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Once you have found the right offshore supplier it is essential to have a watertight contract. But it is just as important to develop a common cultural bond to ensure the relationship lasts the distance. Helen Beckett reports.
Picking an offshore supplier is not unlike choosing a spouse. For the partnership to pay dividends you have to be in it for the long haul, and so making the right choice at the outset is vital.
When partners come from different backgrounds it is even more important to do the groundwork; good communication and a sharing of values and ambitions are important in order to avoid disappointment later on.
Like many newlyweds, users in the first throes of offshore enthusiasm fail to practice due diligence, blinded by love or, in this instance, the prospect of big cost savings. Analyst firm Gartner predicts that by 2010, 75% of all failed IT service management contracts - onshore and offshore - will be attributable to cultural issues.
And while 75% of chief information officers are satisfied with their offshore contracts, according to recruitment company Harvey Nash, most admitted they should have spent more time ensuring that their service level agreements were foolproof.
Nick Davies, senior consultant at offshore broker Quantum Plus, believes that a basic compatibility, a willingness to work at the relationship and a "prenuptial" agreement all play a part in a successful offshore partnership. Of these elements, he rates the prenuptial - or sound legal contract - as the most important.
"You can mitigate a number of specific offshore risks. These include political instability, linguistic breakdown or even inflation risks," he says.
A key reason for breakdown is the lack of a sound legal agreement at the outset, especially when the user is new to offshoring, says Geoff Drake, consultant director at infrastructure consultancy The Infrassistance Company.
"A company will often accept the outsourcing supplier's contract with a few minor modifications, or rely overly on the advice of their financial director or an in-house lawyer. In-house lawyers are doing property law one day and then delving into the details of offshoring the next - but this is a very specialised and complex area" he says.
A common mistake in negotiating offshore contracts is failing to specify every single item that must be delivered.
"First-timers to offshoring are naive and think that because they are accustomed to working with SLAs it will be the same, but with people in an exotic location," says Drake. He recalls an application development deal that did not explicitly state that the software had to be tested and, crucially, had to work.
Poor linguistic skills are commonly cited as a problem in offshore contracts, particularly if the outsourced area is a support function that interfaces to the rest of the business. A decent contract would state that the supplier must have the necessary skills to be understood by customers in all situations, says Davies.
However, communication consists of many non-verbal cues that need to be understood to appreciate overall meaning, as John Culbert, managing director of independent software house, Assentic discovered.
"There is the Indian 'head wobble'. It can mean many different things according to the context, and who is speaking. A programmer may be saying, 'yes it is possible to do this', but meaning, 'there is a better way of doing it'," says Culbert.
Another big difference between Western culture and that of the Indian subcontinent that can heavily impact on IT delivery is a reluctance to challenge decisions. This is because the Indian culture is geared to pleasing the customer. Paul Moroney, European IT manager at Hitachi, discovered this when he undertook his first offshore contract.
"The offshore personnel would do exactly what they were asked, even if they knew there was a better way," he says.
Assuming that the legal groundwork is sound, and communications good, SLAs must also work to a new level to keep a long distance relationship together. Developing a common language around service delivery, rather than focusing on technical function, can make a big difference to a relationship, says Jim White, business technologist at Managed Objects.
"Using a framework such as a business services model provides one version of the truth," he says. The model describes IT outcomes in terms of availability of business applications rather than network uptime, for example.
Such transparency of reporting means the customer and the supplier share a common frame of reference and reduces the chances of misunderstanding. Otherwise, he says, "I often see parties who are in universal agreement - but still arguing."
Even if it does deliver benefits of cost savings plus satisfactory service levels, there is the danger of an offshore relationship simply going stale. Like all outsourcing agreements, it is subject to the syndrome of "the grass is always greener" where a user gets complacent, forgets about the long-term goals and nitpicks about the shortcomings.
According to Drake, 50% of outsourcing agreements that are put out to tender again do not have the incumbent's name on them. "And when they do get on to the list it is generally as some kind of yardstick to measure the other bidders against." Relationship breakdown is usually because of lack of delivery, a soured relationship or a combination of both, he says.
At Hitachi, Moroney has discovered that it is as important to nurture relationships with business colleagues sitting a few desks away, as the remote IT team in India. Managing expectations was a key way of warding off potential unrest, and he prepared his internal customers at the outset for the impact of offshoring. "We had to ensure that the impact, if not positive, was at least acceptable," he says.
Developing strategies to share culture as well as language is a key factor to a successful and long-lived offshoring relationship. Effective communication can help avoid cultural faux pas and misunderstandings, and ensure a long and happy marriage.
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