Offshore attrition on the rise

Offshoring may finally be succumbing to the most basic rule of economics: Supply and demand

Offshoring -- especially for BPO (business process outsourcing) -- is about to hit a wall. After all, despite being a relatively new phenomenon made possible by advances in communications, it remains subject to one timeless principle of economics: supply and demand.

The HR pros call it attrition. On any particular project outsourced to a service provider in India, you can expect at least a 15 percent turnover rate for personnel assigned to the project within a year. For some projects, BPO chief among them, it is not unheard of for a whole staff to turn over by year’s end, according to Paul Schmidt, a partner in the global services delivery practice at TPI, one of the larger sourcing advisory organizations.

With technology so closely tied to business strategy, to talk about BPO today is to understand the consequences of not being able to deliver expected services in a timely manner due to high turnover.

Schmidt puts it much better than I can: “There is a tremendous opportunity for value leakage,” he tells me. In other words, if you don’t pay enough attention up front to the realities of attrition at your service provider, you will end up with higher costs, lower-quality deliverables, or, worse, a project that goes bust.

The high attrition rate, particularly in India, finds its roots in the phenomenal growth of outsourcing and offshoring. A recently completed TPI study, “India: An Attractive BPO Destination Marred by Alarming Attrition” by Dinesh Goel and Prabhash Thakur, pegs the growth of BPO attrition during the past three years at approximately 50 percent per year.

What’s fueling this attrition is that, despite all you may have heard about how many computer science majors graduate from Indian universities annually, there is a finite talent pool -- and those graduates know it.

The study reports that “the rate of attrition seems to be increasing,” and it questions whether the offshore BPO industry can sustain growth and satisfy clients over the long term given this trend. The study cites inconsistent delivery of service levels, loss of client-specific knowledge, and additional investment in retraining service provider staff as consequences of these high attrition rates.

Obviously, you can’t just ignore the problem and assume that it’s up to the service providers to fix it. There are steps you should take, as an offshoring client, to help mitigate the fallout of attrition.

Schmidt recommends a carrot-and-stick approach.

A company must insist on an SLA that quantifies the level of attrition they are willing to tolerate. There must also be clauses within the SLA stating that when turnover reaches a certain threshold it is the service provider’s responsibility to retrain and re-educate workers.

On the carrot side, Schmidt says the client should provide ample training and career movement. It should also consider including engaging and challenging work in the mix. And, allowing individuals to rotate through opportunities to work in the United States is certainly a big motivator for keeping them on a particular project -- not to mention reward and recognition programs with financial incentives.

That said, Schmidt doesn’t see service provider fees going up long-term, mainly due to the competitive climate that persists in India.

That’s where Schmidt and I part company. As I see it, supply and demand will increase the cost of offshoring. Over time, this will level the playing field -- and will motivate companies to reconsider whether they should keep projects in-house or send them overseas.