Managing Quality in Outsourcing Engagements

Most of us are quick to make up our mind on how we feel about the quality of a product or service. But what exactly are the standards that we measure the quality against? In order to make an intelligent and unbiased assessment of any product’s quality, we need to first lay down the broad parameters used to define and measure its merits. Quality can be achieved in outsourcing engagements by creating and following policies and procedures that ensure that the project meets the intended goals. In this post I would like to share with you some of the processes that we have put in place to help us deliver quality solutions to our customers. Our outsourcing quality management methodology comprises of three iterative stages:

• Plan


• Monitor


• Implement

Plan

The first step towards delivery quality services is defining the standards and benchmarks that need to be met in the end product at the start of the engagement. This helps set realistic expectations with the client based on the time and cost constraints. The project management team can then plan the execution roadmap based on well-defined standards that need to be achieved. It’s important to follow procedures to manage change requests since any diversions from the plan create breakdowns in product quality. We have adopted ISO and CMMI standards to help put structure in our processes and ensure that the entire team follows a common framework when building products and creating solutions. Our project management teams follow Agile processes to give us the flexibility to meet changing requirements while still managing quality.

We conduct a quality-planning workshop at the start of every project. The outcome of this session is a checklist that the team needs to follow strictly through the course of the engagement. For example, to make sure that a release is rolled out without glitches, the team should follow a standard deployment checklist that outlines each activity such as database backup schedule, firewall settings and user management. We also create a Quality Baseline against which the quality audit team can measure the performance of an engagement.

Monitor

We have created an internal Quality Audit team whose job is to constantly review engagements to make sure that every team is complying with internal as well as external policies and standards. The audits occur in a timely manner to create consciousness to follow standards. Over time it becomes part of an organizations culture. The audit team comes up with a list of recommended changes and corrective actions needed to improve the delivery. We share the findings from our internal audits with clients to create transparency and discuss our performance on various metrics such as on-time delivery and product defects.

Implement

When problems are identified, we implement changes in our implementation methodology, project plan and resource allocation. Our project managers ensure that the quality plan is being correctly executed; appropriate fixes are being implemented wherever there are gaps; and all deficiencies are being corrected.

Conclusion

Ignoring quality standards creates risks in outsourcing engagements and ultimately results in poor delivery. A conscious effort to adopt best practices in quality management improves customer satisfaction.

Tags: Outsourcing, Project Management, QA, Testing

Outsourcing: Opportunities & Challenges

Companies around the world have derived significant operational efficiencies and profitability due to the global labor force and the flattening of the world. Outsourcing is about sourcing talent from where it is best available, without being constrained by national boundaries.

Outsourcing has allowed companies to break down service and manufacturing activities into components, with each task performed in the most efficient, cost-effective way. Several companies have mastered the art of orchestrating a global network of vendors to deliver high-quality products to its customers. In manufacturing, there are several examples such as Li & Fung, a company that specializes in global sourcing, that orchestrate a worldwide network of vendors to deliver high quality products to their customers. A product may be assembled in Texas, with components coming in from China, Japan and India.

The services business is new at this compared to manufacturing and is learning to modularize business processes. Unlike manufacturing, IT and Business Process Outsourcing involves information and interaction with people which makes it more personal and challenging.

Outsourcing Realities

Your odds of succeeding are about 50/50. With Information Technology sourcing, it’s worse. Of all IT deals, a staggering 80% don’t achieve desired results according to a study by Gartner. The reason behind this shocking failure rate is that sourcing is far from strategic. Companies jump into outsourcing without the experience and planning. They draft contracts with short-term goals.

However, if you do it right you will create a unique competitive advantage due to the signification cost savings and efficiency gains by outsourcing certain processes.

The typical sourcing lifecycle consists of four phases:

• Outsourcing Strategy


• Vendor Evaluation & Selection


• Contract Negotiation


• Engagement Management

The problem is that many companies focus excessively on the vendor selection process and getting the contract in place. They go into it without any strategy and don’t have a plan to manage the outsourcing relationship from an operations and tactical standpoint.

Start with Engagement Management

It’s important to get the operations and your plan right.

• What are your expectations and goals for the project?


• Define key metrics to measure success and ROI


• Identify and allocate the resources with the required skills and experience from your team who will be assigned to the initiative.


• Create a steering committee that will be responsible to take key decisions.


• Identify a process to correct problems (you will run into issues!)

If you are exploring outsourcing, you must answer a fundamental question: What precisely do you expect to get out of it? You have to be clear on what you are trying to solve and how you will manage the process before you jump to outsourcing as a solution to save cost.

Outsourcing Strategy

• Create a business case


• Identify capabilities that your company wants


• Define the precise business problem that needs to be solved


• Identify the right mix between internal and external resources


• Be aware of risks and ways to avoid common pitfalls


• Create achievable and realistic metrics for measuring success


• Make sure the strategy is based on long-term benefits and vision

Cost savings are useful for all companies. However, lower costs alone are not the true measure of success. You should use outsourcing to change a process or function in a fundamental way. Think more aggressively about what to outsource. Focus on the work, not where it is done or who does it. A well though out outsourcing roadmap will lead to better decisions. The right strategy can deliver tangible, measurable and predictable value that does more than reduce costs - it increases shareholder value. Most importantly, create a strategy with long terms goals in mind. Short-term benefits such as cost savings alone will result in a poorly thought out plan.

Good Advice - Talk to People

Get someone on your side who has been involved in outsourcing deals. The right advisor will know the price for the work and help you with the vendor selection process using a tried and tested methodology. This person can help you identify the right questions to ask and avoid common pitfalls. The advice should of course be independent and impartial. Good counsel can help you select the right outsourcing partner.

Explore – Meet Multiple Vendors

You should shop around when selecting your outsourcing partner. Competition is good. You will save money and get a contract that works in your favor. Negotiations and evaluations help you get clarity. Stay away from providers that promise to do everything under the sun. I feel that RFPs are a waste of time. Try to evaluate the vendor on qualifications, references and if you feel you will be able to trust them and build a relationship. Look out for how flexible the vendor is because things are never constant and you will need a partner that is open to change and quick to change direction if required.

Cost – The Right Price

Don’t automatically assume that the cheapest deal is the best one. Outsourcing deals are almost always pitched on the basis of cost savings. Clients tend to underestimate the ongoing cost of managing the relationship. Look for business benefits and new capabilities, not just cost shedding. Vendor expertise, collaboration, flexibility, trust, understanding and culture are more critical for success than a low price. Work to create relationships with trusted providers who understand your industry and put mutual interest before self-interest. You vendor relationship is an ongoing partnership and thus you have to ensure that both sides win over time. You deserve excellent service at a reasonable cost. At the same time vendors should make a profit and enjoy an open relationship with the client. While it is easy to find vendors that promise cost savings, it is much harder to find partners who can deliver on their promises. If the provider isn’t making money on your deal, service level will suffer as time goes by.

The Engagement

Describe the essentials of the deal in clear language and great detail. Outline all the functions that the Outsourcing Partner is expected to perform including roles and responsibilities. There is always a cost attached for extras. Build flexibility in the Statement of Work. Service Level Agreement (SLA) should be well structured.

Culture & Communication

Focus on “soft” skills such as communication so that you can motivate and coordinate team members from vastly different cultures. Teams from different cultures have different strengths and working methods, which must be matched to their assigned tasks. Formal requirements are no substitute for frequent communication, which is critical for resolving unanticipated problems.

It’s important to create an infrastructure - a set of tools and standards for sharing data - that allows dispersed teams to work together seamlessly. Failure to do so puts a project at risk. In 2006, Airbus revealed that its flagship A380 aircraft would be delayed two years, at a cost of billions of dollars, because partners’ use of different versions of design software resulted in 300 miles of wiring and 40,000 connectors that did not fit together. A company’s success is increasingly tied to its ability to orchestrate and integrate the efforts of hundreds of global partners.

People & Leadership

People are key to outsourcing success. Build a seamless team with multiple touch points and the right people. Get management involved. Assign the right people from your team to the project. Determine the roles people will need to play to make the relationship work. Identify the required competencies. Find an executive sponsor with vision and a solid general manager to take charge. Outsourcing provides an opportunity to do more - to hire ever-greater numbers of people with high levels of expertise in an ever-widening range of disciplines.

Alignment

Once your deal is signed, the work has just begun. Sourcing partnerships can quickly go out of alignment due to miscommunications and lack of clear understanding of expectations. Put a mechanism in place to monitor and correct problems. Are expectations realistic?

Measure Performance

Benchmark key metrics before you start outsourcing to give you a baseline. Measure performance on a regular basis. Reward partners for exceeding expectations. It’s not a numbers game. Benchmark performance constantly and maintain open and frank communication with your provider. Treat them as a Partner and not a Vendor.

Outsourcing & Innovation

Focus on core business activities. Use innovation to move up the value chain. Changing skill levels to stay competitive. When companies free their employees from the mundane transactional work, they can actually spend more time servicing the customers.

Use innovation to move up the value chain, and create new products and services which your competitors have not been able to do. Use outsourcing to result in higher productivity or higher revenue per person. Your employees need to be trained and equipped to manage changing demands of today’s global environment. The existing skill levels of the labor force must be improved to stay competitive.

Companies can’t afford to stick to the old approach of trying to do everything on their own, not with the pace of change in technology, and the competitive market. Thus, the biggest benefit of Outsourcing is that it enables companies to focus more attention on core business activities.

Tags: Collaboration, Outsourcing, Outsourcing Strategy, Sourcing, Vendor Evaluation

Looking ahead at 2010

2009 was a year when the world went through a severe financial crisis. We had to renegotiate contracts and identify creative ways to become leaner and more agile. However, we made a conscious decision to build our practice and delivery capabilities. We hired some very talented people in our product development and process teams. We stepped up and worked harder. We thought out of the box to help our clients improve productivity at even lower costs. As a result, our top line numbers have doubled compared to last year and our team has grown significantly. We added several leading startups in the Advertising Network, Travel & Hospitality, Education, Logistics and Consumer Internet verticals to our client portfolio. In March 2010 we will be moving to our new state-of-the art office facility which will have a capacity to seat 900 people. The improved infrastructure is part of our strategy to provide the right environment, tools and facilities to our people.



Outsourcing has allowed our clients to break down processes into small segments, with each activity performed in the most efficient, cost-effective way. We have seen an openness and increased awareness among startups in the East Cost (New York, Boston) and Silicon Valley to leverage the global labor pool and talent independent of location. The startup activity coming out of Europe, especially UK is also promising and we hope to work with more companies from that region this year.

The improvement in broadband, VoIP and web-based collaboration & project management tools over the last decade has made it much easier to work with distributed teams. The startups that we are working with are realizing significant cost savings and improved efficiencies by outsourcing product development and back-end data & content services. Clients that have their own engineering teams see value in getting non-customer facing applications such as CRM, Dashboard and Supply Chain applications developed by our team. It allows their internal teams to focus on the core products. Similarly, our data entry and research teams are helping scale up the content creation and data collection effort that Consumer Internet companies for instance have to deal with to build their databases, moderate content and tag information.

As we have grown, we have maintained our focus on providing personalized service and attention to details. Our management team continues to be closely involved with our clients and it’s our priority to be able to react to customer needs quickly.

The energy and pace of innovation in the startup world is as exciting as we have seen in the last five years. We are looking forward to being a part of new success stories in 2010 when some of our clients will get acquired, others will hit new milestones and some may even go public as the market opens up!

Tags: 2010 vision, ArcGate, Outsourcing