Client ‘Mindset’ is the No. 1 Cause of Offshore Outsourcing Failure

Shaunvir Mahil August 22, 2018

In my last blog, Clients to blame for Most Outsourcing to India Failures, I had discussed the 3 most common reasons why outsourcing fails (unprofessional vendors, unqualified staff and opting for the wrong delivery model), and explained why in each of these scenarios; the root cause of failure was a lack of upfront due diligence by the clients.

But why do clients lack in diligence when outsourcing? In this blog post, I answer this pressing question.

There is a stark difference between how clients approach getting work done locally versus how they get it done offshore; even for the same piece of work/project. If a company was considering both local and remote applicants for one job vacancy, I can bet that the firm would be more diligent in screening of local candidates compared to the offshore Virtual Employee candidates. This is counter-intuitive and ironic (given the apprehensions most clients have about offshoring!), and you would expect the opposite to be true.

This is exactly where outsourcing goes wrong; for it does not matter whether you are getting your work completed in New York or New Delhi. Your work is your work, and it does not diminish in value just because you are getting it completed offshore. To successfully outsource, it is necessary that you invest the same level of time, care and diligence you would, if you were getting your work completed locally.

What is the mindset of most clients when they offshore?

The actions of most clients reveal that offshoring is often seen as a ‘second rate’ business process and activity. It is something which is not overly important and thus does not warrant their attention. It is something which takes place ‘over there,’ and thus, something they should not unnecessarily concern themselves with.

This point was articulately made by Larry Spencer (Vice President of Application Development at Sceris), when I met him in 2013 to film a case study;

Shaun: Is there anything you’d like to share with our viewers?  Do you have any advice or anything else that you feel is relevant to add?

Larry: Yes, Shaun. There is one thing that I feel very passionately about and it is that developers are not interchangeable parts in some kind of software machinery. They are to be treated as individuals, professionals and accorded all the respect that we can give them, whether they are here in the United States or overseas. Be sure that you select them as individuals, and not just assume that they are interchangeable with every other software developer. So, that means that when recruiting them, you just don’t treat them as a resume, as a piece of paper; you give them a chance to show what they can do. When working with them, you collaborate with them. You don’t send some things over there and say, “I don’t want to talk to you until I get my results.”  If a company thinks that they are going to get good results by just offshoring things to solve their problems by sending a package of specs somewhere, and if they think that the software developers are just machines; their project is going to fail.

Click on the video below to watch the full case study;

This extract is arguably one of the most valuable pieces of advice you will find on outsourcing. In particular, notice the specific words Larry uses, “interchangeable parts” and “I don’t want to talk to you”. I suspect these choice of words were no coincidence, but rather a result of the robotic and carefree manner in which Larry has witnessed others outsource their requirements over the years. If you want to get outsourcing right, take note of Larry’s advice!

The core tenet of Larry’s message is simple – approach hiring Virtual Employees as you would while hiring employees locally, don’t change your mindset just because you are now going offshore. 

However, instead of approaching outsourcing as Larry recommends above, most clients approach outsourcing as though it is a trip to the dentist’s!

Why do clients have a different ‘mindset’ when getting work completed locally vs offshore?

There are two prime reasons.

  1. The thought of working with another third party vendor, of having to trust them and of potentially losing control; is a psychologically unpleasant and painful process. Accordingly, we want it ‘over and done with’ as quickly as possible and would rather focus our attention and time on other more pressing priorities locally.

    However, this thinking is immensely flawed. Whilst, the process may be psychologically painful, this is the result of preconceived beliefs about offshoring as opposed to the actual experience of the process itself. If clients approach outsourcing with diligence (i.e. ensure they partner with a reputed firm), the process is much easier and more convenient than getting work done locally.

  2. The ill-formed perceptions about offshoring. We instinctively categorize and label outsourcing as a cost saving activity. Hence, it is naturally perceived quite differently to any activity, which we may perceive as being a ‘value-add’ or ‘growth driving’ business activity.

This is why several clients illogically obsess over getting the cheapest possible cost of service when outsourcing, as opposed to comprehensively assessing capability (as I advocated in my previous blog post).

This is highly problematic, too. Outsourcing is not just an engine for cost saving, it can also be an engine for company growth (if you are reinvesting the funds you save by outsourcing, then it is a growth engine). Moreover, while we value activities we perceive to be growth generating, actions we perceive to be as ‘cost saving’, are assigned lesser importance and value.

Assigning a low priority to offshore outsourcing is not going to help you succeed!

By definition, outsourcing means ‘not in house’ (although the term outsourcing is often incorrectly used!). It is only natural and instinctive to assign higher priority and importance to ‘in house’ endeavours.

The problem however is a) any work which is not completed in house, does not necessarily mean it is not important and or valuable to your organization, and b) when you are hiring remote staff, you are not actually outsourcing, you are simply hiring ‘in house’ resources ‘offshore’.

When we hire locally, the individuals become a part of our company and are of high importance to us. But when we outsource, we do not (initially at least) experience that same feeling (however, a vast majority of clients consider their VEs to be ‘in house’ staff eventually!). However, clients tend to realise this only after they have started availing the service. The problem I am addressing here is of the clients’ mindset when they are initially considering outsourcing their work.

‘Not as Important’ – The ill-informed perception of clients while offshore outsourcing

For all the above stated reasons, I believe outsourcing is often perceived as being ‘not as important’ as other business activities. Whether that’s always the case is debatable, but if you do not perceive outsourcing as an important endeavour, then your chances of success will drastically diminish as you will not be investing as much time and diligence as required.

A good (albeit unrelated) example of this is social media. More and more companies are investing time into building up their social media presence these days. Usually, they get absolutely zero return on their investment (or at least close to nothing). Social media management/marketing turns out for most companies to be a complete and utter waste of time. But does this stop them? No! Despite zero ROI (which is the most important measure of the value of a business activity), social media is still considered as a valuable exercise. Why? Because, social media is perceived to be a part of the company’s brand and image. Since, branding is a growth engine, and hence, the greater emphasis on social media (despite being proved that companies do not improve their brand image by social media marketing; it’s just an ineffective exercise).

Thus, outsourcing is not only considered a psychologically unpleasant process, it is also considered to be of ‘low priority’. These two factors (plus a multitude of other reasons) culminate in a negative feeling towards outsourcing (I have written about this before in The Real Reason Most Small Businesses Do Not Outsource to India).

How do you feel about outsourcing? I think I can safely assume it does not get you jumping out of your seat with excitement and enthusiasm? Isn’t that ironic? You could potentially save tens of thousands of dollar per year per project! This should get you extremely excited and persuade you to invest more time into sourcing, isn’t it?

As mentioned at the start, herein lies the heart of the problem. You cannot approach any of your work as unimportant, ‘even if’ a business process is not a mission critical undertaking. If you do take this approach, the probability of failure is high. That’s the reason why we do not do this locally, even for our back office and support team departments.

Difference in Approach’ while hiring Locally versus Outsourcing

For instance, if you are a software development company, your mission critical projects will be related to software development. An example of non-mission critical domain would be bookkeeping. But, if a software development company in the UK decides to hire a bookkeeper locally, would they do so in a hasty and rash manner, just because bookkeeping is not mission critical? Of course not! However, the same company while offshoring, would take a totally different approach! What is truly perplexing is that even when clients are outsourcing a mission critical project, i.e. directly linked to company’s growth, I have still witnessed some clients approach the process with a cost saving mindset as opposed to a quality-focused approach. This is illogical, but is something that I have observed all too frequently).

Would you hire a bookkeeper locally ‘based on price’, as Warren above wants to? No, of course not! Sure, the salary expectation of an individual locally would be a factor, but it should not be the only factor in the decision making process. You would also take into consideration his ability, character, stability and so on. You would not email a recruitment agency in London and say, “I need a bookkeeper and I will make my decision based on price”. But for the same scenario offshore, it’s a completely different story.

While outsourcing, clients only want to take one factor into consideration – COST.

This discrepancy in mindset, between how you get work done locally and offshore is precisely why you see the lack of diligence and investment of time; I had highlighted in my previous blog post. The above example is but just one such instance.

Every day (yes, daily!), we come across peculiar and irrational scenarios of clients who are looking to outsource. I will give a hypothetical example to put this into context. A company ‘ABC LLC’ has a job vacancy. Despite months of efforts, it is struggling to close this position locally. After 6 months of trying to fill this vacancy locally, they decide to consider hiring a Virtual Employee in India. As explained in my previous blog post, at this stage many companies do not thoroughly screen or vet offshore vendors or the remote staff. They wouldn’t even want to talk to vendors and instead keep communication to an absolute bare minimum. Literally, “tell me the cost” (as Warren effectively points out in the above screenshot saying, ‘we are making a decision based on the cheapest possible quote we receive and so we will only be interested in speaking to you, if you first quote the cheapest price. Not exactly diligent outsourcing, I would say!), is often the only dialogue some companies are prepared to have.

This is illogical! Given the months of difficulty and effort the company has already experienced in recruiting locally, (one of the prime drivers of outsourcing is the fact that companies often spend months trying to hire locally to no avail) would it not be judicious to invest time in thoroughly screening vendors and staff before shortlisting a list of companies to work with? Despite knowing that outsourcing could potentially solve a problem that has been troubling them for over 6 months, investing time to comprehensively evaluate vendors/remote staff would be a good investment of time, wouldn’t it be?

Conclusion

Our perception, however accurate or inaccurate it is, is what shapes our mindset. Hiring locally is seen as a value addition, (whether for core or non-core competency processes) and hence why we take care, invest time and are diligent. Until we start perceiving outsourcing as an activity that brings value to our organizations, the hit and miss success rate of outsourcing will not change. 

Whether you are outsourcing mission critical or non-critical work, you have to be diligent. The problem is not just that clients are not approaching the outsourcing of non-mission critical work without importance, the issue is that they are often doing it when outsourcing mission critical related tasks, too.

An argument can be made that the process of outsourcing should hold an even higher estimation in our minds than getting work completed locally, given the cost saving and streamlining benefits it brings to our businesses. Whilst I may be overly ambitious in advocating this, it does make the point that we should at the very least approach outsourcing with the same mindset we do, when getting work completed locally, (‘not deviating from the norm,’ i.e. approaching offshoring as we would getting work completed locally, is one of my key principles to ensuring successful outsourcing, one which you will see repeatedly mentioned throughout my content in one form or another).

Hence, approach outsourcing with the same mindset Larry recommends above. ‘They are to be treated as individuals, professionals, and accorded all the respect that we can give them whether they are here in the United States or overseas.’ This is why Larry, (at the time of writing) has successfully built a team of 10 Virtual Employee software developers with us and that too now for a period of over 5 years! Let us be very conservative and say that Larry has saved $50,000 per developer per year. That comes to saving approximately $5million thus far. Not bad and certainly worth the due diligence I am recommending here!

In conclusion, until we see a change in mindset, we won’t see a change in result. And so, the diligence and upfront investment of time, I advocate will only come once you first changing your thinking and how you feel about outsourcing.

In the previous post, we looked at what the problem was? In this post, I have identified the cause. But approaching outsourcing with a mindset of wanting to be diligent, is itself never enough. We need to know, how to be diligent? I have already revealed part of that answer in this blog post but there are still several points of what you should not be doing to keep in mind, all of which I reveal in my next blog post …

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