Turnover impact on the cost for an offshore engagement could be dramatic. It’s fairly obvious: any change in resources on a team triggers changes in the team dynamics, new resources need to be ramped up on technology, project specific and domain knowledge, etc.
Depending on a type of the assignment new resources will display lower productivity for weeks or even months. For a regular full time employee on development task the cost of replacement is typically estimated at 3 months of fully burden salary plus recruitment fees. The cost of the replacement in offshore scenario depends dramatically on contract arrangement and vendor capabilities. Interestingly enough it could be substantially lower than in captive resources scenario. In my view outsourcing companies could turn the issue of turnover into a competitive advantage. I have not seen too many that managed to so yet.
To deal with the turnover you need to start early during vendor selection stage and do not stop working on it till the engagement is closed.
Vendor Selection. Pick the vendors that have turnover under control; do not just take their word on it, research all aspects of employment lifecycle and derive your own conclusions. Here are some of the questions you need to get the answers to:
- What is the vendor’s employee sourcing strategy and tactics?
- Does vendor have any advantages in local market in terms of acquiring and retaining employees vs. competition? Or same question from a different angle – what are the employee choices in local job market?
- What employee retention mechanisms the vendor has in place?
- What the vendor does to counter results of the turnover? In particular what are the knowledge retention mechanisms? Cross training? Etc.
- What were actual turnover ratios for reference (especially unsolicited) accounts? How did vendor acted upon reducing the negative impact of the turnover?
Contract Negotiation. Now it’s time to ask the vendor to put their money where their mouth is. Here are a few elements you may consider for including into MSA:
- Clear definition of the turnover ratio with a penalty for exceeding specific benchmark.
- Key employee clauses. You need to cover definition of the key employee, specify minimum retention period for them, and identify process of replacement in case of their departure. I would consider covering two scenarios – force major (vendor can’t do much about loosing the employee) and transfers (the vendor elects to move the employee to a different engagement) with much more considerable penalties for transfers.
- Regular team member clauses. Those would be similar to key employees with focus on the process of replacement and much softer penalties.
- Transparency clauses. You want to know about employee departure as much ahead of time as possible, you wan to be able to get to the bottom. Maybe you want to be able to do the exit interviews. You might be interested in right to connect with team members directly, but be prepared for serious fight here unless you are working with small vendors.
Managing the Engagement. The main point is not to rely on your vendor’s adherence to the contract but take an active role in increasing retention of the team members at multiple levels. Of course that must be done in a concert or at least not in a conflict with the activities of the vendor. Most reasonable organizations do not intend on breaking the contract and in a large degree are interested in minimizing the turnover the same way you do, maybe with just a few exceptions. These exceptions come from market pressures and internal constraint, the better you understand them the more you can do to counter the issue. Here are a few reasons for these exceptions and some tips on dealing with them:
- The concept of seniority in an offshore organization is likely to be different from what you have in-house. For example a java developer with 6 years experience would be considered very senior in China and expected to act as a tech lead on the project with 20 developers. So forcing that developer to be a junior member on a team of 5 would be an insult which is likely to lead for him to quit one way or another. You need to be cognizant of that and other similar trends and form the team which would create a favorable environment for the team members not on your terms but on their terms.
- Same problem has a different angle: let consider a vendor’s viewpoint. As a practice manager I need to leverage my resources well. If I have a senior tech lead he is expected to run a team of 20 people. In that case I can afford to charge my clients some reasonable rate for his time as my losses would be more than offset with profits I make on junior members. As you can imagine a client’s request to form a small team with several senior members is not going to make me happy… One of the ways to deal with it is to be much more flexible on rates and find alternative / additional methods of compensation. More important if small team with very experienced team members is your preferred scenario – you need to pick vendors who are ready and interested to work in that model (and not just because they told you so!). Consider boutique consulting organization, Eastern Europe and Latin America.
- Another factor to consider is employee engagement. Long term development projects, especially large scale maintenance ones offer different challenges over time. Initially they could be interesting for people motivated by technical complexity and vast scope, but after a while these challenges disappear replaced by mundane repetitive tasks. So it’s no surprise that some of the team members are ready to fly when you just starting to rip the benefit of their experience and knowledge. In my experience the best way to deal with it is by selecting resources with personality / mind set match for the project. There are plenty of people who a great and maintenance projects and enjoy that work as well, they might be a bit slower in uptake, but that is the bullet you need to bite.
In a large degree to reduce turnover of your offshore team you can do many of the same things you would do for your own staff, often by the vendor’s hands. Here are just a few things you can consider:
- Compensation & Gifts. Remember a $1K bonus goes much further in India than in Indiana. A few technical books sent directly to a developer would earn disproportional value in loyalty.
- Classic motivation factors: advancement, recognition, and achievement. Recognition is particular simple and pays off incredibly well.
- Team building. A few things with huge impact: joined development activities like SCRUM style meetings, offshore visits, especially for local team members with specific tangible objectives such as training or k-transfer, bringing best off-shore team members on-site, etc.