Pros and Cons of Onshore, Nearshore and Offshore

When any company decides to outsource, one of the important decisions they need to make is where they wish to outsource. Some of the points to keep in mind while making this decision are:

• Cost Saving
• Cultural Difference
• Language Barriers
• Skill / Domain Expertise
• Manageability

Onshore:

In this, company outsources its operations in same country (or region).

As the services are outsourced to same location / region company faces no cultural, legal or language barriers; managing the work and even facility visit for monitoring is very easy and inexpensive. This option is preferred when company wishes to outsource highly sensitive service or product development to protect intellectual property.

On the flip side this option is not cost effective; also in some cases lack of required skillset also poses a problem and increases cost.

Nearshore:

In this, company outsources its operations to a country (or region) nearby.

As services are outsourced to nearby location, company faces minimum / negligible cultural, legal or language barriers;  managing the work and conducting frequent facility visits are easy and compared to offshore less expensive.

Though this option is more cost effective compared to onshore, it is not in par with cost saving offered by offshore. Not all nearshore destinations have developed skillset required by the companies; this may pose a problem when niche skillset is required.

Offshore:

In this, company outsources its operations to another country (or region) faraway.

As the services are outsources to faraway location, company has to overcome cultural, legal and language barriers; monitoring and managing work requires expensive trips .

On the good side, offshore locations have vast talent pool which can be hired at less cost. Some offshoring destinations which have been in this industry for considerable period of time have developed process and expertise to execute huge outsourcing projects and offer client in house system as part if the deal.

Another option which has gained momentum recently is opening captive centers in offshore locations. This offers companies to offshore work along with flexibility of selecting their own resources; implementing their work culture and ethics etc.

Outsourcing Models

Outsourcing Models

There are several types of technology outsourcing models that are employed by CIOs. In a typical IT organization, you could see a combination of these models in operation. The different types of outsourcing models in practice are:

• Governance Based Model
• Pricing Based Model

 

Governance Based Model

IT governance model is based on an optimal division of responsibilities and goes far beyond traditional management models and those that focus on cost provisioning and labor arbitrage. IT governance model allows clients to maintain optimal alignment of strategic IT functions to meet their business needs and increase competitiveness, as well as to apply best practices in order to reduce costs and delivery time for operations and special projects alike. This model is based on the strategy adopted to govern the project or the project organization or the project team. This model has three different types to it –Professional Services or Staff Augmentation, Co-Managed and Managed Services or Fully Outsourced.

• Staff Augmentation
  • In this model, consultants from the outsourcing vendor act as an extension of the client’s project team and they will be supervised by a client manager responsible for that project delivery.
  • This model is typically used when certain skills are not available in-house to execute a project.
  • This model is also widely used when the client team requires additional head-count to tide over a short period of increased work.
• Managed Services Model
  • Managed Services is widely acknowledged as the best model to adopt for technology outsourcing if you have a long term outlook.
  • Managed Services model is an attractive proposition both to vendors as well as the outsourcing organization.
  • Vendor will be responsible for selection of resources as well as take responsibility of managing stakeholder expectations.
  • Vendor also has complete decision making responsibilities in providing the agreed set of deliverable.

Pricing Based Model

As the name itself suggests this model is based on Price, where the defining guideline are the payments to vendors or the pricing of the work order. There are different types of Pricing Models in existence today. These are Time and Material, Managed Capacity and Fixed Price projects

• Time and Material
  • Time and Material or T & M is a pricing based information technology outsourcing model. This model is utilized not only in the information technology industry, but in other industries too.
  • As the name implies, the payments to the vendors or contractors are based on the number of hours of work completed per day.
  • There is an agreed rate per hour between the vendor and the client organization.
  • The number of hours clocked are tracked through a time sheet system, either maintained by the client or by the vendor.
• Managed Capacity
  • In Managed Capacity, the customer buys a certain quantity of person-hours or person-days from the vendor at a pre-negotiated rate.
  • In certain situations, these are also bought as a certain number of seats in a designated development center of the vendor.
  • This model has a maximum limit on the amount that can be charged to the customer

Analytics as a Service

We’ve seen how data can deliver insights in the hands of people like Hans Rosling who has been listed amongst the 100 most influential people in the world in 2012 by Time magazine. Rosling has shown the history of 200 countries over 200 years using 120,000 data points. He presents data with the urgency of a sportscaster and brings in the visual flair of movie directors like James Cameron (Avatar). Businesses worldwide are starting to see data as the super food of analytics. Data can be termed as “the new soil” because it can give rise to new ideas, insights and wealth.

In more recognizable terms, it has the potential to bring about a 60% increase in operating margins for retailers. Naturally, the demand for what can be called Sensemaking IT Infrastructure to predict the future is on the rise.

This has an inevitable implication for 2013: Analytics as a Service (AaaS) will be what businesses shop for. Infrastructure for data aggregation using Cloud models will be on the rise, self-service models for tools in Cloud will become critical, and a whole new range of data and analytics appliances will become part of the IT infrastructure provider’s arsenal.

Storage and Data warehousing: Data is growing in complexity. Datamarts and warehouses must keep pace with the volume and velocity of data as well as the variety that includes structured and unstructured data in different formats like text, voice and video. In an effort to be agile, businesses will avoid investments in storage solutions that lock down their ability to keep pace with changing storage needs and opt for elastic and scalable outsourced pay-as-you-go Cloud solutions. In addition, because of the huge amount of data, businesses will demand intelligent storage solutions that bring down costs through compression, can separate and store process data from regulatory data, are capable of data tiering and can provide advanced capability through rapid content access and remixing.

Tools: There will be an increasing demand for highly scalable tools such as Map Reduce and Hadoop that enable distributed computing for large data sets across commodity servers. Tools that manage traditional and non-traditional data sources, millions of events every second, can reduce latency to microseconds and run on a variety of hardware platforms will be the most visible trend before customization takes over. Concurrently, industry specific sensemaking algorithms (and visualization tools) that can dig into the data to improve a business’s ability to make quick and accurate decisions are witnessing increasing demand.

Appliances: The role of high-performance analytical appliances will continue to grow as businesses exploit in-memory computing. An example is SAP’s HANA (High-Performance Analytic Appliance) that combines software components on hardware specifically designed to handle large volumes of data in real time. Fundamentally, because of the current evolving nature of data and analytics, businesses will want to gain access to the latest data and analytics appliances that can extract, transform, load data and are integrated with analytical applications.

Meanwhile, data will continue to grow, forcing smart businesses to go shopping for competent partners who can provide intelligence on demand, making AaaS IT infrastructure clearly amongst the most visible outsourcing trends of 2013.

Success Steps for Vendor Management Office

More enterprises are taking a look at establishing a vendor management office (VMO) to make IT sourcing more effective. Companies are creating IT VMOs for reasons including the rapid growth of IT spending within the business, the decentralization of technology purchasing, and increased complexity in vendor pricing and licensing.

There are no hard and fast rules for creating a VMO. Some companies have a very formalized approach with dedicated staffing and clearly defined roles and responsibilities. Others are more loosely organized. In both scenarios, the VMO’s effectiveness relies on the adherence to eight guiding principles. They are as follows:

1. Manage VMO as a business within a business
2. Leverage consolidated purchasing power
3. Continuously manage contractual relationships with suppliers
4. Treat suppliers as an extension of internal resources
5. Use the minimum number of suppliers possible
6. Select the highest value supplier, not the lowest purchase price
7. Negotiate win/win deals with all suppliers that balance risk, speed and performance
8. Actively monitor, manage and improve supplier performance

Regardless of how formally the VMO is executed, these principles act as guideposts to decreasing the IT cost risks within the business and improving vendor performance. Observance enables today’s IT sourcing function to become less transaction-oriented and more strategic; less price-focused and more value-driven. Lastly, it transforms IT sourcing from a reactive function into an advisor function that facilitates the attainment of business and IT goals through strong supplier relationship management.

How to have Successful Vendor Management

A vendor plays an important role in the success of any organization irrespective of their size and type. Although the management of vendors or suppliers is a very difficult and complex task it has to be done for the benefit of the firm. It is a very important thing to keep an easy going and frequent communication with the vendors. By doing this, a lot of cost could be saved and inefficiencies could be curbed which would then result in better customer service.

Vendor management not only involves the vendor to supply to you at low prices or better service but also maintaining a healthy relationship with them and retaining them. The first step in a successful outsourcing project is to implement a quality assurance program. A well-managed list of vendors helps the organization get a competitive edge as well as a cost advantage. There are no two vendors who are the same. Every company has their own set of unique needs and requirements. Choosing the vendor would be on the basis of your company’s culture and the quantity of orders your firm would need. Any organization would have two options with it – keeping an in house vendor management or getting it outsourced.

Organizing a vendor is a task in itself. The following things should be considered:

• What kind of services or technology is each vendor providing?
• Are any of the vendors overlapping the other?
• Is there any way of consolidating different vendors by any common supplier?

The organization should be clear of what they want. Vendor selection process can be a confusing and complicated process .They need to do their research on the “deal breakers” and “negotiable” as they call them before beginning the actual search. The company should put the most essential or crucial thing under the deal breaker category and the ones that are not essential in the negotiable category.  Having the things categorized or segregated for vendor selection process will save some headaches to the managers.

It is very important to know the target output that an organization needs, while making the list of vendors. This estimation of the output would give an idea about the weekly or monthly delivery schedule for a vendor. Also, the organization must learn from their past experiences with the vendors. They should keep in mind the good things as well as the blunders done by the vendors in the past. Communication is the most vital part in any supplier or vendor management process. There is a chance to lower the possibilities of misunderstandings and problems of any other kind if the vendor is informed as to what is expected out of him prior the deal itself.

It is not an easy process or task to have a good vendor management system in place. It cannot be achieved in a day or month but a long and continuous process. This involves the organization to maintain a good n healthy relation with the vendor and also by having a constant check on its own supply. Thus, if all the above things are done and taken care by an organization it’ll be able to achieve a good vendor management and be successful.

IT Outsourcing, Challenges during takeoff

 An organization may outsource IT work for many reasons. The most important event is the transition period.

Based on the size of the organization and the scope of IT outsourcing, the quantum of preparatory work will be different. But the process involved in preparation is same.

Simple, three step process

1. Setup the TM team.  The Transition Management team. It is essential to have a small team, from IT department as well as the concerned user department. The team members must be capable of transferring the required data to the new IT sourcing team. Must also work on a dedicated basis, to ensure timely roll out.
2. Draw out the transition plan. Use WBS (Work Breakdown Structure) for best results.  Ensure that the plan that is drawn is an integrated one.  Using the WBS, it will be easier to ensure that all steps are on paper.  It may involve, data transfer, status report hand over, shifting of full servers (if servers are being outsourced to a data center) etc, depending on what activity is being outsourced. Accordingly, the WBS may be a big tree with lot of details. It is essential to expand to fully till the leaf, to get best results during transition.
   The plan should be clear and specify a simple matrix giving activities in the proper sequence and the person responsible. The activity list itself should ensure that all dependencies are taken into account.
3. Implementation. Once the plan is ready, implementation will be a cake walk. On the day of transition, a brief shut down of the old systems / process / servers is done, data transferred and then ported to the new structure. Usually this is done during off days to have least disturbance, or if not avoidable, a couple of days break is taken and then a catch up is done to come on line (ERP Implementation).

With all of the above points, to deliver a well organized transition you might take note of this helpful note – Plan your work. Work your plan.

Types of BI (Business Intelligence) Tools

The advent of Information Technology has transformed the way in which organizations maintain their data. From the old warehouses storing heaps of files to the digital warehouses we have come long way. Every organization understands the importance of information in this fiercely competitive world. The challenge is how an organization can bring all the data together to extract information that would be useful for it.

BI (Business Intelligence) helps organizations organize and analyze its data to make better decisions. This could include internal data from various departments as well as data from external sources, such as competitors, social media channels or even macroeconomic information.

As more and more organizations are capturing information in the digital format, their need for using BI to manage and analyze these data is increasing. Over the past few decades, companies that have deployed Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and other applications are now sitting on a mountain of data that can be analyzed. In addition, the growth of the Web has increased the demand for tools that can analyze large data sets.

So since we all agree on the importance of BI Tools, next question is how to identify the best BI tool for your organization. There are broadly three categories of BI Tools:

• Data Management: First step for better decision making is good database. Data management tools help you clean the data and organize it in structured formats that can be used to generate useful information for analysis. This process is normally referred to as ETL (Extract, Transform and Load), where the tools extract data from various distributed sources, transforms it into a standard format and loads the final data into the centralized target system
• Data Discovery/Data Mining: These systems surf through the entire heap of data and tries to identify meaningful patterns and trends that can provide a direction to decision making
• Reporting Tools: It’s a known fact that most of the time the users of the data are not the IT Staff but the Business users. Thus it becomes extremely important that only the useful information is presented to them in a non-technical user-friendly way. For e.g. Dashboards/scorecards providing the overview of company’s performance and a snapshot of key indicators with graphical representation would help a manager identify the areas for improvement and take necessary steps at right time.

Most of the BI Tools in the market would be a combination of all the above and provide an end to end solution. The choice of the software would usually depend upon the target users, size of the organization, existing sources of data, etc. Thus an organization must choose the BI Tools that best suits its current and future needs.

– Harsh Saraogi

Insourcing

Insourcing is an industry practice in which work that would otherwise have been contracted out is executed in house.

Insourcing time and again involves bringing in experts to fill temporary needs or training existing personnel to perform tasks that would otherwise have been outsourced. An example is the use of in-house engineers to write technical documents (Technical requirement documents) for applications they have designed, rather than outsourcing the task to an outside technical writing company. In this example, the in house employees might have to take technical writing courses to complete the job effectively. Other challenges of insourcing encompass the possible procurement of additional hardware or software that is scalable enough to provide an acceptable return on investment (ROI).

Insourcing can be viewed as an opposite of outsourcing. For example, a manufacturing company based in U.S.A. might start its own software development department to cater to the needs of its manufacturing plant. This is what insourcing is where jobs which might have been shifted to other country had the manufacturing company decided to get the software developed by a company based outside USA.

Are corporations considering ditching Bangalore for Boston?

A survey has found a small but increasing number of examples of businesses bringing home the information technology work they had outsourced to third-party vendors in the years bygone. However this number is small, but the trend cannot be ignored.

Some questions need to be answered before taking a vital decision to insource the task in house.

1. What are my Objectives?

A good practice is to start is to ask yourself what you intend to achieve by insourcing, Cost savings? Better service? Faster innovation? Once you’ve recognized your goals, assess your existing costs, service, quality, process efficiency, and personnel requirements against competitive market standards. Keep questioning your assumptions to make sure they’re realistic.

2. Can my in-house IT team support my future needs?

Whatever the sourcing strategy, you have to consider future requirements. Develop a future state vision statement that replicates your economic and business assumptions in order to consider what sourcing strategy will return the most benefits long-term.

3. How long will insourcing take?

There are various aspects that are unique to each sourcing agreement. At a macro level, the complexity of an insourcing project must consider in what tasks were outsourced and what percentage of the staff is still local to the client. How long it will take to see a return on insourcing is an even greyer area. Some deals reach a positive ROI from insourcing in less than 10 months, and some take ten years “There are no simple rules. It purely depends on the complexity of the project.

4. Do I have business buyer?

Nothing will destroy an insourcing project faster than aunenthusiastic reception from business leaders, Get key stakeholders involved in the discussion early. And make sure to evaluate what impact insourcing will have on major projects that are underway in order to address business users’ apprehensions.

However, Insourcing offers a brilliant opportunity to strengthen existing business with his choice of skilled resources with as much degree of management and involvement as he sees fit. It also brings in the complexities associated with it which otherwise would have been outsourced.

Early Contract Renewal

Renegotiating / Renewal of contracts are considered as a win-win scenario for both client and vendor. Considering today’s outsourcing environment, it is not a choice but a necessity. In long term (three years or more) relationships client’s business and technology needs keeps changing. Therefore it is advisable that both sides are flexible enough to modify the agreement over the life of the contract.

Clients view renegotiating / renewal of existing contracts as a highly effective strategy to revise / align scope, pricing and build a mutually beneficial relationship with vendor.

CLIENT CONSIDER FOLLOWING BEFORE RENEGOTIATING / RENEWING CONTRACT

1)       Pricing model

• Discrepancy between current market pricing and contract rates

2)       Operating model

• How effective is the current delivery model (near shore, offshore, onshore)
• Rate of delivery failure

3)       Scope of service

• Meets existing business needs
• Ability to meeting future / revised business needs

4)       Quality of service and risk

• Review quality of services / deliverables as per SLA
• Identify risks not covered in SLA

5)       Contract terms

• Flexibility provided as per terms mentioned in contract
• List of terms that are no longer relevant
• Incorporating new terms based on lessons learned / industry good practice

6)       Will insourcing or switching providers be trading one set of problems for another?

 

KEY REASON TO RENOGOTIATE / RENEW CONTRACTS

1)       Expand / change in scope because of new offering / needs

2)       Change / Clarity in pricing

• Fluctuating market conditions that may result in a client paying prices that are higher than current market rates
• Move from time and materials to a fixed-price model or vice versa
• Move to a pricing model that better represents a long-term relationship
• Adjust pricing because of added scope

3)       Realign both parties interests and strengthen relationship

4)       Technological innovations (such as grid and cloud computing) that may affect the effectiveness of an outsourcing agreement

5)        Clarify contract terms

• Regulatory changes (such as new privacy and security policies)
• Clarify some terms, considering the relationship grew deeper and more collaborative than original envisioned
• Restructure contract to allow for continuous growth without having to renegotiate the contract every time
• Establish new billing metrics regarding what constitutes an added resource cost (ARC)

6)       Unsatisfactory service levels and quality issues

QUALITIES IN VENDOR THAT TRIGGER EARLY RENEWAL

1)       Flexibility

2)       Feeling of partnership and One team

3)       Honesty / Integrity

4)       Customer focus

5)       Overall performance

CLIENT ADVANTAGES: RENEGOTIATING / RENEWING

1)       Delivery aligned with business needs

2)       Avoid new vendor selection process

3)       No transition disruptions

4)       Delivery challenges are addressed

5)       Align cost with the market price

6)       Liberty to revise / add new terms in the contract

CLIENT RISKS: MIGRATING TO NEW VENDOR

1)       Service disruption

2)       Transition costs

3)       Loss of knowledgeable resources

4)       Complexity in managing multiple providers

VMO because –

One size doesn’t fit all

Each company has their unique needs which may be different from that of other companies. This is the reason no two vendors are similar and therefore sometimes making an attempt to force a relationship with a vendor which contrasts one’s company culture, volume can be like trying to fit a square peg in round hole.

There is no denying to the fact that organizing one’s vendors can save a considerable amount of money, but not every vendor or deal gets same amount of attention from the vendor management office. The aim is to allot resources to the relationships that have major impact on enterprise strategy.

It’s necessary to first know what one is looking for in a vendor. Then weigh the vendors depending on the most crucial things, things which fall into tie breaker category. Having a clear vision how the vendor would be selected saves a lot of guesswork and some serious headaches.

Fix a target and then make a list. This would give a clear picture of how much a vendor needs to deliver in a period. Keep a track of all the past relationships, which vendor performed extremely well and which vendor disappointed.

Having a good vendor management system in place is not a simple process. It is a continuous process of maintaining communication with vendors, so by knowing and communicating one’s expectations to supplier one can lessen the possibility of misunderstanding and problem in supply. By having a good vendor management, a company will be in a position to be successful.

IT sourcing is not “buying toilet paper”

Vendor management is a complex task. It has a wide range of influence on the business. Maintaining good relationships with the existing vendors’ means on-time and efficient delivery.  On the other hand, poor vendor management system can lead to bottle-necking and other inefficiencies. Vendor management comes down to a lot more than simply trying to haggle for the lowest price. Enterprises that have a formal vendor management group clearly gain both monetary and strategic advantages.

Communicating with vendors is just as important as communicating with customers. Having proper communication with vendors builds a win-win relationship with vendors as it leads to increased efficiency, reduced costs, better customer service and more over it builds trust amongst two parties.

Gone are the days when organizations focused on price, without understanding the underlying technology issues that affects IT’s ability to serve business needs. Today, large organizations need vendor management because of their scale.