Outsourcing Toolkit

Building an offshore presence

Tags:
Outsourcing,
Offshoring

Maxine Holt Butler Group

Published: 21 Dec 2005 10:20 GMT

Outsourcing remains a key part of the IT strategy of many organisations, to the extent that it there are now estimated to be in excess of 10,000 vendors in more than 175 countries claiming to offer some form of offshore outsourcing service. Unsurprisingly, the main driver for this is still the desire by customers to achieve some kind of cost saving, despite the fact that many of these providers would have us think that improved quality is the main outcome of using outsourced IT services.

There is also a push by organisations for renewed revenue building and IT/business alignment strategies, as a result of the general upturn in global markets (and thus company performance). This is expected to drive the Business Process Outsourcing (BPO) offshoring market place as much as anything, although it will filter across to IT as well, as organisations look to get more recognisable value from their IT commitments.

In order to cut costs, improve quality, or build business, many organisations either have an offshore presence or are considering developing one, but the big question is build-versus-buy: should the organisation develop its own offshore presence or use a third party? In order to answer this question, one initially needs to decide what is to be offshored, as different models are appropriate in different situations.

If single projects are to be offshored on an ad hoc basis, the transactional partnering model is likely to be the most appropriate, and this model is also good for organisations unsure about offshoring, to be used as a "trial". It requires only a small commitment from the customer organisation, but at the same time it should be remembered that this level of commitment is also true for the offshoring provider. To sound a note of caution, it does not necessarily follow that if the offshoring provider performs an individual project well that it can perform equally well for larger projects or longer term outsourcing.

Tactical partnering is the next level, which is effectively an Offshore Development Centre (ODC). This generally means a contract between provider and customer of around three years, and occasionally up to seven years, thus is more of a commitment for both customer and provider. As part of the longer term commitment the provider promises to deliver specified outputs according to the customer's requirements during the lifetime of the contract, and normally this would also include a growth plan. A "process manual" is used to detail how the outsourced work should be done, as well as how the technical and people interfaces are expected to work. Additionally, Service Level Agreements (SLAs) should be defined and regularly reviewed.

The Build, Operate, and Transfer (BOT) model, also known as collaborative partnering, is a step on from tactical partnering, although it provides the same functions. The contracts are generally for the same period, but the ability to transfer ownership of the offshore function to the customer organisation at the end of the contract (or before) is the crucial difference. Ness Technologies, through its division Ness Managed Labs, is one example of an offshore provider that offers the BOT model to software organisations looking to outsource or expand their R&D functionality, and it is indeed proving a popular model for organisations that are looking to outsource for a medium length of time. The BOT model allows customer organisations to get comfortable with working with an offshore company, and the...