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Can risk be reduced by sourcing from multiple suppliers offshore?

Multi-Shoring – can risk be reduced by sourcing from multiple suppliers?

Although the reality is very different a recent article in computer weekly (a UK based IT Magazine) suggested that companies are being more flexible and attempting to spread the risk by outsourcing to different suppliers in different countries. As Leslie Wilcox of the LSE suggested the process looks like ‘spread betting’. Although this was a nice idea at least in print the practice of doing this for real is proving more difficult as the basis of off-shoring is often to move low value commodity call-centric services to locations where the language matches that of the home country. Accordingly much of the UK based off-shore market has naturally gravitated to India where a large number of skilled, low paid and disciplined people are available to man the phones. The Indian subcontinent turns out twenty to thirty thousand IT graduates a year for example and as a corollary of their degree course often speak English to a high standard. Another factor that causes management heartache with multi-shoring is the problems of managing several off-shore suppliers – its bad enough with one as the practice has shown.

Although innovation is appearing as more important at least in surveys when deciding on outsourcing the main attraction for off-shoring still remains labour arbitrage – i.e. cheaper wages. However in India of late they have been ‘enjoying’ 25% wage inflation in the outsource industry as highly skilled graduates are demanding better salaries – furthermore the attrition rate is extremely high and it seems that graduates do not relish a long term ‘career’ in a call-centre but treat the job as a stepping stone into the world of work. It is these factors (rather than risk reduction) which is causing companies to explore the world more carefully looking for the next low wage spot. Unfortunately there are not many options and talk of using Malta, Singapore are fanciful and only really in the margins, and Russia and China have immense language barriers to overcome before they can be considered

Another remark was made in the article that rather than always going down the low cost route ‘companies are asking for more innovation’ from their suppliers – this is not borne out by any evidence of course and is not clear what is meant by innovation but there is something useful in this comment. That’s the idea is that outsource providers can take up the proposition of innovation and actively improve their service, be more efficient, deliver in more up to date means, whilst constantly improving the cost base. In my view you can have innovation and cost improvement at the same time and suppliers rather than resting on their laurels after the deal is closed should from day one start to improve the service and pass on a fair part of this to the customer. Can you imagine what it would be like to be a customer of such an outsource provider? Working to improve their part of your business to make it more efficient and effective whilst reducing your bill year-on-year – rather than the account manager just turning up once a month to make sure you pay the bill and renew the contract! If suppliers did this they would probably have continuous rights to the business and be invulnerable to critique and outsourcing would look something more like a real partnership based on performance rather than just a mechanism gaining access to the market without much risk.

Royston

see more of my posts on the Bizface Forum

Forced Change in an Outsourcing – guidelines for communicating to reduce resistance

Forced Change in an Outsourcing

Change Managers in an Outsource often assume that if the rationale for change is made clear to the people affected then change management is unproblematic and resistance negligible. People assume that if we rationally explain to the employees affected they will ‘buy-in’ to the process and thereafter work actively to realise the change or at least moderate their resistance to it. There is a assumption behind all this that changes are negotiated and developed over time and that the change agent’s task is but to make clear the imperatives and the people fall into place – communication mechanisms (usually Slide-Ware) are the main carriers of this type of intervention.

Whilst this approach has been roundly criticised for ignoring political and social aspects it is also more and more disturbed in major system changes. In outsourcing or mergers and acquisitions we are often faced with transitioning organisations within a strict deadline. Here the degrees of freedom are limited and failure to successfully implement can result in stiff penalties for time and cost overruns. In such circumstances our room for ‘negotiation’ is constrained as the change outcome is a given and the people affected are faced with a forced change.

Of interest to us as managers and consultants in such circumstances is how we support the change in particular minimising the business risk, defusing change resistance and avoiding long term damage to the organisation.

Forced change against a strict deadline is the reality and we also see that the complexity in a major change is increasing as many major programmes consist of several big initiatives in their own right. In one major change programme I worked on the client was disentangling from a parent company, implementing major systems changes, whilst outsourcing a part of the operational IT. All of these forcing substantial changes in role and responsibility right across the organisation and this programme also included the outsourcing of substantial parts of the finance function in a phase two.

Don’t forget Managers are affected by an Outsource as well…

At a management level change of status assumes high importance with any perceived loss in autonomy or the need to acquire new skills key aspects to consider. In another change programme the author was involved in the financial controller had a significant change in scope as a result of a system implementation and outsourcing which included loss of staff from her department. This resulted in much prevarication and concentration on detail, non-acceptance of the rational for change and question/problem raising that came over to the central project team as structural resistance.

Also don’t assume managers know how to support their staff through change – because they often do not. Special training and development is necessary. Also be sure that the management has bought in, in one case the stiffest resistance came from the team leader whose scepticism fed the resistance of the whole team being outsourced.

Three Key points in managing change communication

  • Relevant – We all know the value of clear communication but forget to caveat this with the need for relevancy. Exhortations of the value of the change at high level are useless unless made clearly relevant to the people affected. Unless the communication is explicitly tailored to the hearer’s specific needs general broadcasts will be discounted and perceived negatively.
  • Clear – Avoid the ‘Englishman on Holiday’ change communications approach – i.e. if they don’t understand speak slowly and louder! At a feedback meeting on the situation at a French manufacturing plant the consultants gave a withering overview of the impact of the various initiatives, changes and improvement programmes a major high technology company was imposing on the factory. The response to this from the company – “the management have not explained this clearly enough therefore ‘they’ do not understand it” – obviously they did not get the message either!.
  • Segmented – People in change need focused information – how does this new system affect me? Will I still have a job? Will I be able to cope – will they train me? This means communications must be relevant, focused and bespoke aimed at a segmented audience – don’t treat people as the same with the same vanilla information requirements.

Some interventions I have used

  • Local briefings at department or group level to strengthen team feelings of unity and develop focus on the task in hand.
  • Cutover process – form well managed meetings to act as resolution and solution forum to build for the change-over.
  • Tighter linkage to the change-over particularly for the management to expose the organisation to the task in hand and encounter change.
  • Activate processes to resolve/close personnel issues — close these issues managers often have difficulty in handling these.
  • Mentoring management to actively participate and lead change
  • Visible presence of change manager to emphasise the company’s commitment to making the change over
  • Reflect listen but not judge issues — allow self-reflection.
  • Ensure deployment communications is done (Watch for gate-keeping in one project when I checked the communications had got no further that the secretary)
  • Provide recognition of any process improvements ideas and try to push upwards any ideas the team has.
  • Recognise that resistance is a legitimate concern for the well-being of the business.
  • Ensure communication channels are open and deployed (again this is sometimes not done).
  • Hire a consultant to act as change focus (reflecting with support but not judging)
  • Tighter engagement of the organisation into the change process — they will switch to solve mode.

As an endnote — Know the limitations of rationally based change methods and avoid broadcast communication. Target and segment communications at the various groups in an organisation and you will be much more successful and managing communicating even bad news. When we design a marketing communications approach we segment our audience and focus messages at specific target groups – this is a lesson we could use within change management.

Royston