in Global Deals, 2010):

  • Time is wasted on conflict and revisiting decisions
  • Critical deadlines are missed
  • Opportunities to add greater value are lost
  • Costs increase; savings targets are not met
  • Staff morale wanes

When cultural barriers not adequately addressed, the top three consequences noted above have a significantly higher impact on the parties, compared to onshore deals. In fact, respondents who noted challenges with directness of communication, commitment management, and dealing with conflict are approximately three times as likely as those who face none of those challenges to say that these problems are significantly greater in offshore deals than in onshore deals (see Figure 1).

Figure 1: Cultural challenges contribute directly to undesirable results

The extent to which culture impacts performance management also affects the parties' ability to achieve the value set out in the contract. When performance management is a relatively insignificant challenge, only 33% of respondents report that the percentage impact on annual contract value is more than 20%. But when culture makes performance management relatively difficult, nearly 50% of respondents say the percentage of annual contract value at stake is greater than 20%.

Best practices for managing performance
The cultural challenges described above are formidable barriers to managing performance, but customers and providers can overcome them by adopting some best practices.

Treat managing commitments as joint problem solving
Addressing commitment management challenges improves performance management by enabling both parties to meet one another's expectations. One of the most effective ways to manage commitments is to implement a simple framework (see Figure 2) to provide some discipline around how requests and commitments are made. The goal is to ensure that both parties know what they are committing to and what to do if challenges arise.

For unique and/or complex requests for support, the customer should provide a full picture of the underlying interests behind the request and the desired output. Before making a commitment, the parties should discuss explicitly what successful completion of the request will involve and what barriers might make that difficult to achieve. The parties should agree on a process for providing updates--many providers now build automated processes into their solution to give the customer visibility into the status of projects--and discussing challenges that arise. Once the work has been performed, the parties should jointly review whether both sides are satisfied with the end result, and consider extracting lessons about what worked well and what did not.

Figure 2: A picture of effective commitment management

The next part of this series will continue to share best practices to manage performance in offshoring relationships.

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

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