Offshoring Journey's Cost Driven to Value Driven

March 31, 2016 11:26 am | Updated 6 months ago.

By Arup Gupta

Like many other business initiatives, offshore outsourcing in the 1980’s started with the primary objective of saving costs from the IT budget of the enterprises. With this objective in mind, most offshore outsourcing initiatives during this period focused on:

  1. Transitioning as much work to offshore as possible
  2. Improving communication to reduce defects and failures
  3. Strengthening offshore processes relating to knowledge transition, knowledge retention and overall knowledge management
  4. Improving security aspects to ensure the protection of competitive and confidential information relating to enterprises
  5. Strengthening of offshore processes to improve quality of delivery, adherence to schedule and SLAs, change management and program management

While the above measures, including the certifications received by the offshore vendors from ISO and SEI, ensured that the offshore vendors could deliver in line with the specifications provided by their clients, the question that kept coming up is how to manage the requirements and design specifications while the business and technology environments are changing ever so rapidly. If there are continuous changes to the specifications, then either the offshore vendor will fail to deliver or the cost of delivery will go up substantially and, thereby offsetting any benefit from the offshoring initiative, or in most cases both.

In view of the above, to manage the need for continuously changing specifications resulting from rapid changes in business scenarios and also in the technology environment, most offshore outsourcing initiatives in Phase II (in the late 1990s and early 2000) focused on:

  1. Agile methodology, where software could be developed, tested and deployed in small sprints
  2. External QA to ensure that testing is done as per specification and is not biased by the understanding of the developers

iii.    Changing the composition of work done onsite and offshore, with more business critical and complex functions that are likely to change frequently to be done onsite and more routine work that are likely to remain relatively static to be done from offshore etc.

These measures, as expected, did enable the offshore vendors to deliver software meeting the continuously changing requirements of the customers to meet their business challenges.

The problem that remained, however, was that it was left to the customer to keep specifying changes to his IT system requirements by tracking

  1. Changes to business environment
  2. Changes to Technology environment and
  3. Strategies adopted by the competition and the resulting changes to the competitive scenario.

Over the last decade, with the business environment becoming increasingly competitive, the customers really had to spend most of their time in driving their business and leave the responsibility of defining the specifications of the IT systems, addressing the needs of the business and also taking into cognizance the factors indicated above, to the IT vendors.

This really is the genesis of Value Driven Outsourcing, where the performance of the IT vendor is evaluated by measuring the value that the IT Solution delivers to the business. The better the IT vendor is able to analyse the changes occurring in the business environment of the customer, the changes happening in the world of technology and the competitive strategies being adopted by the competitors of the customers, the better will be the value delivered by the IT Solution designed by the vendor.

Given the fierce competition in today’ business environment, everyone needs to focus on their core competency. It has, therefore, become a rule rather than an exception for the customers to expect value-driven outsourcing that far outweighs just the benefits accruing from mere cost saving. In fact, a large number of customers today are insisting on “Outcome-based Pricing”, where the payment to the vendor will be linked to the growth or improvement in customer’ business.

D2E Consulting, with its established network of consulting and niche delivery partners, is focused on value- driven outsourcing.