By Ann AllCompanies used to have only a few locations from which to choose for the delivery of their outsourced services. In the 1990s the answer to where to send such work was almost India. Now, however, it’s an entirely different story – as was evident by a spirited panel discussion at last week’s Nearshore Nexus conference. Companies must consider a number of key factors when making such a decision, including cost, context and speed.
As Kevin Parkih, global CEO and a senior partner at consulting firm Avasant, noted, outsourcing “is not one size fits all” and many if not most buyers now opt for a multi-delivery model that may encompass offshore, nearshore and onshore locations. Generally speaking, the panelists agreed, it’s best to keep contextually sophisticated tasks close to home – or to the market in which end products or services will be consumed.
Stephanie Moore, a former Forrester Research analyst who is now the president of Ameritas Technologies, a domestic outsourcing provider, said there is no substitute for the contextual understanding onshore workers bring to performing outsourced tasks.
As technologies grow more sophisticated, she said, “The person who is coding and supporting an application needs to understand how it will ultimately be used, or you may find yourself looking at expensive rework.” While there is value in getting software developed in fewer iterations or in not having to spend as much time on defining specifications, employing software developers with contextual understanding – usually onshore or nearshore – will be more costly than using offshore developers, said Atul Vashistha, chairman and CEO of consulting firm the Neo Group. And it isn’t always necessary.
“You need someone who can quickly learn the context for more advanced work, but if you are just doing SAP maintenance then you don’t really need that,” he said.
“You start with a strategy and go from there,” said Greg Lipper, vice president of Global Business Services at office supply firm Staples, who noted that it’s important to use more of an activity-based costing model instead of simply comparing FTE rates in order to determine when it’s worth paying more for contextual knowledge.
Big Data analytics is an emerging practice that will demand a great deal of contextual knowledge – at least at first, said Vashistha. “If you’re doing a Big Data retail application, then you better know retail. If you’re doing a Big Data health care application, then you better know health care,” he said. “Because it will require a tremendous amount of context, that work will be done first domestically or nearshore. As it becomes more mature, some of it will migrate offshore.”
Agile software development is another area mentioned by the panelists that benefits from an onshore or nearshore model, because it’s often important for developers to communicate with analysts and other business stakeholders in real-time. The agile trend has benefited Latin America because developers there are often in the same time zones as their clients but can offer their services at a lower price than American developers.
The growth of agile development, Big Data analytics and other activities that demand more creativity and collaboration are definitely creating more interest in onshore and nearshore models, said Parkih. While it was common until fairly recently for companies to try to do about 90 percent of their outsourced activities offshore and about 10 percent onshore, he said “the pendulum is shifting back” with many companies now using 70/30 or 60/40 models.
When looking for context and creativity, companies must also consider the overall expertise of service providers and not just where they have delivery centers, Parkih said. Yet the two often go hand-in-hand. A provider with deep domain knowledge in insurance, for example, will likely locate its delivery centers in regions where it can attract employees well suited to the industry.
Lipper said he looks for providers with “a good mix” of locations to help him achieve his goal of “the right work in the right place for the right reasons.” He is trying to move as much as possible toward a “one-stop shop” model because dealing with fewer vendors allows Staples to move quickly to pursue business opportunities.
“That need for speed is common,” he said. “The provider who is swift enough will win the business, even if they cost more.”