Top 5 Rules of Offshore Vendor Selection

The key to building a list of vendors to consider in your outsourcing initiative is narrowing your search. There are only ~20,000 outsourcers in India alone – picking a good one should be just a walk in park… Jurassic Park so to say… Start with identifying geography, business model, maturity and size of target offshore vendors. Here are a couple tips (Nick’s Rules) to consider for narrowing down your search:

  • Rule # 1: Size matters. The attention you receive from the vendor is directly proportional to percentage of revenue your business represents. If a revenue stream your company generates for the vendor is a rounding error in the vendor’s AR this vendor is probably far from a perfect match. On the other hand you will have a major misfit if a minor fluctuation in your business needs send your vendor in a frenzy of on-a-spot hiring or forces them to lay off a half of the company. There is not magic %% and boundaries depends on your personal risk tolerance and many other factors. My recommendation is to set the boundaries early in the selection process and do not even consider companies that fall outside. I have to mention an important consideration though – many large outsourcing companies organize their workforce in business divisions dedicated to certain verticals or in some other manner. That creates smaller companies within larger organization, for example you could be dealing with $40M Healthcare division of Stayam rather than $1B organization. It’s not the same as dealing with $40M company and would have its own pluses and minuses. From standpoint of “attention share” it gets to be very close.
  • Rule # 2: Always ask for a Second Opinion. In today’s outsourcing world 3rd party confirmation of development process quality is called CMMI certification. Development processes maturity confirmed by high level CMMI certification is not necessarily going to make your life easy. As a matter of fact I have seen how it creates additional humps and complexities. What CCMI certification offers is reasonable guarantee of the process maturity and more important process and thus relationship predictability. You will face many issues during you outsourcing journey, handling them while working with CMMI5 certified organization will be smoother. On the other hand process heavy organizations won’t be able to turn on a dime and change the processes to fit your needs or circumstances. Therefore there is a strong correlation between importance of CMM and the size of your engagement. As a rule of thumb I would say anything beyond 60 man*month worth CMMI3, beyond to 20 man*years you may seriously consider CMMI5.
  • Rule # 3: Match is the key. Focus on the companies that have proven track record of working with clients akin to your company and on projects similar to those you plan to outsource. A supersized bodyshop with one gazillion of man*years experience in ERP implementations is not a good match for web 2.0 start up. Search for the match on every aspect of your engagement – technology, SDLC, vertical, etc. The supply of outsourcing talents is huge and chances are you will find what you need. Finding a good match has an incredibly high pay off and is worth the effort.
  • Rule # 4: Aim for the Top. Seek companies where you can get access to the top. Your chief architect’s brother is a CEO of a decent company in China? Your COO plays golf with an owner of offshore outfit in Brazil? Head of operations for an outsourcing company in Vietnam is your MBA alumnae? All those could become a good place to start. If you do not have any friends or connections – use professional networking and other means to gain access to the companies at the top level. Be aware though not to fall in the “relationship trap” and feeling obligated to do business with someone just because they are a friend or so. The friendship built on business is by far better than a business build on friendship.
  • Rule # 5: Remember the Babylon. One of the main obstacles and the reasons of failures in IT outsourcing is infamous communication barriers. If the organization has more than one employee it will have communication issues, needless to say the communication challenge could only be exacerbated by geographical, cultural and language diversity. So do not build new communication barriers if it is at all possible. Three quarters of your engineering team are Russians? Go to Russoft first. Do not have a single Mandarin speaking employee? Take China off your outsourcing radar.

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