Effective Outsourcing 101.
Outsourcing is here to stay.
I started my career with a heavy dose of globalization. I come with a unique perspective, as I joined a large public company (Nielsen) right as they had struck a billion dollar, 10-year contract with TaTa Consulting Services (TCS) in India. They have since re-negotiated a 2.25 billion dollar renewal for ten more years.
Chennai, India - 2015
I also lived in India for close to six months building the infrastructure and processes to support their media ops running out of Chennai. I got to know the people, the culture and the nuances to a ‘lift and shift’ approach and am better for it today. I also learned to play a mean game of cricket.
Here is my informed opinion on all things outsourcing.
Direct Benefits:
Standard Operating Procedures (SOPs)
If you are a growing tech company, there’s a good chance you’ve faked it until you’ve made it (or almost made it). This means that a lot of knowledge lives in a limited number of people’s heads. Processes are duct taped and band-aided together and there is likely very inconsistent documentation.
I’d venture to say that 0% of tech companies are good at documentation. In fairness, there is a time and a place. When you’re focused on hyper growth, this feels like the least important thing. When you are focused on scale, an IPO or an exit, documentation is key.
This is where outsourcing comes in. Moving work to a reputable vendor (doesn’t have to be a big one) should always come with documentation. A vendor will not accept the work until they can document it and train their team. This is perhaps the biggest inherent benefit to moving work offshore, it forces the hand at a task nobody wants to do.
In selecting an outsourcing partner, the topic of documentation and knowledge transfer must be the first and last discussion point in the negotiation.
Recruitment
The most frustrating and time consuming part of managing people is hiring and onboarding them.
I have seen managers not take appropriate decisions on low performers because they hate the process of backfilling so much. This is not how you want to operate.
Nonetheless, outsourcing to the right agency allows you the freedom to not worry about sourcing, interviewing or training. This is a tremendous win for the bootstrapped entrepreneur.
Customer Experience
Yes, I said it. There is a historical stigma to outsourcing that I believe is lifting. Customer-facing contractors are paid to be reliable and consistent. For the ‘fly by the seed of your pants’ tech company that over-commits and under-delivers (let’s be honest, that’s all of us), this repeatability of process is actually a breath of fresh air.
English has become tablestakes in the outsourcing market place. Gone are the days of not being able to understand someone on the other end of the line. Companies have invested in intensive English training programs and it is not unique to find outsourced vendors with little to no accent. My hunch is that outsourcing has reached an inflection point where multiple generations are now raised for the profession and governments are supporting the industry as a means of economic growth.
Cost Leverage
The most obvious benefit is cost efficiency. When the outsourcing contract is built correctly (see below section), there is a direct correlation to growth in profit margin. However, I would recommend any company to outsource with the intention of gaining leverage from SOPs, recruitment/HR, or Customer experience as a primary goal with the cost benefit being secondary. This mindset will allow you to maximize value with your partner vs. think of them only as a cost center.
What Works:
Transactional Payment Models
Do not (I repeat, do not) accept a time-based (per hour) payment model. This is the antithesis of productivity and will have you chasing ever-elusive time metrics constantly. If you have the term ‘idle time’ in any of your vendor conversations, you are probably not outsourcing appropriately.
Instead, create a payment model that is outcome-based and transaction dependent (e.g. cost per data point validated/annotated, spreadsheet created, etc.).
This keeps your partner focused on the task at hand and ensures they implement their own measurement of productivity to do more, faster.
This also enables a repeatable cost model (X unit of work in = Y unit of pay out). This helps with financial planning and cost forecasting.
Quality Metrics
Directly supplementing the transaction-based approach is a contractual term around quality of service. These must be clearly outlined and determined in the SOW. ‘Quality’ can be defined in whatever terms make sense.
In absence of a strong quality metric, you will run the risk of the vendor prioritizing speed over everything, which in terms brings them more revenue, but possibly the Client less quality.
Strong Focal Leadership
Make sure that your stateside team has a dedicated point of contact for the vendor, and that the vendor has a dedicated POC for your team.
Each side needs a high performing leader (with dedicated Objectives/Key Results) around the success of the outsourced process.
I have seen it go both ways - where one (or both) sides have a weak or loosely defined manager and commitments can easily fall by the waist side. I have also seen strong managers elevate the entire process and team almost instantaneously, allowing both sides to achieve maximum value from the partnership.
Neither team should be interacting with everyone on the other side. There should be a clear, focal point of contact and escalation paths to achieve optimal results. Make sure any vendor your work with has one.
Diversified Agencies
Don’t put all your eggs into one basket. Over the last two years alone, we have had the following occurences take our vendor offline: natural disaster (typhoon), COVID pandemic/government lock-down and a terrorist attack (very sad, but true). Of course, there are also standard times off due to religious holidays and other cultural celebrations. There are also IT-related issues in nearly every country that are inevitable.
Our ability to pivot across different regional vendors has allowed for service to maintain continuity for the most part. I would recommend at least 2-3 providers cross-trained across 2-3 regional continents. It may feel unnecessary (until it isn’t).
It also allows for healthy competition on prices, quality and service levels. This keeps performance up and productivity high.
Red Flags:
Infrastructure for Scale
Before any outsourcing agreement, think at least 2 years ahead. Will the provider be able to scale with the growth of your company?
Ask the tough questions about physical seating capacity, internet bandwith, hardware procurement, etc.
Focus on their speed to hire and put a butt in the seat. Will they truly be able to grow with you (and quickly enough) and do so reliably?
Team Leadership
I have unfortunately been the victim of a very poorly run, unethical agency in our earlier days of a start up. I will spare the agency name. What started as a ‘sourced contractor’ approach, turned quickly into a full-time operation.
The agency leaders promised recruiting and training and in turn took a % of each contractor’s payment that was hired on. Aside from their overall inability to effectively manage a 300+ person team at scale (it grew from about 10), I also learned about their unethical payment behavior from disgruntled contractors.
We obviously ceased operations, but it left an endless pit in my stomach about the people who’s lives had been impacted by me selecting the wrong model with the wrong people.
Vet this component hard in the early contract stages! It is like anything, good managers bring good people. Bad managers become your biggest headache.
Cost Model
Pressure test the cost model. If the model does not hold up against many situations, you can find yourself quickly in hot water.
As example, we had negotiated a transaction-based payment model with a vendor for data annotation. We knew we had an extremely large, complex Client deal in pipeline that would turn this cost model upside down if it sold. We built a clause into our initial contract for a re-negotiation if and when this deal closed (which it did). This allowed us to keep leverage and not fall victim to a highly inefficient delivery model.
If the vendor is negotiating in poor faith, they may look to catch their partner in a trap like this. Make sure the proper ‘out’ clauses and re-negotiation terms are detailed based on expectations for your future company growth.
My experiences are within the following geographies. Each comes with its pros and cons, but in general, have been overall quite positive (and different). The below are my observations and are highly generalized (and only meant to be used as watchouts when exploring partner agreements). This is my experience and only mine!
India
Highly hierarchical (male-dominated) society. Had no problem breaking through with team as they viewed me as a position of ‘power’ (for right or wrong). I noticed the culture starting to make strides towards more female inclusion (yes!).
Highly motivated and technical. Specialized in excel-based automation, VBA/macros and IT/infrastructure. Engineering/IT degrees everywhere.
Title-driven. In the event that you ever bring an outsourced member on full-time (as a paid company employee), you will need to have commensurate title to make them feel valued. Watch for the change in interactions with their former colleagues (it is notable). This goes back to the comments about hierarchy.
Beautiful people, in general. Highly compassionate, aim to please, strong focus on friendship and camaraderie. Some of my best professional experiences came from working with my team in India. To this day, I keep up with several colleagues there.
Watch out for over-commitment. They do not like to say ‘no,’ which in turn can lead to under-delivery. I found an effective method to be asking for them to explain what they just heard (I asked), committed to, and will deliver. I then had them write it down via email and send my way to ensure we were on the same page. We frequently were not.
Don’t be alarmed when you see two Indian colleagues walking down the street to get coffee, holding hands. It’s part of the culture.
Diwali is as big of a holiday as you’ll get. This is a highly coveted, religious celebration. It is not unique to see nearly the entire office out of pocket during this time. Plan contingencies for this period.
Philippines
Exceptional customer service skills. Many of our best Customer trainers today are from the Philippines.
English is exceptional (sometimes a notable dialect, but very fluent for the most part). This is their primary language.
One of the few Asian countries which has a healthy mix of both South-East Asian and Western influences. A lot of it has to do with the fact that Philippines was a former colony for Spain, Mexico, and the US at various points in its history. Therefore, the people of Philippines have grown up with Western media and have a lot of similarities within their culture.
Have had a lot of luck finding contractors on platforms like Upwork for short-term projects (even personal productivity projects). Because language barrier is less than I have experienced in other regions, onboarding and training has been easy. (Note - don’t build a team on Upwork, it doesn’t scale. Look for individual talent only).
Minimum wage is significantly cheaper than US, between $6.38 to $9.61 USD, depending on province.
Highly flexible shifts. Many of our colleagues today work US hours (and you would never know it).
Sri Lanka
This one was the toughest for me to master. There is a unique blend of Indian culture, which made it quite appealing given my experiences, but also has very different cultural traits.
Most of my experience has been with front line operations manager(s), which shields me a bit from the true cultural tone and day to day interactions of the team.
Internet speed has been an issue at times and led to some system downtime. This became more prevalent as we hired remote people (not within office infrastructure).
Costs are quite competitive and perhaps the lowest of any of the regions I have worked with.
Sri Lankans are friendly, highly productive and adapt very fast to different cultures and environments. Literacy and education is high.
Our (extremely global) company services all well over 50 countries out of Sri Lanka, which proves the point about adaptability and multi-culturalism.
In summary, don’t run from outsourcing! It is a major differentiator when done right. The more I’ve embraced it, the more I’ve come to love it. It is a unique, multi-faceted experience that allows me to constantly maintain cultural awareness and empathy while also driving extreme operational efficiency.
