Getting Offshoring Right

In the past five years, a rising number of companies in North America and Europe have experimented with offshoring and outsourcing business processes, hoping to reduce costs and gain strategic advantage. But many businesses have had mixed results. According to several studies, half the organizations that have shifted processes offshore have failed to generate the expected financial benefits. What's more, many of them have faced employee resistance and consumer dissatisfaction. A three-part methodology can help companies reformulate their offshoring strategies. First, companies need to prioritize their processes according to two criteria: the value it creates for customers and the degree to which the company can capture some of that value. Companies will want to keep their core (highest priority) processes in-house and consider outsourcing their commodity (low-priority) processes. Second, businesses should analyze all the risks that accompany offshoring and look systematically at their critical and commodity processes in terms of operational risk (the risk that processes won't operate smoothly after being offshored) and structural risk (the risk that relationships with service providers may not work as expected). Finally, companies should determine possible locations for their offshore efforts, as well as the organizational forms--such as captive centers and joint ventures--that those efforts might take. They can do so by examining each process' operational and structural risks side by side. This article also describes a new organizational structure--the extended organization--in which companies specify the quality of services they want and work alongside providers to get that quality.

• Process analysis
• International business
• Joint ventures
• Competitive advantage
• Quality control
• Performance indicators
• Globalization
• Risk management
• Partnerships
• Fostering collaboration
• Supply chain management
• Scenario planning
• Outsourcing