Three Questions for Your Outsourcing Partner

We’re currently testing and selecting some outsourcing partners for startupSQUARE and outsourcing is an issue that seems inescapable these days. Invariably, there is going to be at least one part of your business that is a non-core competency and it’s tempting to send the task off to someone else who is asking less than half the cost of hiring a local.

Having managed a small off-shoring division of an IT security company in Vietnam, I’ve come up with my favorite three questions for outsourcing partners.

What is your employee turnover rate?

This is a very important indicator of the quality of the workforce. If there’s a 25% turnover rate of employees, it means that the majority of the senior staff spends a large hunk of their time training staff and not actually doing work on your project.

This isn’t necessarily a hard stop obstacle, but it’s an indicator that you need to be careful with the complexity of the skill you’re outsourcing.

If you’re dealing with simple manufacturing task such as “plug widget A into widget B” then not much training is involved and a high turnover rate is not necessarily indicative of an issue. If you’re dealing with something like “build me a customized ecommerce platform with a high level of security”, then there is a high level of training involved and a high employee turnover rate will cause long-term quality issues.

It should also go without saying that

A high turnover rate implies a lower level of employee satisfaction and that will also affect quality. Click To Tweet

If the company does not know their rate exactly (hesitates before answering), has a statistic wildly out of line with the national average (generally easy to look up), or just flat out won’t tell you, I’d take that as a serious warning sign and consider looking elsewhere.

Greater than 25% and I would be very wary, even for a low complexity task. Lower than 10% for a developing nation with high inflation is pretty decent, but it’s more important that company rate relative to the industry average in that country.

(note: a small out-sourcing company will not have a statistically valid sample size and their employee turnover rates will not be valid. Use the national average and add a risk factor for the company going out of business.)

What is your project management methodology?

There’s no right answer to this, but it’s very critical that you’re able to work within a defined methodology and that your local and off-shore teams are speaking the same project management language. If one team is working in Agile and the other is working in Waterfall, there will be a communication issue and that will add to the overall management cost.

Your management cost of course, is likely paid on your side and will not be reflected in the final bill.

It’s the time you spend writing specifications, reviewing progress reports, drawing wire-frames, and waking up at 2 am for con calls. When calculating your outsourcing costs, you need to include all costs that would otherwise not be required when hiring a local employee.

When calculating outsourcing costs, you need to include your management costs. Click To Tweet

Writing a spec may always be necessary, but drawing a detailed mockup may not be necessary when working with a local staffer sitting right next to you. Similarly, design tends to be a lot easier when you can sit down with a piece of paper and point to things.

What are your office hours?

Actually, this is a question to ask both yourself and your partner.

Given typical time differences, I have found it useful to establish at least one hour per day when both sides will be available for a phone call. That doesn’t mean that you’ll have a phone call every day, but it means you have the option.

Many outsourcing teams prefer to communicate via email or IM and even more prefer not to communicate at all because of a basic stigma that asking questions reveals a level of ignorance. Personally, I think that questions reveal that a partner is willing to learn and will do so quickly. I would rather hear ten stupid questions that debug 10 minor issues that could have easily been fixed with a 2 minute phone call.

Communicating via IM is great for some people. Unfortunately, I cannot easily concentrate if there is a little box popping up on my computer every 10 minutes. I also routinely turn off my email so I can focus.

While I may be a little extreme in this regard, having been responsible for a 32 person R&D and marketing operation, I’ve observed that the level of productivity of an individual tends to be inversely correlated to the number of windows they have up at once. In particular, multiple open chat windows are a good indication to me that someone is not going to make it in my company.

Communicating via email is usually good, but can add 48 hours to the turnaround time of a minor issue.

Ex:

  • Minor issue detected at 9 am west cost USA.
  • Email read at 9 am Beijing time (5 pm west cost time).
  • Issue investigated and clarification requested by 5 pm Beijing time (1 am west coast time).
  • Clarification sent, 9 am west cost time.

Total time for one Q&A? 24 hours.

Now imagine the issue is “Please move the sign-up button a little to the left.” “Now a little to the right.”

Phone calls are cheap, your time is not. Click To Tweet

Now…if only I could outsource my blog posts.

So…what should I post next? Tweet to tell me what to write:

Show me how to test product market fit!

or

How can I do lean startup in my friggin' huge company?