How to pick your outsourcing or offshoring service provider

So you have been considering in engaging an offshore staff for your business. No doubt you have a friend or a friend of a friend that is offshoring or outsourcing and apparently getting great results – how do you go about choosing who to partner with and how to do it?

The first thing you need to think through is what will “success” in your offshoring or outsourcing project look like? A common mistake businesses make is to judge the success simply on the direct cost savings and not look at the bigger picture.

For example:

A business had an Accounts Payable role in Australia and the salary for that role was $65,000. They now have a staff member in the Philippines who only costs them $20,000 – Bingo they are a mile in front! – or are they ….?

Ask a few more questions to scratch a little deeper and you might also find out that:

  • As a result of not developing an internal communication strategy to ensure that the offshoring plans were well received in Australia, two long term staff resigned, fearing their jobs might be at risk;
  • The business’ accounting fees have now increased by a few hundred dollars a month as a result of the extra time it is taking to fix journal entries that haven’t been posted correctly;
  • The CFO is having trouble supervising the Filipino staff member as they have no reporting on utilization and no point of contact within the service provider to resolve this issue;

To top things off the Filipino staff member has just resigned because:

  • they don’t feel valued (they are working in a “battery hen” style office with rows of identical small cubicles)
  • no one has given them any training;
  • they don’t have an agreed position description/KPIs;
  • they are having some problems with the remote IT connection which is making it hard to work efficiently;
  • they think their Australian manager is rude because they only ever email them and don’t talk to them face to face by video conference
  • they were made to work through the Filipino public holiday on All Saints Day (they had their yearly family reunion planned for that day).

What is often presented as very simple and easy to do is often not and this is definitely the case with offshoring and outsourcing.

If you want your initiative to be successful then the outcomes you, want to achieve, in addition to the obvious cost savings, should include:

  • Australian staff support and engagement
  • Cultural integration
  • Business integration and consequently a “one business” mentality
  • Smooth transition of the functions
  • Low staff turnover
  • Minimal complaints

The only way you will achieve these objectives is with the assistance and guidance of your offshoring service provider. Be careful who you pick – many of the service providers do little more than offer a serviced office with recruitment assistance. Fail to pick the right provider at the start of your process and it is likely you won’t get the result you were looking for.

Outsourcing and offshoring – how should you treat your staff?

I am surprised by the number of business owners that I meet who have offshore staff but don’t really know anything about them, often including their names!

When it comes to outsourcing, offshoring, business process outsourcing and the like as an industry, it is still in its relatively early days. In fact, this industry pretty much did not even exist 30 years ago.

The industry’s initial development has of course been primarily fueled by access to low-cost labour. Unfortunately, this has also produced a dynamic where some employers have treated their staff as a cheap and readily available commodity which is neither properly appreciated nor respected. In some cases, where these staffers are easily replaced and loyalty and retention is not a big issue, then perhaps this may not matter, at least from a commercial perspective. The reality though is that for most businesses, once the necessary time, effort and money have been invested into their offshore staff to get things working well, the last thing you then want is to lose them. As a result, it is essential that strategies are developed to engage and retain the staff.

Not very surprisingly, it is often the simple things that make the biggest difference, starting with ensuring that your staff members feel properly understood and appreciated – knowing their names definitely helps here!

Getting to know your staff

This concept is easy to understand but can be far more difficult to put into practice. In order to properly value your staff, you need to understand them, their local culture and what is important to them. You also need to ensure that their office premises are laid out in such a way as to treat them as individuals and not simply as a production line. Their roles and responsibilities need to be clearly defined as their key performance indicators. Reviews need to be conducted at an appropriate frequency to ensure that those staff who are excelling are given the opportunity to move forward in their careers and that remuneration and benefits for all staff remain in line with market rates. There also needs to be clear career pathways and, very importantly, a well-funded engagement program to build and maintain a good office culture and ensure ongoing enjoyment.

Most Australian employers have little difficulty in understanding the relevance of these issues to their businesses here in Australia. However, they often fail to take the same approach and put in the same effort with their outsourced or offshore staff.

Put simply, if you don’t treat and value your offshore staff in the same way as you do with your local Australian staff, you are likely to find that their loyalty and engagement falls, productivity drops and turnover becomes an issue. Fail to get this right and it is almost certain that your offshore strategy will also fail. On the other hand, if your offshore or outsourced staff can be properly engaged, rewarded and motivated, it is very likely that you will get a very significant return on your investment for a long time to come.

Outsourcing and offshoring – What’s the difference?

The use of offshore white collar labour is a relatively recent thing. As a result, there has been a range of different terms which have quickly developed to explain the different types of services on offer. These terms include outsourcing, offshoring, staff leasing, remote staff, offshore staff and business process outsourcing to name just a few.

Outsourcing vs. Offshoring

The general concept of using offshore labour however can be broadly broken into two different offerings. The first of those offerings is probably best described by the term “outsourcing.” Outsourcing is where a third party service provider is engaged to provide a range of services in accordance with a pre-agreed service level agreement. The amount to be paid to the outsourcing provider is often linked to outcomes achieved. The client does not typically have any involvement in the selection of the staff to perform the functions nor do they have any direct managerial involvement or control over those staff. The staff are solely under the direction and control of the outsourcing services provider and can be changed without regard to the client.

Offshoring on the other hand is where an intermediary is involved who is based offshore and assists a client directly engage local staff. Whilst the contracting arrangements may be a little bit more complicated, the essence is that the client will usually have direct managerial control over the staff and will also be involved in the recruitment process selecting which staff will be working for them. The services provided by the intermediary can range from simply assisting with recruiting of home-based employees right through to a full-service offering which also includes training, assistance with strategy, human resource management support, IT support and the provision of office facilities.

Whether offshoring or outsourcing is right for a particular business depends entirely upon what that business seeks to achieve through the engagement of its offshore labour.