A growing number of organizations have discovered the benefits of sourcing the development of their learning content with foreign providers, known as “offshoring.” But to fully optimize those relationships, companies must adopt a business strategy that is compatible with their needs and goals. By following the basic principles below, you can help achieve the most from your offshoring assignments.
As U.S. training organizations expand their use of Internet-based learning technologies, so too are they partnering increasingly with offshore developers of eLearning content for projects both large and small. Industry sources estimate that 66% of large companies outsource at least some of their content development, a figure that has soared by almost 20% within three years.
The benefits of doing so are persuasive: Contracting work to skilled providers in India, Malaysia, the Philippines, Indonesia and other countries can result in substantial reductions in the cost of content development, improved quality with access to better skills, increased speed and capacity, and expanded global reach.
Yet research indicates that companies don’t always achieve or maximize the benefits they seek, especially cost-savings. Why? Odds are they have not adopted a sourcing model that is most optimally suited for their particular content development needs.
Training Industry, Inc. has identified the best practices employed by organizations when offshoring their learning content development. We surveyed training executives of seven corporate clients of offshore service providers about their offshore training practices. In addition, we interviewed top executives with several world class suppliers to determine what works and what does not work in today’s offshoring market. We also scoured our own database for data about offshoring and outsourcing knowledge processes.
We determined that there is only a handful of business models available to customers of offshoring services. But the selection of the model to employ can greatly impact the ultimate cost-savings and service quality achieved.
Two Offshoring Models
A close examination of the burgeoning marketplace for offshore content development reveals that many customers are not realizing the cost-saving potential of their offshoring relationships. They are often burdened by inefficient operations, such as paying for on-site project managers who are either unnecessary for the size of their jobs, or are being utilized incorrectly. For example, they might be allocating more internal resources than are warranted for the job at hand, or are taking on excessive risk in an effort to save money.
We have concluded based on the interviews that there is a “tradeoff” between the complexity of the offshoring project and the proximity of the project management (PM) team employed. There is actually an optimal zone in which one pays only for the amount of PM that the project deserves – and no more.
To help companies navigate the often complex world of offshoring their learning content, Training Industry, Inc. has created several business models for training organizations to follow. Which to select can be determined by the size and complexity of the proposed engagement. We’ll begin by discussing the two offshoring models employed today – direct and indirect.
Direct Offshoring. In this situation, the client deals directly with a foreign training service provider that possesses all necessary resources in-house to serve the customer’s needs. This is what most people consider to be “traditional” offshoring.
Indirect Offshoring. In this model, the customer deals exclusively with an onshore training services provider typically engaged to perform a variety of strategic or transactional training related functions. In turn, that provider might choose at its discretion to engage an offshore partner for content development among other services. In this situation, the client is neither involved with nor concerned about the training partner’s offshoring decision.
There is another variable that impacts the optimization of either offshoring model: the proximity of the PM individual or team employed to oversee the content development services. As the diagram below illustrates, the PM function can be located in several places.
In a direct engagement, it can be located onsite at the customer’s office, outsourced to an onshore PM engaged to manage the relationship, or located at the offshorefacility of the training services provider. In an indirect engagement, the PM can be located onshore as part of the training service provider’s internal staff; outsourced to a separate offshore PM provider; or at the offshore facility of the overseas partner.
The placement of the PM function in any of these locations will influence the offshoring engagement in two principal ways. It will impact the client’s ability to oversee the offshore partner as well as affect the overall price paid by the client for the development of its training content. In general, the most expensive PM is the salaried employee or team located onsite; the second most expensive is the separately outsourced individual or team (who is not being paid benefits by the client); the least expensive is the PM employed by the offshore provider at a lower salary.
Obviously, certain client companies are unconcerned about these cost differences. They are willing to pay more to have internal staff located conveniently on site, and thus enjoy the perceived lower risk of failures and miscommunications that can occur with any offshore provider. There is absolutely nothing wrong with that. But it’s not optimal.
How to Optimize Your Offshoring Relationship
Based on the findings of our interviews and research, Training Industry, Inc. has created the following maxim: The cost associated with project management and the client’s ability to effectively oversee an offshore project are increased with the proximity of the PM to the client. Conversely, the cost of project management and the customer’s control over the project decrease in an offshoring relationship the farther PM is located from the client.
What this means is this. If you’re considering offshoring your content development, you should begin by determining the level of complexity of the engagement. The more complex you think your project is, the closer your project manager should be to you. This is an important offshoring best practice.
To put it another way, by selecting a vendor who is able to have the PM closer to you when your projects are more complex, and can locate the PM in the offshore location when the project is simpler, you will minimize your risk of failure and optimize your costs.
The diagram below depicts the “optimal zone” in which you pay only for the amount of PM that the project deserves.
The yellow portions of the above diagram represent the inefficient areas of an offshore relationship. They include paying more for PM than necessary (upper left) and assuming increased risks associated with complex projects (lower right). The latter finding demonstrates that while companies might conclude that they’ll be saving money by assuming the additional risk of having an offshore PM overseeing a complex project, this is not necessarily the case. Although the client is indeed spending less money for PM, it is incurring increased internal costs because it must allocate substantially more resource time to the project because it’s offshore.
As the diagram below on Sourcing Models demonstrates, there is a continuum of optimal sourcing strategies as outsourcing engagements “move up the ladder” from transactional out-tasking to comprehensive outsourcing. On the bottom are tasks such as issuing a contract based on hours of people’s time or project cost. Moving up the chart identifies more complex duties that are increasingly less likely to be assigned to an offshore PM. Indeed, we rarely discovered in our research examples of comprehensive offshore outsourcing.
How to Decide Optimal PM Placement
Based on our interviews, we have listed how surveyed companies aligned the three possible PM locations with specific training processes. Although these are decisions best made by outsourcing companies, the list serves as a valuable starting point for internal discussions on the subject. (The examples below only concern direct offshoring engagements, since client companies need not concern themselves with the details of indirect offshoring contracts.)
Onsite PM is best suited for high volume or large global projects such as wide ranging content development across the company and global rollouts involving large numbers of employees. It might also be warranted when complex or technical content is involved, frequent interaction is needed, and when important client personnel such as SME’s insist.
Onshore PM is best used for medium volume or limited scope projects, complex or technical content, medium communication needs between client and project leads, and when clients are accustomed to working remotely.
Offshore PM is best used for minimal and short term projects per provider, when the overall need for communication and SME interaction is minimal, and when client staff is comfortable dealing with remote workers.
Final Words of Advice
Now that you have read our study about optimizing offshore contracts, here are some parting insights developed through the research concerning other important issues that you should consider en route to any offshoring engagement – especially if it’s your first.
You should begin by conducting a readiness assessment of your own company to determine how comfortable key employees are with the idea of working remotely with offshore individuals. When that is completed, you should invest the time and effort needed to conduct proper due diligence on your potential supplier. Make sure they can deliver on their promises.
Establish a governance process that prioritizes projects that go to the offshore provider, and those that remain in-house. Lastly, we can’t overstate the importance of effectively communicating your expectations.
