Outsourcing Governance

A couple days ago I received an email with a very interesting question –

Hello Nick,

I have come across your blog (http://pragmaticoutsourcing.com) while doing some secondary research.

I have been quite impressed after reading your blog, and hence writing to you to seek your pro bono help :)

As you have such a good depth and breadth of outsourcing experience, I would like to seek your opinion on this:

– Many Companies who Offshore their IT/Product Development to Russia, India, China, etc. face many challenges during the projects execution phase. They spend significant management overhead in managing their vendors. They may need to make multiple trips to the outsourced location to resolve issues. So there are significant costs/pains involved
– Would such Companies like to hire third-party consultants, who work as their agents and be physically present with the suppliers, does the Program Management function (tracking of projects, timelines of deliveres, identifying and sharing potential issues/challenges, metrics reporting etc.) and help reduce the costs/pains of managing the outsourcing vendor?
– Would such Third-Party Consulting services be attractive to Companies who Offshore?
– If No, Why?
– If Yes, Why? Do you know of any company providing such Consulting Service?

Your opinion would be highly valuable to me. I am eagerly waiting to hear from you.

Thanks,
Sujay

Yes, Sujay many companies can take advantage of these kind of services and providing them could present a very interesting and lucrative opportunity. As a matter of fact many companies are already in this business and offer large portfolio of services related to managing the full cycle of outsourcing (not necessarily only offshore) engagements.

The full cycle of offshore engagement starts with making the decision of whether to outsource, goes through vendor selection and negotiations, structuring and executing the engagement, and ends with hopefully successful closure and/or transition to a new cycle. At each and every step there is a staggering amount of work that needs to be done by both client and provider. And that’s where the opportunity lies. Many of the tasks that need to be done are omitted by both parties, sometimes because of lack of attention, often because of lack of knowledge, and most frequently because a lot of tasks just slip through the cracks. Each task omitted or improperly done contributes to inevitable deterioration of the engagement, and results do not hesitate to show, sometimes to grim to discuss :)

Of course CxOs of most successful companies realize that it’s going on and invest in what’s commonly called IT Governance or Outsourcing Governance. Interestingly enough that function is commonly outsourced, and for the good reason, for several good reasons to be precise. Here are just a couple to consider:

• IT Governance expertise is not easy to find and commonly doesn’t fall into core competence of organization.
• A third party can be an independent / unbiased judge and thus more effective in conflict resolution.
• Some elements of IT governance can be done via short term engagements, in and out, perfect for utilizing hired guns.

So who offers these services? Needless to say that large companies buy from large vendors and no surprise Big 4 and second tier consulting companies play in this business. KPMG, PWC, and others have their “CIO advisory services” and other service offering delivering Outsourcing Governance in different shapes and forms. Pretty much every large consulting organization has some kind of service that falls into that category. And their business is booming, as a matter of fact most of the consulting companies are hiring, here is for example a job ad from PWC – Cio Advisory Ps&i Shared Services and Outsourcing Manager.

How about SMB – Small to medium sized businesses? Most of them can’t buy from E&Y or IBM, how do they solve the problem with outsourcing governance? Well, most of them don’t and unavoidably they pay for it with ongoing frustration, high cost of engagements, and exceptionally high rate of failure. There are some companies that try to cater to the needs of SMB in this arena, unfortunately, selling and delivering services to SMB is very difficult. Most of the owners of SMB would laugh at the idea of paying someone for Outsourcing Governance. And a large portion of those who buy the service would unintentionally sabotage it. Nevertheless, some companies believe that opportunity with SMBs is worth exploring. For example one of my offshore providers has been selling Outsourcing Governance to SMB for over 10 years with some rate of success.

Probably the most significant opportunity today is right in between large companies and SMB – the companies that are big enough to afford the services and understand their importance and still small enough not to buy the services from large consulting houses. These would be the companies with $2M+ outsourcing budgets and forward thinking CxOs.

On the other hand there are many outsourcing vendors that could (and should) be buyers of Governance services. That particular applies to small to medium development organizations that do not have strong onshore presence.

<a href=”http://jobs.pwc.com/los-angeles/advisory/jobid1254885-cio-advisory-ps%EF%B9%A0i-shared-services-and-outsourcing-manager-jobs”>Cio Advisory Ps&amp;i Shared Services and Outsourcing Manager</a>

6 thoughts on “Outsourcing Governance

  1. Hi,

    Thanks for the information!

    I occasionally found your blog while doing some surfing stuff, so I guess I’d better greet :)

    I’m CEO at CodeX Software LLC, an IT outsourcing company from Belarus and I was certainly interested in what you wrote and, moreover, what you’re to write yet.

    I wish you good luck, for I’d be really happy to take up reading your blog :)

    Best regards,

  2. Thanks Anton, it’s always a pleasure to hear from readers, fuels my energy and gives plenty of ideas. I can imagine running an outsourcing company in Belarus is tough considering how much competition you have from 800-lb gorillas and scarcity of resources. At the same time i am sure there are tons of opportunities in the European and US market… Best of luck, Nick

  3. My company is just getting started with outsourcing and we were recommended to check out oDesk. I believe I found a recommendation there to check out your info (sometimes you just don’t know where you found out about something online!) – anyway, I’m glad I got here.

    I’ve learned the hard way that the best way to be responsible for something and to have a good sense of control over it is to be as knowledgeable as possible about it. Your site and your eBook (vol 1) appear to be loaded with sensible, practical info.

    I realize with outsourcing, at least from the employer’s prospective, it still comes down to choosing someone who is trustworthy and competent. I’d even err some on ‘competent’ to have ‘fully trustworthy’ as you can always improve someone’s competence but a loss of trust…well, you know what I mean.

    Thank you for putting this blog here, Nick!

  4. Thanks Stan. As far as starting with outsourcing oDesk could be a good place to start could be not so good one. It’s a perfect place for micro sourcing, data entry tasks, SEO, etc. If you have a large project or one with high importance / risk / etc. you may need to be looking for a larger suppliers who are not so common at oDesk. In any case, best of luck! nick

  5. Thanks, Nick. We’re looking at using oDesk for simple tasks right now: some backlinking and some SEO for a few sites/blogs. I agree, it doesn’t sound like the best place for major projects.

    What are your thoughts on onlinejobs.ph?

  6. Thanks for the great blog on outsourcing. I own a Seattle Washington Market Research company. I’m sure my employees and I will learn alot from what you’ve posted here. We do outsourcing work for clients all over the country so I’m sure we’ll gain some tips from your blog post. Keep up the good work.

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