Taking a Global View

Cliff Justice
Posted: 07/09/2012

Over the past several years, hundreds of US and European companies have moved at least some portions of their IT and back-office services to offshore locations like India or Eastern Europe with the intent of reducing costs and having access to a seemingly endless supply of high-quality talent. While many companies that have moved operations offshore report fantastic savings and improvement in almost every metric of G&A performance, some captive centers are struggling with sub-standard results.

EquaTerra believes the disappointing results can be tied to a misalignment of sourcing strategies and a disconnect with the parent company’s strategic objectives before embarking on offshoring efforts, which oftentimes makes the captive center a dumping ground for nonessential work sent piecemeal by managers with little interest in using the center. Operating as a back-office for menial tasks, many captive centers fail to cultivate the company culture, causing employees to feel disconnected and soon seek other opportunities.

Further, recent surveys by industry analyst firms like Forrester indicate this failure to achieve results is particularly acute relative to the design, deployment and use of internal captive offshore centers, which creates a cost center that performs below industry averages and consumes more management resources than originally planned.

In addition to aligning – or realigning – captive operations with the strategic objectives of the organization, world-class multi-national corporations (MNCs) that place high value on performance in business support functions are increasingly engaging in "hybrid" relationships with third-party service providers. In this approach, the organization partners with one or more service providers to provide infrastructure, human resource management, IP, process management and functional skill sets that enhance the capabilities and productivity of the center, while leveraging the maturity and processes of a service provider’s core competency.

Positioning the organization to specialize in high-value services by way of third-party providers can improve the captive’s balance sheet and performance, and in many cases will bring processes and intellectual property to the client organization that would otherwise take years to cultivate internally. The most mature hybrid relationships are highly collaborative and jointly managed . . . however, buyers shouldn’t assume that there is a one size fits all approach.

Buyers that are new to offshore and evaluating the offshore option would be wise to take a lesson from the early movers and use the capabilities of the marketplace to help establish and run their internal support functions. Two of the biggest concerns buyers have with outsourcing are: maintaining managerial control of the centers; and how internal business units may view the concept of outsourcing. But as governance models have progressed, in most cases, the decision rights among the parties can be contractually designed to suit the individual needs of the buying organization. As in many situations, it takes more than one party to optimize performance. It’s a hybrid world and offshoring is no different.

EquaTerra sourcing advisors help clients achieve sustainable value, significant cost savings and improvements to their IT and business processes, whether in outsourced, internally-transformed or shared services environments.

Cliff Justice
Posted: 07/09/2012

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