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Steve Clemons
CEO
GDES

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

Off-shore outsourcing has been the focus of heated debate since its inception. What makes this a director-level concern?

Just as top line strategies evolve over time, so are strategies involving off-shore outsourcing. Companies should have a thorough understanding of current options available before entering into traditional outsource relationships.

Current state of the art relationships are designed to provide cost reduction benefits while minimizing the quality risks associated with loss of direct control over operations as well as providing the same flexibility for addressing changing business needs as in-house teams.

The board of directors should know what questions to ask management regarding outsource relationships, what risks to avoid, and what success factors to track.

Who will actually control the quality and productivity of work?

Direct operational control over execution of work has traditionally been in the domain of outsource suppliers. Typically there is contract language providing commercial/financial remedies such as liquidated damages should productivity or quality targets not be met. However, this is of little comfort to a company if your customer’s satisfaction has been impacted.

How much confidence do you have in your leadership and processes? Properly executed, the relationship with your off-shore partner will facilitate access to global cost structures while leveraging your leadership and process competencies to ensure cost, productivity and quality targets are met with minimum risk.

This is accomplished with a limited level of on-site management as well as real time full transparency of operational results.

How flexible are their business practices for managing change?

Relationships with outsource suppliers is traditionally Service Level Agreement based with pricing tied to completion of very specific processes and outcomes. Typically, any new or modification of processes requires the establishment of associated SLAs and commercial negotiation to determine new or adjusted pricing prior to implementing changes and achieving desired benefits. Can you predict there will be no need to add or change processes over the life of the relationship?

The relationship with your off-shore partner should facilitate the addition, removal, or modification of work content performed by your off-shore team with the same ease of implementation as you would with your in house resources. Properly executed, the relationship with your partner will facilitate change management without renegotiation and allow you to enjoy 100% of any savings achieved via process reengineering.

What advantages can be gained, beyond the obvious cost benefits?

Most people associate business process outsourcing primarily with labor arbitrage, the cost advantage of locating work where labor costs are relatively low.

In many cases, a company also gains the financial advantage of getting assets off their books because the facilities and technology for process execution residing with the partner. These advantages can be substantial and are often irresistible.

What is your long term strategy for your relationship with an off-shore partner?

Over time, it is typical that you will lose the ability to execute work content independently that has been off-shored. What position will an outsource vendor take during contract extension negotiations? Will you have predetermined price adjustment formulas for contract extensions protecting you from vendor negotiation strategies which include your risk and cost of repatriating or moving work from one supplier to another?

Properly executed, the relationship with your partner should include price adjustment formulas based on the general cost of doing business in the off-shore country. This results in your risk of future price increases being the same as would be for managing your own off-shore team and is designed to promote a long term predictable relationship.

How often may you visit their facility and what restrictions will there be for access to the team executing your work?

Often traditional outsource suppliers will tell you site visits are not required as they will report operational results in scheduled review meetings. Is that how you ran the business before you turned it over to a third party?

Your leadership should have unrestricted access to your off-shore team. They will have real time visibility to process execution that is on target as well as that which may be in need of intervention in order to preempt an impact on results.

What processes should you off-shore?

Conventional wisdom would have companies use outsource suppliers for only “non core” or support processes such as information systems development and maintenance. Following this thought process may result in lost opportunities. Processes associated with your basic products and services can safely and confidently be considered as excellent candidates for off-shoring with a properly designed relationship strategy.

Your sourcing strategy can reflect your needs for performance, flexibility, focus, innovation and revenue generation, as well as cost containment.

And this can result in improved financial results, greater hands-on accountability, and smooth operations that stand the tests of the marketplace as well as those applied by shareholders and activists exploring your business processes and outcomes.

Steve Clemons is an accomplished executive leader with over 30 years experience in leadership roles with AT&T and Nortel. In addition he served on the leadership cabinets of two Indian based companies, Sasken and Aster, prior to joining GDES as CEO. He has extensive experience living and working internationally in North American and Asia Pacific markets leading multi-cultural organizations.

GDES is a division of India based Aster, one of India's largest engineering services companies. Aster is a privately held, 3,500+ employee company with annual revenues exceeding $200 million and more than 45 offices throughout India. Aster is one of India's largest engineering services companies providing telecommunications, optical, cable network, railway signaling systems and infrastructure. GDES has developed Global Workforce Solutions™, an evolutionary business model allowing companies to globalize their workforce.