On the ground here at Nearshore Nexus, I’m listening to John Parkinson, Chairman and Managing Director of ParkWood Advisors LLC, speak about the Top Nine lessons he’s learned in the outsourcing industry. There aren’t many people more qualified to dish out the advice than this guy – with over 35 years in the IT and consulting sector, he’s been ranked among the world’s top 25 most influential consultants, and has held executive-level positions at Ernst & Young, Capgemini and TransUnion.
According to Parkinson, nothing much has changed in the last couple of decades – there are fundamental issues that buyers continue to misunderstand in today’s sourcing industry. Here’s a breakdown of some of his main points:
TCO matters more than raw labor rates: Sourcing gurus have said this time and again, but buyers continue to go after cheap wages. Labor arbitrage is only a small part of your outsourced project cost, and cheaper wages are pointless if you’re getting incapable workers. “You want people who can do what you do,” he said. “This may sound obvious but it often isn’t. Domain expertise doesn’t usually translate well. And the smaller the niche you work in, the harder it is to find capability.”
Time zone does make a difference: But how much it matters depends on the characteristics of the process being taken offshore. There are industries in which ‘follow the sun’ is a good idea, because you want people who are awake when things go wrong. If you have only US- focused services, then your processes in other parts of the world are being ignored.
According to Parkinson, you have to figure out a time zone model that matches your demand. “Customer issues are much, much worse than the issues you have with your vendor. Customers want to know that the person on the other end of the line is awake and in tune with their problems.”
Culture matters: Many of the speakers at Nexus have been focusing on culture as a key determinant of the success of your outsourced project. It’s important because you have to be able to trust the person that’s doing the work for you. As Parkinson said, “If you can’t get the cultural alignment problem out of the way, then it doesn’t matter that you paid your workers only $20 an hour. The number of times you’ll have to do the work again means that you should have paid someone $70 an hour.”
The kinds of questions and discussion on this topic during the conference demonstrate that culture is an issue that the outsourcing industry is still trying to figure out. The point was made however, that this does open up opportunities in new labor pools, because now you’re not necessarily looking for process excellence or how capable they are; just whether they’re culturally compatible.
Process matters: In other words, how you do this stuff matters. “If you have only one sourcing relationship, it has to be a good one, or you’re in trouble. If you have two, you get to practice a bit, and the differences between them help you. If you have three, then you’re probably good at managing vendors by now. But if you have 30, you’re an idiot. These things don’t scale well,” said Parkinson. Think about the legal overheads when operating in different countries, and the process overheads. The time and money you will spend managing so many vendors, and how inefficient it will be to integrate them with your in-house team, will negate any cost savings or productivity gains.
“Free mobility of labor is a myth,” said Parkinson. “Look for sourcing partners who have the appropriate capability and capacity where you do.”