“What level of cost savings can we expect after offshoring?” It’s a question I get a lot. The unsatisfying answer: “It depends.” AT Kearney recently released a fascinating exploration into why. In their Offshore Success Study, AT Kearney gathered data from 35 offshoring companies and analyzed what differences explain the drastic variability in performance across the high performers (who averaged 64% savings and often improved service quality) and the low performers (who only had an 18% average savings).
What’s responsible for this difference? The Offshore Success Study finds that “execution strategy” – how you handle the transition – is more influential in determining success than variables like offshore location or process complexity. In short, how you offshore matters more than where or what you offshore:
- Winners don’t focus on savings. The best performers emphasize improving operational performance rather than generating savings (and paradoxically achieve greater savings in the process!).
- Winners invest more to save more. Companies investing more in managing their offshore programs (bigger management teams, more internal on-site resources, strong cultural integration) achieve better performance and savings results. The best performers had one onshore manager for 50 to 75 offshore FTEs (a ratio that may improve after the operation has stabilized).
So how do you become one of the ‘winners’ – one of those companies with the right execution strategy? I would have three pieces of advice for someone transitioning to a new offshore location.
1) Train quickly, coach constantly. CCC benchmarking reveals outsourced reps receive longer periods of new-hire training than a domestic rep performing the same tasks. Unfortunately, a majority of training material is not absorbed and never used (our research finds that if a rep doesn’t put learning into action within 2 weeks, he/she loses that knowledge).
CCC Members: CCC has great best practices from Friends Provident on how to reduce onboarding training without harming customer satisfaction and from EarthLink on how to implement a customer-focused coaching scheme with outsourcing partners.
2) Place more emphasis on retention than recruitment. Retention means lower turnover costs and improved performance. In fact, CCC data reveals that companies that place extra emphasis on retaining high performers have higher performance levels than those similarly focused on recruitment. Creating advancement opportunities significantly increases agent intent to stay, but offshore agents’ satisfaction with advancement opportunities plummets after six months in role.
CCC Members: Learn how Dow Chemical uses a clear career path to clearly communicate advancement opportunities and increase retention and tenure.
3) Use contracts to drive quality and focus on results. Too often, contracts reward speed rather than quality. One promising trend we’ve noticed is outcomes-based outsourcing contracts – in other words, charging for the results achieved rather than the number of hours it takes to do a task (e.g., for a travel company, paying per reservation completed, not per call or per hour). The benefits to this model are increased flexibility, improved incentives for outsourcers to be productive and drive issue resolution, and potentially reduced costs.
CCC Members: Access our white paper on vendor metrics that drive high performance.
What do you think is key to offshoring success? Were there any steps that your company took that you felt were particularly effective at ensuring a smooth transition?