Setting up Win-Win Collaborations in Outsourcing
The world wide transition to working from home under the pandemic of COVID-19 has shown that remote work, at least when it comes to knowledge intensive jobs, is not as inefficient as it has been portrayed in the past. If “where you sit” does not matter anymore, then why not employ the most knowledgable people you can get? We believe that one potential legacy of the pandemic could be a growing interest in setting up new outsourcing contracts and employing experts beyond borders. But, how can we do this effectively? We seek the answer to this question together with an expert on distributed work and outsourcing, professor Darja Smite from Blekinge Institute of Technology in Sweden.
Creating successful collaborations
In her research, prof. Smite has studied numerous offshoring and outsourcing collaborations set up by such companies as Ericsson, ABB, Spotify, Telenor and other smaller companies, and has insights from cooperations with offshore engineers from India, China, Korea, Poland, Croatia, Slovakia, Russia, Latvia and Ukraine. Her research clearly shows that some collaborations from the very beginning are set up to fail,
while others are set up to succeed: What distinguishes successful collaborations?
Prof. Smite explains: Outsourcing contracts of the past have been driven primarily by the client’s self-interest, resulting in a hierarchical power relationship between the client paying for the services and the contractor performing them. Internally, at the client’s side, such contracts are often presented as cost-saving initiatives and the main goal is often to get the job done cheaper. The obvious product of such setups is, however, an“us and them” attitude and a “thrown-over-the-wall requirements” implementation. I want to believe that these times are gone. My research into IT outsourcing clearly shows that successful collaborations are not based on “win-lose” power relationships but on “win-win” long-term partnerships instead, characterised by a high level of social integration of engineers and a “we are in this together” attitude.
Behaviours related to successful collaborations
Prof. Smite summarises the main differences of the two types of collaborations with a number of typical behaviours. Note that the behaviours in the table are extreme and in practice any relationship, even if not a partnership, might be a mixture with elements of both types.
|Behavior||“Win-lose” power relationship||“Win-win” long-term alliances or partnerships|
|Contract type||Resource-based or fixed price for an agreed scope of work. All deviations are negotiated, typically with additional payment.||Based on a service-level agreement for the forecasted scope of work, typically with a target price. Delivery exceeding expectations is often rewarded with economic bonuses.|
|Focus||Scope delivery, sometimes headcount||Service delivery|
|Requirements and scope||Specified by the client; “thrown-over-the-wall”; fixed||Specified together; flexible|
|Responsibility for deployment||Client’s personnel is responsible for deployment||Outsourcing partner is responsible for deployment|
|Responsibility for quality assurance||Unit tests are run by the outsourcing partner; systems integration tests and acceptance tests are performed by the client||Unit tests, system integration tests and acceptance tests are performed by the outsourcing partner (some might be repeated or performed jointly)|
|Responsibility for issue management||Issue management and the amount of work is negotiated in the contract||Outsourcing partner proactively investigates and resolves customer issues and participates in investigations carried by the client.|
|Responsibility for software improvements||Scope of necessary improvements is negotiated, typically for additional cost||Outsourcing partner identifies the needed improvements and maintains them in a backlog, which is negotiated and prioritized together with the client, typically within the service contract|
|Focus on outsourcing provider’s personnel||Focus on headcount and/or competences; onboarding performed by the service provider||Involved in selection of candidates; onboarding performed jointly|
|Communication||Vertical, limited.||Horizontal, extensive.|
|Personal relationships||“Us and them” attitude||“We are in this together” attitude|
|Sourcing project management||Micro-management style||Delegative management style|
What should companies do?
To learn how to set up win-win collaboration and better understand what social integration means, Smite suggests companies to reflect on the way they find, employ and onboard new hires internally. To select the best engineers, companies often go through rigorous recruitment processes, including multiple reviews, work tests and interview rounds, not to forget an evaluation of the “fit” of the candidate in the company culture. Once employed, newcomers are introduced to everyone, paying special attention to who the experts and the key go-to people are. They are given time to familiarise themselves with the processes, routines, and the organisational structure. New engineers often receive mentoring and support in the daily tasks in the first few weeks or even months. Last but not least, they are invited to social events to better integrate them into their team and the company. When the learning curve is mastered, extraordinary performers are rewarded and the company implements measures to keep the best people from leaving.
Engineers who are not affiliated with the company are rarely treated in the same way. Smite’s research shows that client companies often assume that all personnel matters are taken care of by the outsourcing supplier management. As a result, offshore developers are treated as resources, have limited access to the internal IT infrastructure, and excluded from yearly retreats, trainings and other career development activities. Even on-site consultants are rarely onboarded and socially integrated in the proper way, because they are seen as “temporary resources”. The lack of permanence permeates through all organisational levels – from the company management to middle managers and engineers on both sides and infects the relationship. This is why, the focus on long-term partnerships is so important, as it triggers a mind shift towards a committed win-win relationship worth investing time, resources and energy into.
What shall client companies do instead? Prof. Smite states that companies shall strive for a
high level of social integration especially when offshore and onshore engineers shall work closely together. In practice, this means equal treatment for own and contractor’s employees. In many successful collaborations studied by prof. Smite, offshore engineers explained that there is no difference between them and the other members who are affiliated with the client company. Accordingly, treating offshore personnel similar to on-site personnel can be a measure to ensure effective use of outsourcing contracts and the employment of experts beyond borders.
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This is the second blog post authored by Professor Smite, her first blog on “success factors in outsourcing to other countries” can be found here.