How to get outsourcing right?

We all know that offshore outsourcing is becoming central to IT. I am sure we understand that offshoring is not something that you can get into and expect it to keep running well.
How do you design and implement a successful offshore initiative? Here are some tips based on articles from experts and my experience on how to get outsourcing right:

1. Never ever outsource your core values:
Always ensure that your company’s core competitive advantage remain within your company. After deciding what you should not outsource, put everything else on the table. People generally believe that only “non-thinking mundane work” can be moved offshore. This is not true! In reality, they can probably move a much wider scope. Make offshoring part of a broad business strategy. The ones who succeed are the ones who have a clear vision of what they want to outsource and have a long term strategy.

2. Fix your process before outsourcing it:
“Don’t try to migrate a process offshore when it’s broken”. Executives at various outsourcing companies advise synchronizing the client and vendor processes and methodologies up front. For instance, if the Client works on an agile model and the vendor works on a waterfall model or vice versa, it may lead to chaos.

3. Find the right vendor:
Teaming up with a compatible partner can make a tough job easier. Many vendors have sprouted up in developing countries, but the difference between good and weak vendors is immense. Given that the prices are comparable, look for culture, domain expertise, financial strength, legal and regulatory compliance, security practices and the ability to provide insurance against eventualities. The key to vendor selection is to deal directly with the people who will be managing your business on a day-to-day basis. Their culture, experience and ability rather than their technology, client list, or offices should convince you.

4. Define clear objectives:
If you are not clear about what you want from a particular project, neither will the vendor be. Use well defined statements of work with clearly specified objectives, service level agreements, escalation model etc. Study and understand the project documents before you sign off.

5. Write talent into the contract:
Some of the outsourcing firms have developer turnover as high as 20% per year. The worst nightmare is to be promised an “A Team” upfront only to get a “C team” in the end. One way to ensure this is not the case is to conduct “Client interviews” and recruit the project teams as well as write a contractual agreement that contains incentives and penalties to ensure that the right talent is available.

6. Acclimate to cultural differences:
Bridging the cultural differences is probably the trickiest issue associated with offshoring. Establishing open, honest communication and spending extra time with potential vendors can be very helpful. Building personal relationships is extremely critical. Regular visits to offshore vendors and investing the time to get to know how the offshore company works can be highly rewarding. Another option would be to ensure that the project leads work onsite from the client location in order to build strong relationships as well as to understand how the Client organization works.

7. Get your hands dirty:
Before plunging your head, companies should get their hands dirty. It would be wise to micromanage the first few small projects in order to ensure that both parties have a clear understanding of each other - the processes, key objectives, deliverables and metrics.

8. Use multiple vendors/multi-sourcing:
If your project is of a significant size, use more than one vendor. The use of two or more vendors is an effective way of driving continued improvement among your vendors. It also acts as a safety net in case one under-performs. You must have an alternate strategy if you are suddenly no longer able to do business with a vendor. Ensure that the vendors are aware of the involvement of the other vendors. This will motivate them, as they will know there is the opportunity for additional work or to lose the work, depending on their performance.

9. Continuously evaluate and measure success:
Set key performance indicators (KPIs) and continually review them. Without tight management, problems can occur quickly. It will always be far easier to manage a project if the KPIs are understood from the very beginning.

10. Plan for a clear exit strategy:
Sometimes, it is possible that the relationship might end prematurely or may have run its course. Either way make sure that your SLA contains a clear exit strategy. It should detail how the outsourced functions should be brought back in-house, clarify who owns what assets and specify when compensation is due, and how much.
Specific to project management, it may be advisable to follow the same project management methodologies between the Client and vendor organizations. It is also advisable to have a Client Project Manager oversee the projects delivered and the standards followed by various vendors, so that it creates accountability while allowing the Client organization to evaluate and measure the projects delivered by these vendors.

References:
Ways to get Offshoring right: Infoworld.com 08.29.05 by David L.Margulius