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Top 10 Pitfalls to Avoid When Establishing Your Delivery Center

Top 10 Pitfalls to Avoid When Establishing Your Delivery Center

Author: Igor Mendzebrovski, EVP Outsourcing at Itera

Every forward-looking company reaches a point at which it must make fundamental changes to continue growing. This point often comes when development demands exceed the capabilities of current resources. Companies can hire more staff, but then they face the added challenges of managing that staff, and providing the infrastructure to house them. Another option is to set up a Delivery Center (DC), which can help organizations control costs, focus on core functions, overcome talent shortages, and maintain flexibility based on market conditions.

But, while these advantages can help propel a company forward, establishing a DC has the potential to hold it back with interruptions to established workflows. Typical roadblocks to implementation include the wrong strategy, lack of understanding of the DC lifecycle, and an inability to properly manage talent.

Knowledge of these and other potential DC obstacles are crucial for both big multinational companies and mid-sized businesses. This article describes common pitfalls to avoid so you can get your DC underway, build a solid organizational structure, effectively manage resources, eliminate disruption, and continue to grow revenue.

PITFALL 1
Failure to understand and manage the DC lifecycle

Based on Itera’s observations, the DC lifecycle is divided into three stages: Startup, Adjustment and Optimization, and Utilization. Each phase requires organizational decisions, flexibility, and a revision of key performance indicators (KPIs). Success sometimes also requires radical changes, such as management and staff shifts. Lifecycle management is key to successful DC implementation because goals set up during the Startup phase usually must be updated during the Adjustment and Optimization phase. It’s important to identify what phase you’re in, as well as lessons and recovery plans for each one.

During these critical DC lifecycle management stages, various risks are generated. They include financial risks (i.e. creation of additional costs because of the disruption of normal service delivery), regulatory risks (i.e. potential for failing to operate in compliance with regulatory standards, such as ISO), and operational risks (i.e. obstacles to the execution of operations). C-level executives should always be aware of transition periods during DC implementation.

PITFALL 2
Wrong location

The next step in the DC establishment process is to choose an optimal location. The IT outsourcing market is huge and variable. It starts with India, a low-resource market, and moves through a good ratio of price to quality in Ukraine, Poland, and Byelorussia, and ends with high-priced services from the US and UK. It’s up to you to decide which destination you prefer, though it’s wise to think twice before making a decision in support of price optimization and sourcing for volume, as this approach will definitely affect quality.

PITFALL 3
Incomplete feasibility assessment

Renting an office and hiring resources are just the tip of the iceberg, with a lot of processes hidden below. When thinking of launching your own DC, start with a feasibility assessment to analyze the viability of your idea. This study will serve as a major information source for a go/no-go decision. Once you have decided to pursue a business scenario, there is usually no turning back.

PITFALL 4
Absence of global delivery management

As soon as your feasibility assessment is done, the organization should appoint a general manager and core team to set up the DC. This team is responsible for knowledge transfer from company headquarters to the DC organization. The role of the general manager is crucial, as it requires the ability to react quickly and remain flexible to ensure smooth DC operations. The role of the management team includes getting the DC to a positive revenue state, so if the Utilization phase of the DC lifecycle begins with a negative revenue stream, the management team should either implement radical change, or be dismissed.

PITFALL 5
HQ’s standardized processes do not fit its DC model

Absence of standardized processes across the entire organization may cause strategic, operational, financial, and regulatory risks. Consequently, your DC model requires clarity and documentation, as well as a clear definition of who the ultimate risk owners are, and who the DC is accountable to. You should appoint people to control and monitor activities following SLA agreements.

PITFALL 6
A focus on minimizing costs rather than building value

Customers tend to look for higher quality DC performance for less money, but it may take time for a DC to achieve a superior performane level. Always focus on setting reasonable goals and defining efficiency expectations from the DC setup team.

PITFALL 7
A lack of management actions between lifecycle stages

As mentioned earlier, the DC lifecycle is divided into three primary phases. The importance of this concept cannot be overstated, because each phase should be carefully analyzed to identify and avoid crisis periods. Sometimes identifying these critical stages can be nearly impossible to do up-close, so it can be helpful to invite an external consultant to analyze them. Be sure to focus on ongoing risk management and have a change management implementation plan prepared to execute where needed.

PITFALL 8
Inability to attract, develop, and retain talent

Another area to pay attention to in your DC management is effective talent attraction, retention, and development. In intellectual industries, resources are a critical asset, and managing them effectively is always an issue.

PITFALL 9
High employee attrition rate

To reach a high DC performance rate, it’s important to ensure efficient allocation, deployment, and utilization of resources. We believe that team stability is the basis for good delivery. Don’t forget to monitor employees’ satisfaction level and be transparent with them about their career advancement.

PITFALL 10
Cross-cultural differences

The DC business model requires constant work in dedicated cross-cultural teams located in different countries and time zones. To ensure high performance and delivery levels, staff must have strong soft, management, and cross-cultural skills.

DC lifecycle management is a serious process of reacting and taking preventive actions to eliminate disruption, which is inevitable when no action is taken within a constantly changing environment. You can choose to implement this process on your own, or share the responsibility of your DC lifecycle management with a professional consulting company that can pay close attention to each region’s specific IT competencies, build diverse technological cultures, and provide staff with developed international skills.

Conclusion

Company growth can be painful, but it doesn’t have to be. With the right resources, IT-component businesses can expand their workforce easily and smartly. By starting and managing a DC, companies can get on with their core operations, yet still take advantage of an expanded resource set. Starting a DC can be challenging, with many potential pitfalls, but savvy companies can avoid these roadblocks, and watch their business soar to new heights.

Just remember that building personnel is good, but building competencies is even better, as it allows you to concentrate on delivery quality, optimal rates, and high-level resources, which are all crucial for establishing your Delivery Center.