A Conversation with Sath Sathyanarayan: Seven things everyone engaged in offshore outsourcing must know

We all receive a lot of emails advertising white papers, and I wanted to call attention to a report from outsourcing guru Sath Sathyanarayan, whose firm Offshoring Success LLC helps companies create more effective and profitable relationships with service providers. The report, “Seven things everyone engaged in offshore outsourcing must know to address budget overruns and frustrations,” is clear, succinct, and full of great advice—not the usual marketing speak and vague recommendations. I reached out to Sath and he was willing to answer a few questions about the paper. Here’s a peek at the interview:

John Ragsdale: Outsourcing is one topic we don’t have internal expertise on at TSIA, so I’m always happy to talk to industry experts willing to share their expertise. Let me ask you a few questions about your latest white paper. Your opening point is that “low bidders” almost always become a high-cost solution. I’ve seen this over and over—companies making their first outsourcing decision always seem to focus on cost per call and go with the lowest bid, not considering quality. It rarely ends well—but is a good lesson for future partner relationships. Why do so many companies make a decision to cut costs at the expense of the customer experience? Is this one of those mistakes everyone has to make in order to learn?

Sath Sathyanarayan: It is hard to generalize why so many companies make the same mistake. In my working with a range of companies, I have found raising awareness is the key. Once my clients understand the full impact of their decision they are very willing to choose the “right” vendor on their first try rather than try, fail and choose again.

John: Another point you make in the report is “How excessive employee turnover creates cost overruns for you.” I just checked the data in our benchmark, and “owned” employee turnover is less than 15%, but turnover for outsourced offshore workers averages 22%, with some members reporting turnover rates as high as 60% per year. Could you talk about why turnover is so high with offshore workers? Is it just that the opportunities are so good they tend to jump ship for a better offer, or are companies not doing enough to make workers feel like a part of a team, creating unsatisfied workers?

Sath: “Own” operations have salary structures that are in general much higher compared to the salaries offered by vendors. Combined with this, it is easier to operate are “one organization”, because it is! Less issue of us vs them. When you outsource to a vendor often the attitude of HQ management is that turnover is “their” problem. However, companies who have been successful in keeping turnover lower take a different approach. While vendors have to implement, they work in partnership to understand reasons for turnover and do things within their purview to mitigate turnover.

John: Your report also talks about how to deal with low offshore productivity, and you give several approaches, including regular audits. One of our members who knows a lot about outsourcing, Tarik Mahmoud at Cisco, told me that having a frequent in-person presence at offshore centers is absolutely a requirement. Of course, that means he’s on the road most of the time, but he keeps everyone on their toes. It seems that many companies write a check to the outsourcer and feel their responsibility ends there. How often should companies visit offshore centers, and what level of company employee should make visits? Executives? Product experts? Support all stars? All of the above?

Sath: Writing a check and sitting back is a recipe for almost certain failure! Successful companies get involved. They treat the offshore service provider as a partner and they actively manage the relationship at all levels. From the executive sponsor to the hands on project manager.

  • Visits: All of the above. Executive level: Once a year. Hands on managers — Once a quarter. Needs to be adjusted depending on the stage of the relationship (launch vs ongoing)
  • Regular Audits: I am referring to a comprehensive look at the relationship in its entirety. Major issues to understand: Does the strategy and reasons still make sense? Do we need to change the business mission in light of current and future direction of the company? What operational issues are we experiencing — quality, deadlines, turnover etc? Do we have the right staff of managers offshore? Do both sides have or continue to have understanding of each others cultural issues and their impact? Do we have the right metrics in place? Do we have the right organization in place? Do we have the right management processes for visibility and control?
  • People and organizations continue to change. I recommend once a year audit to make sure that the offshore operation continues to stay on track.

John: The last section of the report discussion moving to a “outcome based” metrics approach with service providers. In my experience, tech companies struggle with how to define these metrics, how to approach the negotiation, etc. Could you talk a bit about outcome based metrics? For companies considering this approach, is this something you can help them with?

Sath: Traditional outsourcing models focus on input; for example man hours, person months, emails answered or number of calls processed. On the other hand outcome-based focuses on output i.e. reaching a business goal such as customer satisfaction, customer loyalty, support cost as a percentage of revenues etc. Outcome based approach can dramatically improve benefits from offshore outsourcing. But it is not for everyone. Moving to an outcome-based model requires that you establish a win-win model both for you and the vendor replete with both business and operational considerations. This is the reason many companies struggle with implementing this approach. Yes, we can definitely help companies to evaluate and implement outcome based approach in their operations. Your readers can also download a white paper I wrote “Outcome-based Offshore Outsourcing.”

John: Thanks so much for taking the time to speak with me. Great information!

Sath: Thanks for having me.

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