Why Offshoring Fails

Statistical data about offshoring failures is controversial and it is difficult to say whether the failure percentage of offshored projects is higher, lower, or equal to the failure rate of onshore projects. According to the 2005 Ventoro Report on offshoring, 45 percent of the respondents in their survey considered their offshoring strategy to be successful, while 36% considered it a failure. According to Gartner, “Through 2007, 80 percent of organizations that outsource customer service and support contact centres with the primary goal of reducing cost will fail.” So it seems that before declaring a project a failure, it is necessary to have clear criteria how to measure success and failure – by cost savings alone or by taking other factors (i.e. quality and customer satisfaction) into account.

What is undisputable is that going offshore is a trend on the rise and the good news is that there are successful long-term offshore projects, so there must also be a recipe for how to deal with the ensuing challenges. Why not study the reasons for failure and try to avoid replicating them?

To start, offshore and domestic projects may succeed or fail for similar reasons; the fact that a project is being done offshore is not in and of itself a reason for failure. Furthermore, as corporations take an increasingly global outlook and stance, it is inevitable that they will absorb previously foreign behavior patterns. As a result, the chasm between in-house and offshore will continue to shrink.

Geographical distance and cultural differences

Two factors that are rarely present in domestic projects, but cannot be avoided when going offshore, are geographical distance and cultural differences. Cultural differences are one of the five areas, together with unrealized cost savings, loss of productivity, poor commitment and comunications, and lack of offshore expertise and readiness that according to Gartner need careful thought before going offshore.

Geographical distance might be a factor in terms of unfavorable time zone differences and the difficulty for scheduling onsite visits. But even with extended time differences between you and your offshore partners, with some compromises on both sides, you can still have at least 5 to 6 hours per day in common — more than you typically spend in communication with members of a domestic project team.

Problems do arise when it is difficult to communicate in real-time with one’s offshore partners, a factor often referred to as communication overhead. The solution is to become better organized, keep meetings in person to a minimum and schedule them for hours when it is possible for both parties to attend. Sure, this requires better planning but is not unachievable.

Cultural clash or personality issues?

While distance is a quantifiable factor, the impact of cultural differences is more difficult to measure.  What is more, depending on the location you are offshoring to, cultural differences can vary from minor (if you nearshore, for instance in Canada, Australia, Ireland, Europe, etc.) to a real cultural clash (India, China, Pakistan). Yes, cultural differences among team members of different nationalities do exist and sometimes there are situations where nationality will become a factor, either in the decision-making process or in the actions of team members but more often than not, when there are differences in thinking and behavior, they are more the result of personality than nationality.

While part of a multicultural software development team, I had the chance to attend training that dealt with cultural issues in mixed teams. The seminar proved to be useful in showing that you need to identify differences in order to counteract them, although in that particular case, the seminar actually created more problems within the team than it solved. While we had not been aware of the sea of (supposed) differences between us, there seemed to be less communication jitter. For instance, after we learnt that East Europeans tend to hint rather than state directly what they mean and rely more on subtext rather than on straightforward meaning of words and phrases, while West Europeans behave just the opposite, communication became a game of encryption and decryption and went on something like that: East Europeans started to be more direct and West Europeans started using more subtext to convey their messages believing that this way it will be easier for the other party to understand. As a result, when East Europeans were more direct, West Europeans were still looking for the subtext (because they were dealing with East Europeans) and when West Europeans started hinting, the message East Europeans decoded (because they noticed that the West Europeans now use subtext, so there must be something that needs decoding) was pretty different in meaning from what was originally intended by West Europeans.  Needless to say that the level of understanding between the two nationality groups fell drastically, at least while the seminar was still remembered of. After the seminar was forgotten, for bad or for worse, multinational communication went on as if the seminar had never taken place.

Although the seminar stressed national differences, it also clearly pointed out that personal characteristics and circumstances also play an important role in one’s behavior and way of thinking. With the same multicultural software development team, I recall many examples that illustrate this. For instance, when choosing whether to take a riskier but a more innovative approach to solving a particular programming task, the opinion was divided into two with both nationalities having more or less the same number of supporters and opponents to the riskier approach.

My personal experience has shown that failure, especially in nearshore projects, is due not so much to a cultural clash as to bad management or personal shortcomings. Furthermore, given the freedom to speak and act without censorship, team members of different nationalities behave in a strikingly similar way, further reinforcing the hypothesis that nationality’s role in project failure can be relatively minor.

However, for a successful offshoring process, you must avoid “they versus us” conflicts. In these, nationality blocks off groups of members from the rest of the team. Contributors can become paralyzed between their personal convictions and their nationality group.

An interesting offshoot of the nationality issue is when emigrants offshore to their home country. To some extent such people are in a favorable situation, yet at the same time they face difficulties that complete strangers do not. The advantage of offshoring to one’s home country is that you are returning to a familiar place and culture. You also have some idea what you can expect from your countrymen, and, even if you have lived abroad for decades, you still carry with you features of your original nationality, thereby making communication a simpler task.

On the other hand, when you return to the place you left, you might experience the strange feeling that your countrymen perceive you more as a foreign body than as one of them. Since you are returning to your home country to invest money, you can expect some degree of malice and envy, as you are viewed as someone who went abroad to make money and now returns to exploit his fellow citizens.

In addition to the general cultural pitfalls, there are also business-specific differences you need to be overcome, such as meetings and paperwork. Lengthy daily meetings are the norm for many corporations. While many American, British, and German citizens find this is acceptable, the majority of Eastern European and Latin American workers view them as a waste of time. Their attitude towards paperwork is similar.

Another difference among nationalities is their approach to communication. You may discover that your offshoring partners are not talkative and that they do not voice their thoughts, even when you explicitly ask them for their opinion. Often the reason is the language barrier. Despite claims that they are fluent in English, some workers’ level of proficiency allows for only the most basic understanding of what is being said or written, and not full-fledged communication. A person in this situation may appear shy and ignorant, but may actually need greater assistance in learning the language.

Offshoring partners may also communicate badly because their culture has taught them to be shy and obedient and not to complain about problems. In some cultures you might encounter the “boss is always right” syndrome. As a result, these workers appear more servile than obedient and keeping quiet about existing problems can be regarded as not complaining. Unfortunately, not being told of a problem at the time, when it can be solved quickly and easily, not only makes it difficult for you to deal with it later but sometimes it might be too late to solve it at all.

Offshoring management

While it is true that managing offshore projects has its tips, tricks, and techniques, it seems that bad management has no nationality. An incompetent manager will be incompetent in any environment. The only difference will be the length of time to failure. There is also a remarkable tendency to giving failed managers offshored assignments. Although it might be an easy way to remove someone who does not contribute at home, it also means that the offshore project will be a mine field from the very beginning. If there is no other choice but to send a failed manager overseas, risks of failure could be reduced by extensive training and more control from onshore.

In summary, offshore projects have special aspects that managers must be familiar with, such as cultural diversity. However, competent management can deal successfully with the issues. There are many companies and universuties that offer offshoring management courses. If you are contemplating an offshore project, it would likely be a wise investment to enroll the proposed management, including any foreign managers, in offshore management training courses. In doing so you might avoid the mistakes other companies have already made.

Posted in Management | Tagged , , , | Comments Off