How clients ‘due-diligence’ when outsourcing is often misplaced and how to get it right!

Shaunvir Mahil September 05, 2018

In the last two blog posts, I had explained: a) most clients make no efforts to be diligent when they outsource and b) why are they not making the required efforts while outsourcing? Some clients tend to be more meticulous in their approach, however, a majority of them don’t do so!

Even when some clients make genuine efforts to be thorough and detailed while offshore outsourcing, many are still unable to do so efficiently and effectively. In the concluding part of this three-part blog posts series, I take a look at how clients’ ‘due-diligence’ is often misplaced when outsourcing and how to ensure you don’t end up making the same mistake.

How clients’ idea of ‘Due Diligence’ is often misplaced?

  1. Choose the correct outsourcing delivery model.
  2. Partner with a reputed and not a rogue vendor.
  3. Ensure that your outsourced team is qualified to deliver your assignments.

Get any one of the above wrong, and your outsourcing efforts will fail. These ‘3 pillars of outsourcing’ are broad and will cover any parameters of diligence that may be of specific importance to you. For instance, if data and IP protection is of particular importance to you, it will fall under the 2nd pillar’s purview. A reputed vendor will ensure high levels of data security protection, and if they do not, they are just not a reputed vendor!

Despite the clients investing considerable time and effort into the process of outsourcing (i.e. sincerely trying to be diligent), they do not necessarily focus on the above mentioned key pillars. Their attention is elsewhere, and they end up using completely different yardsticks while outsourcing.

Many clients take plenty of quotes from different vendors, without assessing whether they are reputed firms or not and without verifying the abilities of their resources. Then, they deduce that the vendors with the higher quotes are ‘ripping them off’, because their quotes are significantly higher than those from the cheaper vendors. The focus of the clients is to ensure that they ‘do not get ripped off’. What they don’t realize is that they will end up partnering with a rogue firm, i.e. a firm that is not really a firm. They are likely to get swindled, because even though they might incur a low cost for service, they are unlikely to get anything of value in return. This approach is thus, a completely meaningless exercise.

If clients follow the parameters I advocate, and thoroughly assess and scrutinize the capabilities of their offshore staff, they will get a clear picture of what they are getting in return for their dollars. This will also enable them to come to an objective conclusion about whether they are getting the best value for their money or not. Hence, the first step in ensuring that you are being diligent is to focus on the three parameters that I have mentioned above.

The second step is to ensure that even when you are following these parameters, your diligence is not misplaced. Even when clients are focused on assessing the delivery model, the level of professionalism of a company or the capabilities of remote applicants; their focus is often misplaced.

When it comes to delivery model, clients often look at theoretically the best model (only on paper!) versus what will give them the best result practically. Even when clients are thinking about business model, their diligence is misplaced, as instead of being realistic they tend to focus on the theoretical best model which will make their life easy. This is not being diligent, at all!

Do’s and Don’ts of Partnering with Reputed Firms for Offshore Outsourcing

When it comes to ensuring that you have partnered with a reputed firm, several clients focus on parameters that are idealistic and are not a fair gauge of a company’s professionalism. For instance, a client didn’t want to use our service, as his Virtual Employee fell ill on the first day of his service. Shockingly, this was viewed as a sign of ‘unprofessionalism’ by the client. The truth was that his VE unfortunately fell ill on the first day, they were supposed to work together. Virtual Employee has over 800 staff members and it is a possibility that at some point an unfortunate event may occur. It does not mean that we are unethical and not to be trusted, it simply means that one of our resources fell ill at a rather unfortunate time. Such incidents are a part and parcel of life and has nothing to do with whether a company is reputed or rogue. It was a poor method of measuring our credibility and whether outsourcing with us would succeed or not.

On a separate occasion, a client became highly apprehensive as a software developer he had shortlisted to hire, had unfortunately resigned. The client informed us that he was afraid that we had, “put our best software developer forward to entice him to use our services and then deliberately ‘withdrew her’, so that we could coax him into hiring some of our lesser capable developers.” When the client informed us, we were taken aback. The client had managed to concoct quite a conspiracy theory! It could not have been farther from the truth. We are in discussions with hundreds of companies and are dealing with hundreds of staff members, and it is possible that something like this may occur occasionally. To expect it to never happen is unrealistic and as already reiterated, not a definite method of determining the professionalism of a vendor (the client did eventually hire another software developer via our firm and successfully worked with the resource for 18 months!).

Once, a client had shortlisted a VE, but had delayed submitting the contract and payment to secure the individual’s services for a period of two months. We had recruited him from another organization and eventually, he got tired and frustrated. By the time the client eventually submitted the paperwork, the individual was not interested in taking the job anymore. The client did not want to proceed, as they were unhappy with our service’. What the client did not take into account was that they had unprofessionally dragged out the process for a period of two months. If you had kept a highly skilled local candidate waiting for two months, would they accept your job offer? Unlikely!

However, when it comes to outsourcing, clients have unrealistic expectations. What the aforementioned client had also failed to take into consideration was the fact that we had managed to source a highly skilled accountant for them, someone who had matched all of their job prerequisites. Instead of taking into account the fact that we had the capability to recruit an individual with a niche skillset (a big indicator of our credibility), they focused on something that was out of our control (actually, it was their fault), as a sign of our services being below par. This is outrageous and meaningless!

Lastly, when it comes to assessing whether an offshore team has the capability to work for you or not, the mistake that many clients make is to form a judgement in haste. Some clients thoroughly assess the ability of the candidates we put forward, but if the initial batch of candidates do not meet their expectations, they completely withdraw from the process. Whilst they are being diligent in screening the candidates, they are not being diligent in their approach. Simply, because the initial candidates were not suitable, does not mean an offshore outsourcing company does not have the capability of providing better candidates. You cannot judge the competence of a vendor on just one round alone!

To expect an organization to get everything right in the first instant, is far too stringent. If you were to hire a local recruitment agency and their first batch of candidates didn’t suffice to what you were looking for, would you come to the conclusion that this recruitment agency is incapable of helping you close a job vacancy? No, of course not! Sure, there are only a certain number of chances you can give to an organization. However, the mistake clients make when outsourcing is to become very stringent and make their judgements in haste.

How to ensure you are actually being Diligent when trying to be Diligent?

There are three overriding principles to ensure that you are actually being diligent when you are outsourcing!

  1. Apply the ‘local reasonableness’ test. If ‘x’ event took place locally with a local vendor, would you consider the event reasonable or unreasonable? If it is reasonable locally, then it is reasonable for offshore outsourcing, too. If you wouldn’t stop engaging with a local recruitment agency, if their initial candidates were not qualified, don’t do so while offshoring, too. Always fall back onto the ‘reasonableness’ test to ensure that you are being realistic.

  2. Don’t mistake ‘things not going perfectly’ with unprofessionalism. When you are outsourcing half way around the world, there will be teething problems and things will not always go 100% according to plan. When two organizations collaborate (even locally), there are a lot of ‘moving parts’. For some clients, if one small moving part is out of sync for whatever reason, it is enough evidence for them to deduce that ‘this won’t work’. This is untrue as teething problems don’t necessarily mean that something won’t work (remember that the teething problems are often overcome rather quickly while outsourcing). You have to give outsourcing a fair chance and fair amount of time. You should be open to the fact that, initially everything may not run smoothly. Don’t overly read into, overthink and over analyse small ‘hiccups’.

  3. You should always look for signs of professionalism. We tend to have a severe case of tunnel vision, focusing solely on anything that appears to be an indicator of “unprofessionalism”. We neglect the signs and incidences of professionalism. An outsourcing company can do ninety-nine things right, but one unfortunate incident, and most clients will ignore everything that was executed with a high degree of competence. Diligence is as much about identifying signs of incompetence as it is about identifying signs of high competency.

If you do not apply these three principles when outsourcing, you may end up ruling out highly reputed and capable firms for reasons that were totally unrelated to competence or professionalism. Such an approach is of no benefit to you. You are simply creating more legwork for yourself. You are not objectively outsourcing, but you are also no longer assessing vendors on the metrics and parameters that actually count. This risks jeopardizing your chances of success and this is not in your best interests.

Going beyond the ‘3 pillars’ of Outsourcing Diligence

As stated at the beginning of the last post, there are several ways in which you can be diligent. How diligent you want to be, is at your discretion! What I have described in this blog post is merely the indispensable techniques in which you must be diligent for outsourcing to succeed for you. However, you can go beyond these core assessments and conduct diligence upto your utmost satisfaction.

Before you have even started speaking to outsourcing companies, I would advise you to reflect upon the fact that, what you intend to achieve by outsourcing is in fact even realistic or not! Many clients feel that outsourcing is a magic pill, one that will miraculously cure them of all their business aliments. For any professional collaboration, the starting point should be whether your goals are realistic or not. This is a good starting point to begin the outsourcing process.

Next, I would advocate that diligence should be done with a comprehensive consideration of how outsourcing will be beneficial to your business and how it can help you overcome some of your specific business pain points. Have you done an analysis of all the ways in which outsourcing can help your business or is cost saving the only advantage for you? If it is the latter, then, this is not diligent outsourcing.

Diligence in any business process is done to comprehensively understand the impact ‘x’ process will have on your business. It is only then that you can come to an informed decision. However, many clients are focused on the perceived negatives of outsourcing, without taking into consideration the full scope of benefits it brings to their businesses. Instead, the benefits of outsourcing are relegated to purely that of cost saving and access to talent.

Even when clients are thinking purely in terms of cost saving, it is more often than not calculated incorrectly (which puts into perspective just how misunderstood outsourcing is). How many clients actually accurately calculate how much they will save by outsourcing? The answer is very few.

When calculating the cost saving benefits of outsourcing, most clients tend to make the following calculations: salary of local employee minus total cost of remote staff equals to cost saving. As I had explained in an earlier blog post (click here to read 3 Massive Misconceptions about Cost Saving when Outsourcing to India), this calculation method is grossly incorrect. In short, many clients are outsourcing for cost saving advantages, without even know how much they truly stand to save!

I am hopeful that your approach, mindset and way of thinking about outsourcing has changed over the course of the last few blog posts. If it has, your approach to outsourcing should now be a lot more objective and your thinking should be comprehensive and holistic. You will now be in a position to analyse your work and independently identify areas of diligence that are important to your business. This is the key for you, as I do not know anything about your company or your projects yet. Hence, it is important that you can independently identify areas of due-diligence, which are specific to your projects and requirements.

In this blog post, we have looked at how clients are often not diligent even when they are trying to be diligent. In the next blog post, I will look at ‘why’ it happens. As I have stated earlier, due diligence is not rocket science! Why are so many clients getting this wrong even when they are trying to get it right? To learn why, click here to read my next post: Outsourcing Has a PR Problem.

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