Many a times when “Sourcing” is mentioned, people tend to think of it “Out-sourcing” or “offshoring”. The truth is that “Sourcing” is a much more holistic strategy that defines how an organization sources a unit of work.
Companies practice many different Sourcing models like In-Sourcing, Out-Sourcing, Staff Augmentation, GDC, ODC etc. Out of all these models, “Outsourcing ” and “Offshoring” have become famous due to its cost effectiveness, diverse educated labor pool, and timing zone advantages. Offshore Outsourcing is an increasingly popular business strategy. Let’s look at definitions first –
“Off-shoring is mainly about sourcing specific IT functions to lower cost regions that are different from your corporate headquarters”
“Outsourcing means corresponding with the service provider/expert within his area of expertise and getting the work done for the same“
Types of Offshore Models:
There are several offshoring models, some listed below:
- Onsite resource with Offshoring: Few service provider resources “onsite” and large team offshore, in countries like India, Brazil. Onsite resources used mostly for coordinating the development activities betwene client and offshore
- Total Offshore: Service provider takes and implements the work in totality. This model works if the scope is well-defined and the work is discrete enough to be done remotely with little supervision
- Global Delivery (Onsite/Offshore) Model: Similar to “Onsite resource with Offshoring” above, but at a much larger scale. Service provider effectively runs the project/program with minimal resources onsite woring with clients and pushing much of heavy lifting offshore. Most of Indian firms like Wipro, TCS, Cognizant, Infosys follow this model
- Multisourcing: Clients Outsourcing work to multiple vendors to reduce risk
- Build-Operate-Transfer (BOT) Model: Here’s how it works
(a) Build. The service provider provides a complete solution for building a dedicated centre for a client in a particular country
(b) Operate. The service provider provides a comprehensive set of operational management services
(c) Transfer. The client has the option to buy the entire operation after a fixed period
Conglomerates like GE have BOT models with companies like TCS, Wipro and others
- Dedicated Development Team: Service provider operates as an extension of Clients’ Development team
Three common Engagement & Billing Models are prevalent in Offshore Outsourcing – (a) Time-and-Materials (T&M) with Not-to-Exceed clause (b) Fixed-price contract (c) Milestone based engagement
Companies are spending upwards of 7% on Outsourcing and is projected to trend upwards.
Selecting a right offshoring model is a crucial aspect of developing company’s outsourcing plan. Selection depends on several factors like clients’ appetite for risk, core comptencies required for business vs. what can be commoditized, cost, professional skills, culture compatibility, timezone differences and such. Evaluate the benefits you stand to gain in terms of cost savings, process efficiency gains, quality improvements, and competitive advantages and choose a place that offers the maximum strategic benefit at the minimum risk.
What is your company doing w.r.t Offshoring?