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Global OutsourcingStrategy, Execution and Top 5 Trends
Suresh SharmaSuresh SharmaCEO
JS3 Global ConsultingExecutive Director
India China and America Institute
1549 Clairmont Road, Suite 200Atlanta 30033
www.icainstitute.org
Typical Project … What the end customers want
As Proposed by theOnsite Lead
As Specified in theProduct Request
What the Project Management Interpreted ?
As Designed by theSenior Offshore Designer
As Produced by theOffshore Programming Unit
Partial Understanding of Customer Needs
Offshore Project Final Delivery
As Used by the
Customer
Doing it Right the First Time …
• Strategy• Must Tie it to Sustainable Business Growth Strategy
• Long-term (R&D - Intellectual Capital /$$)• Near-term (Capacity enhancements, New markets)• Short-term (Labor arbitrage, volume fluctuations)
• Factor Compliance, Intellectual Property, Culture, Productivity & Competition
• People … and their global mind-set ?• Cultural Challenges• Project Management skills are vastly different• Operational excellence is key differentiator
• Process … is maturity measured ?• Hand-offs and Touch points• One business language … and consistent environments• Metrics … drives behavior
• Tools
Structural Transformation in Global Business
Unspoken Law of Economics: A labor cost differential of 5-10x means that the
movement of work ‘offshore’ is inevitable
Global 3000 Market Segment is Priority #1 Market Leaders – Software, Financial Services and Retail
Structural Transformation global Outsourcing – Who is Doing It?
Small-BusinessCustomer Revenues < USD 50m
High-End Fortune 500Customer Revenues > USD 5 Bln
Large FirmsCustomer Revenues USD 750 – 5 Bln
Mid-MarketCustomer Revenues USD 50 - 750m
Global 3000Customer Revenues < USD 5 Bln
High
LowLow High
Singapore
Hong Kong Czech Canada
Australia
China
Philippines
Mexico
Ireland
India
Capabilities of Workforce• Wages • Education Qualifications/Capabilities • Quality of work/Work ethic• Attrition Rates• Middle Management Talent
Location Attractiveness• Cultural Compatibility• Infrastructure
– Communication– Basic infrastructure
• Country risks• Time zone attractiveness• Tax Incentives
Brazil
Russia
The Evolving Country Decision -- ROI & Economics Vary Considerably by Process and Location
South AfricaHungary
Source: McKinsey, E-Business Strategies
IT Map
Costa Rica
First Generation Business Models
Source: Offshore Outsourcing: Business Models, ROI and Best Practices
ContractingStaff
Augmentation
PureOutsourcing
Offshore Outsourcing
N/A CosourcingOffshore
Development Centers
Internal DeliverySharedServices
Captive Shared Services
Third PartyVendor
Joint Venture (Collaborative)
Completely Owned
Subsidiary
Rel
atio
nsh
ip S
tru
ctu
re
Onsite Offsite in Same Country
Offshore inForeign Country
Geographic Location
Second Generation Business Models
Source: Offshore Outsourcing: Business Models, ROI and Best Practices
Pure Contract
Outsourcing
Global Delivery Model
Global Shared Services Model
Onsite OffshoreHybrid Model
Multi-sourcing
Model
Joint Venture (Collaborative)
Completely Owned
Subsidiary
Rel
atio
nsh
ip S
tru
ctu
re
OnsiteOnshore
Offsite in Same Country
Offshore inForeign Country
Geographic Location
Build Operate Transfer
Sourcing Evaluation Process
The Offshore “S’ Curve and Tipping Point
Growth Maturity
Life Cycle of Technology Driven Innovation
Birth
Tipping Point
2004 - Offshore adoption is at a tipping point. It is becoming a “must-do” management practice.
ITOBPO
14
Supply-side EconomicsSupply-side Economics
Telecom costs down by 90% in the last 3 years
Increasing Infrastructure reliability
Over 3 million low-cost talented workers
Emergence of a branded vendor community
•0.0
•0.2
•0.4
•0.6
•0.8
•1.0
•1.2
•1.4
•1.6
•1.8
•2.0
•199
2•1
993
•199
4•1
995
•199
6•1
997
•199
8•1
999•2
000
•200
1
•200
2•2
003
Encouraging track record of early movers
Successful track record of IT outsourcing
Early ROI are fueling more investments
Demand-Side Economics Demand-Side Economics
•200
4
$ Billion•3.0
India’s BPO Acceleration … maturity levels
Source: McKinsey, E-Business Strategies
Time
Inside the “S” Curve:The General Model of Innovation – The Vendor Side
Expectations /Investment
Tipping Point
Slope of Profit
Slope of
Despair
Slope of Hype
ConsolidationBoom
Bust
HypePeak
# of
Ven
dors
Offshore vendor space will go through a boom-bust cycle … So its important to pick your partners carefully.
Prediction: Offshore adoption will take longer than most analysts are predicting. Significant Business Process Changes are required!
'93…‘03 ‘04 ‘05 '06 '07 '08 ‘09 ‘10 ‘11 ‘12 ‘13 '14 '15Time
Demand /Visibility
Offshore Hype Curve
Offshore Adoption Curve
InnovatorsEarly Adopter
Early Majority
Late Majority
Laggards
Demand Side Timing and Market Diffusion: Consider the following Pattern …
Ris
e o
f M
ajo
r In
no
vati
on
1990 2005 2020
Business Model Innovation
Business Process
Innovation
Focus on Labor Arbitrage
Focus on Process Integration
Adapted from Utterback-Abernathy Model
Offshore Outsourcing Process Trends: Return on Investment (ROI)
Going forward ROI will be derived less from simple labor arbitrage and more from creative process improvement and integration
India and China Sourcing …
Some Insights from first-hand experience …
• Services Sector• Game is labor arbitrage … it’s the intellectual capital• IT … embedded Systems … and managed services• BPO
• Legal• Financial services• Creative Processes• Medical business processes• HR
• Manufacturing• Hardware• Infrastructure … what does it mean really ?• Some myths and data interesting points
• Culture• Language is a big barrier in China … really ?• Maturity of your own processes plays a big role
• Cost• Dalian Vs. Shanghai • Bangalore Vs. Chennai Vs. Jaipur
Top 5 Trends … seeing beyond the obvious
• Distributed Outsourcing will be a norm• Competition will come from homes …Future Factory Nodes• Positioning of new cost structure is vital for growth • Ability to globally project manage is essential
• Domain Knowledge goes global• Utilities, Banks, Financial Services, Healthcare, Legal, Entertainment, … Opening Markets and Access to Information make the domain global and all pervasive
• Product Innovations not sustainable• Commoditization of Industrial Era Technologies• Design and Engineering can be done any where• Engineering Services will be big …
• Product Development must be global• Case of Innovative Drug Development Programs• Purchasing Power Parity Drives future ability to grow
• Globalization of baseline education• An era of interdependence … will drive competitiveness• Its NOT … We vs. They … it may be … We & They • Creativity and Competitiveness will sustain your growth
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