Unconventional Sourcing Advice from a Globally Aware CTO

SPECIAL GUEST POST

 TransUnion I first got involved in the “offshore” business in 1995 when my then employer was looking to develop a software engineering and testing partnership with an Indian firm and a “BPO” (it wasn’t yet called that) for some standardized administrative processes in the Philippines.

We had already seen the trend in contract manufacturing drive business to the lower cost marketplaces in Central America and South East Asia, and the executive management team wanted to both improve their global footprint (we were already in over 100 countries) and attack the operating cost base.

Tapping into the global talent pool was also an important factor – hiring in the US and Western Europe was growing increasingly competitive for the kind of people that were needed, even before the Internet boom and the Financial Services bubbles came along. In the end, the BPO worked out well (they are still there and have grown a lot in the past 15 years) although the Indian JV didn’t last and a new strategy had to be developed for Y2K and afterward.

Since then, I have been involved in other “global sourcing” initiatives in Canada, Mexico, the Caribbean, Poland, Spain and China. Along the way, I’ve learned a few things that you don’t always see in the conventional literature on “outsourcing” or “off shoring”.

Here’s my list.

• Total cost of operations (TCO) matters more than raw labor rates. Sure, lower labor rates look attractive, but the “total process cost” of getting equivalent productivity from those lower-paid resources eats into the difference a lot faster than people expect. Infrastructure investments, process changes, travel, rework – they all add an “operations” tax to the basic price.
• Getting to a stable productive process takes time. We used to budget 18 months for each new “offshore” location to come up to speed and meet its key performance indicators. After a decade of practice, this came down to between six and nine months – and going with an experienced partner helps a lot. But if you’re new to this and you pick an inexperienced partner, bet in 18 to 24 months.
• Time zone matters – but how and how much depends on the characteristics of the process being taken offshore. “Follow the sun” models can work well in some cases – but not for everything. When you want effective responses to critical incidents that affect your customers, it’s better to have everyone on the some clock cycle – and that’s usually the middle of the day, not the middle of the night.
• Culture matters. If you’re going to have a partner run a part of your business for you, you’ll want them to run it (or at least interact with you) the way you would from an operating style perspective. That’s harder than you might think – especially if your team and your partner’s team have to interact regularly to get work done. Working cultures vary a lot around the world – and some adjustment is often necessary to accommodate a habitual reluctance to admit to a lack of understanding or an unwillingness to share bad news.
• Language matters, but not as much as culture, so long as the language is English. It’s amazing how it’s still possible to understand badly mangled English –but better not to have it mangled in the first place. Basic English is still the most widely used technical and business language in the world (with simplified Mandarin and Spanish gaining ground fast) but some emerging services markets still have limited language skills and no matter how good you are technically, if you can’t communicate effectively, the work isn’t going to get done right.
• Capability matters. You’ll want a partner to know how your market operates, how you like to do business and what’s important to you. While efficiency and productivity is important, it’s equally critical that your partners understand why you operate the way you do, so that they can be a more efficient version of you. This goes beyond technical proficiency and requires that people who operate on a global basis have a global viewpoint – tough to find in some emerging markets that have been isolated from mainstream commerce for geopolitical or other reasons.
• Capacity matters. Both absolutely and relatively. You want to be sure that your partners can cope with both your growth and their own growth. You generally don’t want to be their biggest customer or their smallest. That’s generally going to mean that you want a range of options to chose to partner with, depending on the scale of your needs and the depth and breadth of the market.
• Diversity matters. When you factor in geopolitical, economic, judicial, operational and financial risks, it shouldn’t take you long to figure out that you don’t want to be in just one market or even just one geography – and you don’t necessarily want just one partner for all your potential services needs.
• Process matters. Because it’s more work to manage several relationships than it is to manage just one. But not that much more if you have a good process. And less than it takes to manage a single relationship that isn’t working well.

You’ll want a partner to know how your market operates, how you like to do business and what’s important to you. While efficiency and productivity is important, it’s equally critical that your partners understand why you operate the way you do, so that they can be a more efficient version of you.

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Which brings me to Brazil – the latest stop on my global sourcing journey. Brazil’s not for everyone – yet, but it has a lot going for it from the point of view of most of the criteria listed above. TCO is competitive, because productivity is high and re-work is low. There is a vibrant internal market for ITO and BPO services, so experience, capacity and capability are very good and the infrastructure is for the most part, world class. For many prime shift support processes, time zone (US EST + 1) is a big plus, and the working culture is well aligned to US and European expectations.

It’s still a long flight (although there are plenty of choices and the schedule from the US is generally overnight in both directions, so you don’t waste a lot of time). English as a working language isn’t as good as it will be in a few years, but the government and educational system are investing heavily to improve things. The diversity factor is positive. Process is up to you.

I’ve had good experiences with service provides there. Definitely worth thinking about.

John Parkinson is Former Chief Technology Officer TransUnion LLC and Chairman,  ParkWood Advisors LLC john@parkwoodadvisors.biz