When Western companies decide to source work from abroad, they often pick jobs that are routine, standardized and easy to learn—things like software support and call-center operation.
The thinking is that the easier it is to explain to offshore workers exactly what to do, the more successful the operation will be.
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We believe these companies may be thinking too narrowly about the benefits of offshoring.
Based on a study of 130 offshore operations in India, we discovered that what really determines success versus failure isn’t the ease with which knowledge can be transferred from one location to another.
Instead, the key is managing teamwork—that is, helping onshore and offshore workers whose jobs are linked coordinate their work effectively. We found that the projects that paid close attention to managing coordination performed almost four times as well as their less-successful counterparts.
More broadly, our research has implications for what kind of work is “offshore-able.” We believe that if Western companies focused more on fostering collaboration between workers separated by geography and culture, and less on forcing offshore workers to perform tasks in very specific ways, the range of work they could source offshore would be significantly expanded.
Companies struggling to fill talent gaps in semiconductor-chip design, drug discovery, engineering and other intellectually complex areas could draw on high-quality and growing talent bases in countries like India and China.
Companies have several options when it comes to managing coordination between offshore and onshore teams. The strategy they choose may depend on the type of work involved.
Black Box. One of the easiest ways to ensure coordination across locations is to minimize the need for employees from different geographies to interact on an ad-hoc basis. This is known as “black-boxing.”
Questions to Ask Yourself
- 1. Is your offshore operation performing at a lower-than-expected level?
- 2. Do you believe the key to offshoring success is getting workers to follow instructions?
- 3. Do your offshore and onshore workers have trouble understanding each other in conversation and email?
- 4. Are there vast differences in their education and training?
- 5. Would it benefit you to be able to move more intellectually complex work offshore?
If you answered yes to one or more of these questions, it would probably be beneficial to take steps—such as adopting technologies that enable employees to work together across locations—to foster teamwork between offshore and onshore workers. New research suggests that effective coordination of work, rather than knowledge transfer, is what makes an offshore project successful.
A mortgage company, for example, might have a loan originator in London fill out a form indicating the income levels and creditworthiness of potential customers. A risk evaluator in Bangalore, India, then uses that form to grant or deny loans. Everything the evaluator needs to make a decision is captured on the form, so the originator and evaluator don’t need to talk.
The problem is, some work doesn’t lend itself well to black-boxing. Many tasks require employees to pass along subjective information to colleagues working in other departments. And that kind of coordination becomes much more challenging when workers can’t walk over to the next cubicle and have a face-to-face conversation.
Easing Communication. Companies can focus on opening up the channels of communication by making it easier for workers to communicate via email and telephone. Some also invest in technologies such as videoconferencing and set bigger travel budgets so that offshore and onshore workers can meet frequently. But communication using videoconferencing isn’t effective in discussing complex work, and it can be difficult to coordinate when employees work in different time zones. Frequent international travel, meanwhile, is expensive.
For Further Reading
See these related articles from MIT Sloan Management Review.
- Proven Practices for Effectively Offshoring IT Work
By Joseph W. Rottman and Mary C. Lacity (Spring 2006)
It takes a tremendous amount of detailed management on both the client and supplier sides to realize the expected benefits of offshore outsourcing of IT work. Here are 15 best practices that can accelerate learning and make the strategy eminently worthwhile.
- Taking the Measure of Outsourcing Providers
By David Feeny, Mary Lacity and Leslie P. Willcocks (Spring 2005)
Successful outsourcing of back-office business functions requires knowing not only your company’s needs but also the 12 core capabilities that are key criteria for screening suppliers.
- The Practice of Global Product Development
By Steven D. Eppinger and Anil R. Chitkara (Summer 2006, updated online in 2009)
Many manufacturers have established product development activities in different countries around the world. Yet their senior managers often struggle to tie those decentralized organizations into a cohesive, unified operation that can efficiently drive growth and innovation. New empirical frameworks may help unlock practices with which managers can deploy well-coordinated global product development strategies.
Common Ground. Another option, then, is to focus on building common ground—essentially, shared knowledge—across locations, so that employees working offshore can anticipate the actions and decisions of their onshore counterparts without the need for extensive discussion.
How does common ground work in practice? Say programmers in India and London are working on different pieces of the same project. Typically, one group would have to wait for the other group to complete its work, then discuss what was done before being able to start its part of the project. But if those workers can anticipate, based on their shared knowledge, what decisions the other group is going to make, both teams can work simultaneously on their respective pieces.
Still, common ground isn’t something that can be built overnight.
Some companies try to create common ground by embracing technologies that enable people to see work across locations as it is being performed. Other companies staff projects with people who have worked together before or have been trained in a similar manner. Employees with similar experiences can better anticipate the decisions their colleagues are going to make and base their actions accordingly.
Still other companies make offshore and onshore workers adopt the same business vocabulary. Many terms have technical meanings within companies that don’t make sense to anyone on the outside—an acronym for an internal project, for example. Communication becomes vastly easier if everyone is able to understand each other in conversation and emails without having to ask for clarification.
As the practice of offshoring evolves, we expect the issue of long-term coordination to gain prominence relative to the current emphasis on simple, standardized work. We believe companies seeking to gain significant advantage from offshoring will more often ask the question: “How effectively can this business process be coordinated with other work,” rather than, “How easily can offshore employees be taught to do this job?”
— Dr. Srikanth is an assistant professor of strategy at the Indian School of Business in Hyderabad, India, and an affiliate with the Strategic Organization Design Unit at the University of Southern Denmark in Odense, Denmark. Dr. Puranam is a professor of strategic and international management and co-director of the Aditya Birla India Centre at the London Business School in London. They can be reached at reports @wsj.com .