Finding the right outsourcing provider is one of the key success factors in an IT outsourcing venture. In our __ article we talk about the ways of finding a partner that fits your technical, cultural and operations requirement to the maximum extent.

This article talks about the next step in your outsourcing venture – crafting a healthy structure to ensure maximum ROI from offshore outsourcing. Yes, the second key factor in any outsourcing arrangement is the way both parties – the buyer and the provider – understand and manage each other’s expectations.

A recent PA Consulting survey says that the biggest cause of failure in outsourcing deals is the “disconnect between the expectations of businesses and their outsourcing suppliers”. This is surely a cause of concern for outsourcing buyers, especially for those that are thinking outsourcing for the first time.

Cost Reduction Expectation – Biggest Spoilsport
Outsourcing to cheap offshore location did start out as a major cost reduction move but situations have changed in past 5 years. Outsourcing is no longer seen as just a cost reduction activity but a strategic move where cost reduction plays a miniscule part in the expectation building.

Sadly, even today, many executives assume that labor arbitrage will yield savings in terms of person-to-person comparison. For instance they assume a full-time equivalent in India will cost 40% less than on-shore employee. All this is without regard for the hidden costs and differences in operating models.

Ground realities say most IT organizations save 15%-25% during the first year. By the third year, cost savings often reach 35%-40% as companies gear up their offshore outsourcing learning curve and modify operations to align to an offshore model.

Miscalculated Problem-Solution
Companies that do not consider cost reduction as a primary motive for offshore outsourcing are not entirely on the safe side. If a company’s outsourcing motive is to rid an organization of a staffing problem, rather than resolving it, then the venture is like walking on a tight rope.

Expecting a supplier to take on a function that has been performed poorly internally is just setting the stage for failure if the inherent problem is not identified and addressed.

There are numerous other examples of expectations – on either side – that eventually hamper the day-to-day activities in an IT outsourcing project environment. It is necessary that buyers and providers recognize each of them before hand and take preventive steps to ensure a maximum rate of success. Some of the steps are outlined further in this write-up.

Steps to ensure maximum returns in offshore outsourcing
Expectations management has come a long way since the first boom of offshore outsourcing. However, there are still pitfalls and miscalculations in drawing up expectations. These steps will help both outsourcing buyers and providers with some food for thought to ensure effective expectations management and subsequently, higher returns on investments.

IT Outsourcing buyers
It is important to have a clear set of expectations for inside your. The information channels should be established from the beginning. If outsourcing is expected to solve an internal problem, the provider must be told. Specific designations of who will do what and at what time are important.

Ask yourself key questions like:
• What specific work do you want to outsource
• What kind of business relationship/deal do you want?
• What are the outcomes you want to accomplish for your organization?
• How will the relationship benefit the providers(s)?
• What do you see as the matrix of responsibility in relation to yourself and your outsourcing provider?

It is but natural that some issues will change in negotiations but it is best to begin with clarity. This will help prevent misunderstanding in the future.

IT Outsourcing Providers
There’s some good news for worried outsourcing buyers. A study by an independent agency showed that 67% vendors considered managing expectations an important factor in outsourced project success. They also say EM is also significant in maintaining a client’s trust for ongoing relationships.

Stylus Systems has been providing global clients with IT services for past 7 years. Our experience has taught us much about expectations management and we’d like to share that with all our readers.

We believe that outsourcing service providers should not promise what they cannot deliver. They should proactively determine a client’s requirements and expectations of an outsourcing relationship, provider capabilities and state upfront what is correct. We believe that nothing is more damaging in an outsourcing arrangement than raising expectations which cannot be met.

Never make assumptions: sometimes companies and suppliers both make assumptions that cause difficulties in the partnership. Communicating provider’s capabilities is the key to successful outsourcing. Similarly, knowing precisely what are client goals and objectives goes a long way in helping draw effective expectations management points.

Finally, to assure performance will be measured against original expectations, it is important to develop mutually-agreed upon measures early on and put them in writing.

Conclusion
Expectations management is not a luxury but a necessity as of now in IT outsourcing environment. Companies going the offshore way for first time need to have a clear understanding of what their expectations are and will offshore outsourcing meet those expectations.

The above mentioned steps are a great way to start with your expectations management endeavor. For the rest, as and when you go up the learning curve you will be gaining more insights into effectively managing expectations on both sides.

If you are looking to outsource your IT projects to an offshore provider we have a solution for you. Stylus Systems has been in offshore software development for past 7 years and has worked with global clients. Our expectations management activity is strong and partnering with our clients we draw up a list a mutually agreed upon expectations and measures to track the performance and meeting-the-expectations attribute.

Learn more about our IT outsourcing services!