Book Review : Offshore Outsourcing - Path to New Efficiencies in IT and Business Processes

OffShore Outsourcing - Path to New Efficiencies in IT and Business Processes by Nandu Thondavadi, George Albert

Content In General
This book explains the progression of offshoring from the manufacturing sector and how it has moved into IT and Business Process (BPO) space. Highlights the impetus for offshoring, and the potential costs for not offshoring. The major players in offshoring, and offshore delivery channels are briefly mentioned as well. Lastly, geopolitical, economical impacts on countries affected was discussed. The book completes with 6 case studies stories which includes that of Citibank, GE and Infosys.



Learning Point - The Reason to Offshore

Cost Reduction - the obvious factor would be cost savings, when the differences in standard of living causes the costs of skilled labor in developing countries (China, India, Russia) to be 60-70% cheaper than their counterparts in developed countries (e.g USA). Other results highlighted as follows:

Increased focus on core business - resources committed functional and back-office processes can be redirected to develop core business capabilities.

Improved process quality - for the outsourcing service providers, their core business is to perform the back-end office functions of their customers (e.g. call center, billing and accounting services, IT developement and maintenance). Hence they are likely to spend more time and money to ensure their quality in their processes. CMMI and Six Sigma are certifications of quality processes that these service providers adopt. Many service providers like Wipro, Infosys are already CMMI level 5. If these functions were not outsourced, obtaining these quality processes would be too much overhead to bear for most companies.

Access to Talent Pool - service sector requires a big pool of skilled talents esp in IT. The lack of skilled engineers in USA, coupled with strict labor legislations and huge pool of engineering graduates in India/China has contributed to offshoring trend. Microsoft and GE were cited as examples where they had established R&D centers in India and China due to the large pool of engineering talents there.

Shortened Development/Product Life Cycle - using the time difference between USA and Asia, work is virtually 24 hours ongoing as engineers in USA hands over their work to their counterparts in Asia at the end of their work day. Their counterparts in Asia would have just started work then due to time differences. This continous workflow helps to shorten life cycles.

Learning Point - Cost of Offshoring and Key to Offshoring Success

How to do a business analysis to decide on offshoring or not? Other than the recurring cost payable to service providers, the following costs must not be overlooked:

Recurring management cost - management processes must be put in place to ensure that service providers adhere to service level agreement (SLAs) of outsourced process and that they meet the outsourcing company's needs.
One time infrastructure cost - In the case of BPO, there is usually a need to setup a technical infrastructure to enable the service providers to tap into the business process of the outsourcing client, so as to ensure seamless integration of the processes even after non-core processes have been outsourced.
Intangible costs - Lost of goodwill from the general pubolic and legislative blockades by the government to provide outflow of jobs to other countries. In both cases, cost in PR and legal consultation must be expended to ensure compliance and mitigations.

Learning Point - Type of Delivery Channel and Service Providers

Delivery channels includes:

• offshore - where vendors are located offshore for maximum cost savings.
• onsite - where service provider's staff on located onsite. This does not take advantages of cost differences of countries.
• mixed mode - a management team from the service provider is onsite for liasing, while the main bulk is located offshore.

Service provider types:

• Independent local service providers - Located offshore and has access to oversea talents with economies of scale to provide low cost to clients. E.g. includes Tata Consulting Services, Infosys, Wipro.
• Independent multnational service providers - MNC's subsideries that also provide outsourcing services. E.g. IBM Global Services and EDS (Electronic Data Systems)
• Captive service providers - Subsideries of MNC's that provide outsourcing services for its parent and sibling subsideries. E.g. GE's Capital Services (GECIS), and Microsoft's India Development Center.