Offshore Risk: Cost-reduction expectations

Establishing high cost-reduction expectations is one of the most serious traps a technology leader can get him/herself into. If the only reason you are going offshore is cost savings – my best advice would be – stop right there! If you are very good at utilizing offshore you may realize 30% savings on somewhat sizable initiatives, and you still will need a lot of luck. That’s aside even if you do understand the paradigm of cost savings you still have to establish appropriate expectations with your execs / peers / team. Failure to establish correct expectations results in insufficient budgets, often in a collapse of the entire outsourcing initiative with a serious ripple effect.

I receive emails from one of Beyondsoft (China) sales execs on a pretty much monthly basis. While his tenacity is commendable his message is totally ludicrous, here is one of his emails:

Dear Nick,

I know your schedule is very tight, but I really hope we have an opportunity to share our ideas on how to help you decrease cost by 300% in next 12 months.

I thought that’s a good opportunity coz you are in Beijing now, and our meeting would make you more impressive.

Looking forward to your early reply.

Best regards,

George Tong

300% wow! where do I sign!? Think about your execs who are continuously spammed with such messages. Direct mail, articles, whitepapers, case studies and so on conveniently delivered to your boss’s ear scream about potential saving from offshore. Setting appropriate expectation on your part will be a balancing act of delivering a bad news without sounding like a sandbagger. Here is a presentation approach I found somewhat successful in setting my audience’s expectations at a reasonable level.

Start with debunking the Myth of Cost Savings

  • What vendors are telling us
  • Couple genuine offshore horror stories
  • Rates vs. True Cost of Outsourcing

Change audience focus to specific challenges / reasons for outsourcing, e.g.

  • Time to market
  • Access to specific resource type
  • Refocusing internal resources

Setup SMART (specific measurable actionable result-oriented and time-bound) goals for outsourcing, e.g.

  • Move 100% maintenance of product X to Worksoft team by 5/15/210
  • Deliver 50 functional points by ZenSar’s team by 9/20/2009

Another pointer – my recommendation is to setup an expectation that there are NO cost savings and work in terms of alternative delivery benefits rather than cost. For example:

  • The project Odessa requires 5 FTE for 10 months.
  • While we do have a budget for it we do not have the resources.
  • Finding skilled developers and QA engineers is likely to take us over 3 months and we will need to train them for about 2 months.
  • To save the ramp up time we are going to us MindTree team.
  • The budget allows us enough resources to deliver the project under 12 months.

There is another trap here – what if the team you recommended can not deliver on time? Well, that’s not at all inconceivable, yet easier to control and deal with.

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