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Why coordination not knowledge transfer is the

23 Feb 2009

Phanish Puranam, Associate Professor of Strategic and International Management, and Co-Director of the Aditya Birla India Centre explains that what really matters in the success of offshoring is coordination and links to onshore processes

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New research from Phanish Puranam at London Business School questions the prevailing wisdom about what makes an offshoring project successful; that only standardised, routine practices can be moved offshore.

In a study of 130 business processes, Professor Puranam and his colleague Professor Srikanth of the Indian School of Business (LBS PhD'07) found that knowledge transfer from onshore to offshore was not the key driver of offshoring success; coordination in steady state between onshore and offshore was.

Phanish suggests that indeed it can be counterproductive to simply focus on replicating processes offshore, underutilising the potential of creative workforces in countries such as India and China.

"Coordination is like health," Phanish explains, "You only notice it when it's missing. Efforts to collaborate probably fail as often because of a lack of shared understanding of how to work together, as they do because of conflicts of interests. Yet, we tend to place disproportionate emphasis on incentives, and not enough on coordination." 

Phanish suggests that some of the most effective ways to ensure coordination are low-tech, and require building shared understanding across employees. This could include having on and offshore teams who have worked together in the past, or have been trained in the same ways, and who understand the context in which their counterparts are working.

Phanish's research has implications for what can be successfully offshored, as the work does not have to be simple and standardised as long as it is coordinated well with onshore operations. "The sky is the limit," Phanish concludes, "There are really few technological or organisational limits on what can be offshored."