Outsourcing corporate functions is an essential process in the business world
But if done wrong, things can get messy. Luckily, Alexey Nikolayev, VP Corporate Clients of NIX Solutions—our R&D partner that has been in the technology industry for over 20 years—has shared with us the do’s and dont’s of outsourcing.
Even before engaging with outsourcing, it is essential to identify potential internal knots of resistance.
VP Corporate Clients at NIX Solutions
Based in Kharkiv, NIX Solutions is a sizeable IT service company specializing in web development, mobile applications and online marketing with integral quality assurance, IT consulting and support services. Vice president Alexey Nikolayev shares his views on the reasons why outsourcing projects may fail and how to address the issues related to this outcome from both the customer’s and the service provider’s sides.
– Many outsourcing projects fail or succeed only partially. What are the reasons for these failures from your point of view?
It’s pretty easy to do the postmortems. Among the typical reasons, one of the most commonly named is “We engaged with the wrong vendor.” At first glance this issue looks clear, but surprisingly it has more than two sides. A “wrong vendor” may be just a weak firm, with insufficient technical skills or experience. Or on the contrary, it may be a strong firm that was overwhelmed with other work – so when they got engaged in your project, the staff had simply bitten off more than they could chew. Finally, the “wrong vendor” could be a solid company with the proper technical background and the right capacity – but just not the right fit for your project.
– So how should customers choose vendors?
On the one side there are well‐known vendor screening procedures, industry associations, online directories, industry reports, feedbacks, etc. There are also consultancies that can provide end‐to-end procurement service. Still, projects keep failing because the vendor wasn’t the right one. There are plenty of tricks to select a good provider, but I would like to emphasize just one thing: a provider’s ability to deliver is not directly connected to their size, global presence or certificates. I’ll say more – it doesn’t correlate with the years of experience displayed in their team’s CVs, either. The key thing, in my view, is to deal with vendors for whom your project is important.
– Are the causes for success or failure only from the vendor’s side?
No, of course not. Other issues, including some that are often overlooked, can come into play as well. These usually reside in the customer’s organization itself. For medium and large organizations, the typical case is “destructive resistance” from mid‐level management or linear employees. This happens for different reasons: some people have settled into a stable state and hate to hear the new buzz that comes with the changes; others fear losing their positions; and so on.
So before engaging with outsourcing, it is extremely important to identify potential knots of resistance and understand the key drivers. Having addressed this potential issue, it becomes easier to gain support from the team, which significantly increases the chances of the outsourcing mission. For startups, an internal reason for failure might be the lack of involvement from the project champion, or lack of process maturity. If you are a startup and have engaged an offshore team, make sure you have a consistent project vision and are able to streamline the requirements, at least on the higher levels. If the vendor is strong enough, they will manage the project; but they do need to know the direction you are heading in – and will need timely inputs from your side if there are changes in priorities.
Another potential issue from the client side is that they may be reluctant to share the business background, i.e. they provide the specifications and technical details but don’t bother to explain the sense of the project. In such cases the vendor has to navigate while seeing only part of the picture. This tends to increase misunderstandings and limit the vendor’s ability to come up with recommendations for process and project improvements.
– How should vendors build relationships with clients to address these issues?
We realize that the main fear people have when they go offshore or nearshore is being deceived in their expectations. So we keep the process transparent from the very beginning. This means no sales tricks or mechanical responses, but rather a fair partnership with complete integrity, crystal-clear communication and pro-active thinking beyond the formal requirements. The right vendor should dive into the problem and treat the task as if it was their own baby! Trust is a key aspect. In some cases, good reputation and word-of-mouth can create favorable conditions. For example, an initial positive impression was created when we were introduced to a major client by an independent IT consultant whom the client regarded with great respect. But in most cases trust does not emerge immediately; hard work is required to make this happen. We seek to achieve a level of partnership where the customer feels free to share their “pains and hopes” – what their business suffers from and what success picture they imagine. We aim to become part of the customer’s team, thinking together and improving the business together.
– What are the keys for successful overseas outsourcing?
Proper communication at all levels is paramount. Many project teams today are decentralized across different locations, time zones and cultural settings. It’s very important to provide each other with reliable information on progress, priorities, challenges and solutions – and to maintain a clear understanding of the strategy. Fortunately, there are very minor cultural differences between IT people in Ukraine and the US and Western Europe. We put significant effort into perfecting communication skills among our teams to ensure clear, consistent and professional practices. We encourage our team members to share their opinions and have open discussions of the project in front of others, to speak up and challenge things that they don’t agree with. At the management level, we make sure there is constant communication with the customer’s management to obtain feedback, learn expectations and identify any room for improvement on either side. Another success factor would be proper technical expertise and understanding of the customer’s business. Yet perhaps even more important is the ability to seamlessly integrate the on-site and offshore teams. I am not talking about technical means (once these have been established), but about process, work ethic and true involvement. Last but not least, methodology can be highly productive only when motivation is in place. This is our forte – and probably one of our “secret ingredients.”
Many vendors provide on‐site representatives to provide better coordination, which is quite costly for the clients. Is this a good idea?
This is indeed recommended, but not all the time. In the inception phase, our business analysts, project managers and development managers work on-site with the customer’s team and stakeholders to grasp the initial scope and priorities and provide fast turnaround in project planning and staffing. But in later phases we usually continue off-site. We come on-site again for milestone acceptance, further release planning and to improve teams’ cohesion. That said, working only via on‐site representatives might be a symptom of significant gaps in culture, processes and communication between the vendor and the customer.