Offshore Vendor Selection: Criteria

There is no one-fit-all list of vendor selection criteria, as the list depends on the organization, its needs, scope of outsourcing initiative, etc. I would like to suggest some items that you may want to consider for including in your list.  To offer some structure to the list I put items in five major groups:

  • Macro Factors. This group includes criteria important for selection of outsourcing region and type of outsourcing organizations to pursue in your search.
  • Critical Factors. The group of selection criteria covers items that are critical for the success of the outsourcing initiative.
  • Relevant Factors. While these search criteria are important I always take them with a grain of salt as assessment of these factors is complex / subjective.
  • Things to Consider. Tie breakers, items of relatively low importance which could still affect your decision with consideration of special circumstances, etc.
  • And Personal Factors. That is a very important group of criteria if you are the person who has to carry on the engagement. If you only charged with selection these items should reflect needs of future stakeholders, assuming they could be reasonably assessed.

My recommendation is that you take a critical look at the list below and pick only items of the high importance; selecting vendors based on an excessive list of criteria would be a daunting task.

Macro Factors

  • Geography – Region / Country / City. Impact of locale on outsourcing initiative is multifold; in large degree the geography determines time differences, language, culture, history, average rates, typical turn over ratio, etc. There are however some notable fluctuations based on specific city and company. For example some companies in Eastern Europe change their work hours to minimize time difference.
  • Political Stability. Political stability will affect multiple aspects of an outsourcing relationship, an impact range from minor fluctuations in productivity to mandate to cease the operations.
  • Legal System Maturity. Generally you are not planning on going to curt with the vendor yet you should never dismiss a possibility of that happening. What’s good about your NDA or MSA if its clauses are not enforceable?
  • Company Size and Organizational Structure. The attention you receive from the vendor is directly proportional to percentage of revenue your business represents; see offshore outsourcing Rule # 1.
  • Business Model Match. Search for vendors that support and have track record of executing under the outsourcing model that is right for your organization. See Vendor Selection Rule # 3.
  • Financial Stability. Multiple aspects of financial stability are important factors in the selection process, with most important being profitability and cash reserves.
  • Time in Business. The time in business should be defined as the time in doing business in specific model / under specific circumstances matching your needs. See Vendor Selection Rule # 3.
  • Business Focus. Many outsourcing vendors chase any and every business opportunity inevitably creating organizations with unstable structure, staff and culture.

Critical Factors

  • Capability Maturity. Certification level. See Vendor Selection Rule # 2. Make sure that certification is applicable to the specific ODC / location you are considering.
  • Methodology Match. Is methodology you are planning to use is in DNA of the vendor? Does vendor has a track record / history of using specific methodology in the target ODC? See Vendor Selection Rule # 3. Keep in mind that methodology is bigger than just SDLC, it should cover project / program management and other essential process.
  • Delivery Track Record. I would give that criterion a very high weight and would do my best to assess the track record of success on engagements similar to your initiative. Keep in mind specific aspects of your engagement such as change rate ratio, urgency of deadlines, etc.
  • Staff Competency & Domain Expertise.  It’s clear that staff competency is critical to the success of the initiative. To rate that criterion you would need to decipher what the competency of staff assigned to your project would be. That would require understanding vendor current state of competency, sourcing and competency building methodologies.
  • Training. Tightly related to previous item this one is all about assessing what vendor does to sustain and increase competency of its employees.
  • Knowledge Transfer and Retention. With turn around being unavoidable knowledge transfer and retention are critical to “average competency” of the organization. To rate that criterion you will need to understand what tools, processes, and methodologies are used by the vendor to assure continuity of knowledge.
  • HR Practices, Staff Sourcing & Development. Vendor activities in order to find (“source”) and retain its employees are critical to countering turnover and increasing “average” resource competency and quality.
  • Data Security & Privacy.  This criterion is particular important if your organization is dealing with sensitive data such as financial or HIPAA covered data. You need to look into multiple aspects of security (policy, physical, network, data, etc.). Assessing state Data Security & Privacy could be very time and resource consuming. Asking for results of a third party audit is probably the easiest short cut.

Relevant Factors

  • IP Protection. IP Protection is a critical factor yet assessing it is extremely challenging, see some of my thoughts in Protecting Data and IP when Outsourcing Offshore.
  • Organizational Mission.  Alignment of organizational missions may have a good positive impact on success of your project. The chances of finding the alignment are not high though.
  • Client Management. Client management or account management is especially important when access to the top is limited.
  • Quality Management. Some organizations, in particular those high on CMMI scale, offer somewhat independent quality management which could be a value ad to the engagement in a long run.

Things to Consider

  • Organizational Statistics. Organizational statistics, such as %% of sales vs. development, %% of people with advance degree, etc. could offer interesting insights on the organization and suggest trends.
  • Outsourcing Tools. Engagement tools such as communication dashboards, time tracking tools and others could offer substantial value in tracking the progress.
  • Specific Expertise. Narrow niche domain expertise or specific technical competence offered by vendor could be important if not critical factor. I find counting on that fairly risky.
  • Network Infrastructure. Many outsourcing companies today offer network infrastructure at par or even better than you may have in house. Its sufficiency needs to be verified though.
  • Telecom Infrastructure.  Similar to the item above, strongly related to geopolitical criteria.

Personal Factors

There is a great variety of personal factors that should be considered. They range from personal preferences to geography to your own risk tolerance, from your career aspirations to knowledge of foreign languages. And depending on your relative weight within organization they might be even more important than critical factors.

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