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OPTIMISING A GLOBAL WORKFORCE

February 1st 2016 - Monday

This article explores how companies should make decisions when dealing with a fresh wave of sourcing initiatives.

By Hemant Puthli & Pankaj Dheer

Global sourcing is an imperative for global corporations looking for competitive strengths in cost leadership, labour flexibility and access to skills. Sourcing options have increased in complexity, making it critical for corporations to use smart tools and methodologies to determine what should be sourced and what should be retained as well as how and from where the sourcing be done. These questions pertain equally to outsourcing relationships with By Hemant Puthli & Pankaj Dheer third party suppliers with a global presence, internal teams (a captive centre) in various offshore locations or a mix of both. Outsourcing has become a standard and accepted strategy for business leaders today thanks to the acceptance of the notion of “core competence” as the focal point for structuring a business.

 

Many companies now have a mix of relationships with their own internal teams and supplier partners all over the world and striving for excellence in core areas while outsourcing the rest is common wisdom. After years of using these guidelines as a rule of thumb, companies now often resemble a web of relationships, with the head office connecting to other companies and internal teams located all over the world. And yet many companies have painful experiences with offshoring, either in terms of disruption to business, or goals not being met, or occasionally needing to reverse course and insource processes or roles. In this article, we explore how companies should make decisions when dealing with a fresh wave of sourcing initiatives. In particular, we’d like to focus on a key question: If you have the need to ramp up services in a particular area then how should you approach the decision? Can you increase the load on an existing service centre? Or should you look at launching a new Request for Proposal (RFP)? Or should you initiate a project to build a new captive centre?

“There is a need to analyse how close to the core a process really is and how it might be considered for sourcing depending on the context.”

To help organisations answer these questions with fact-based confidence, Neo has developed the Attractiveness & Fit Model, a comprehensive framework that managers can use to analyse the affected roles and functions that will provide an objective, datadriven basis for this decision and take away the guesswork.

Optimisation Context

Let us consider a typical scenario where such management decisions need to be made. Assume a large company with the following characteristics:

1. The company has a range of Global Delivery Centres (GDCs) in several locations, captive centres and some outsourced relationships with suppliers.

2. It has a need to explore more offshoring that significantly adds to the existing outsourcing portfolio, due to drivers such as a new business initiative, diversification plans, acquisitions or other strategies mandated by either a new leadership or a change in stakeholders’ priorities and perspectives.

3. Growth in business requirements often means growth for the various suppliers or services. This exploration of where new services can be accommodated could become an excellent opportunity to review the current outsourcing portfolio and customer satisfaction levels.

In this scenario, the company must decide the optimal approach to handling this growth, given their current supply base - GDCs owned by the client, owned by a third party supplier or a combination of the two. We propose breaking down this decision into two key criteria for each process or role under consideration:

 

1. A ttractiveness - How beneficial is it to move a given process or role to another location, relative to the ease or difficulty of moving such a role or process?

2. Fit - Is a specific GDC suitable for hosting this given role or function that has been identified as attractive?

Depending on which roles, processes or functions the company plans to expand, it may not be desirable to leverage offshoring. For instance, the criticality of a given process and how it fits within the company’s value chain may prove too close to its core competencies to be considered appropriate to offshore. This analysis must take place before any further steps are taken.

If it is determined that moving the process is an attractive proposition, then management must decide if it fits in at one of their existing, stable GDCs or if they need to build a new GDC either by themselves or through a supplier partner. We will explore both of these aspects – the attractiveness as well as fit – in more detail.

Core vs Context: The first gating criterion

To answer the preliminary question of whether or not a process is appropriate to be moved offshore, organisations must first consider where that process lands within their value chain. Neo’s Core vs Context model can be used to help organisations decide what to retain and what to source. For the purposes of this discussion, the main concepts of this analysis are summarised here.

Organisations should retain processes, services or functions at which they really excel and which create competitive advantage. Naturally, if these processes were managed externally it would erode the competitive advantage of the organisation. Clearly, processes falling into this category should never be sourced. All other components of the enterprise would be contextual and could be considered as candidates for sourcing. However, there is usually a grey area between those processes that are obviously core to the business and those that can obviously be sourced. In addition, the market is constantly changing and what was once core may no longer be so.

So, there is a need to analyse how close to the core a process really is and how it might be considered for sourcing depending on the context. Neo Group’s Core/Context Cube helps companies clearly situate processes as either Core (known to be strategically essential) or Context (might be essential, might not), based on data gathered pertaining to specific process characteristics that Neo has identified over many years of analyses. The same type of calibration is applicable to roles as well. In the Core vs Context: Capabilities diagram, you can see that if a role involves “hot skills,” is strategic and transformational for the business and involves business integration, then it should be considered “Core” and moving it out is not a very attractive proposition.

How to think about Attractiveness

Assuming a process or role is found not to be “Core,” how should a company decide whether it is “attractive” to offshore? In this case Attractiveness” is a measure of the potential benefit of moving a given role or function to some low-cost location. Criteria that determine Attractiveness typically include:

1. Customer/Cultural Affinity

2. Partner/Ecosystem Affinity

3. Uniqueness of expertise

4. Costs incurred at home location

Presuming that the Attractiveness analysis demonstrates that the processes can be moved offshore, a simple decision quadrant can help to further decide if a specific GDC is a good Fit for the process in question.

How to think about Fit

This initial Attractiveness analysis determines if the process is desirable to move to an offshore location based on the context of the process and where it fits within the core of the organisation. If the result is favourable, and moving to an offshore location is a possibility, the next step is to consider which offshore location and partner should take on your new work.

Before considering sending the work to a new GDC, it’s important to evaluate whether an existing offshore team (either your own GDC or at a vendor’s facility) could effectively scale up and/or expand scope to meet your growing needs. Leveraging an existing partnership can offer considerable efficiencies and cost savings, as opposed to issuing an RFP or building a new captive.

Measuring a specific GDC’s Fit will help you quantify how suitable it is for hosting a given role or function that has been identified as Attractive. Criteria that determine Fit typically include:

1. Talent Availability (Scope + Scale)

2. Process Maturity

3. Facilities and Infrastructure (functionality, feature, scalability)

4. Costs (likely to incur if the roles under analysis were to move to this location)

5. Location Risks

The Fit criteria are most focused on whether the required new processes can fit into the existing operational base at one of the GDCs currently operating in “steady-state” mode (i.e. not in the middle of a transition or transformation on something else). When deciding on fit, it is important to consider any waves of transition, too, so it is clear whether a long term fit may require several waves of transition to be achieved.

In an RFP situation where a company is evaluating potential partners, the Neo methodology only considers the Attractiveness analysis as inputs into the requirement definition of the RFP. Typically, the evaluation shortlists only those vendors that match the preliminary qualification to receive the RFP. Therefore, the Fit is implicitly subsumed in the RFP cycle and a separate analysis of Fit is not required. The winning bidder would essentially be the one who offers the best Fit currently available in the market.

Case-Study – Gaming

 

A gaming company wanted to consider if specific roles could be conducted offshore and therefore required a complete Attractiveness & Fit analysis to determine which roles – if any – could move. The company already has a GDC in Bangalore, India, thanks to a previous acquisition.

Neo’s two-stage analysis involved:

1. Identifying processes and roles that qualified as Attractive for remote operability

2. Determining if the existing offshore facility (the Bangalore GDC) was well-suited to host those competencies.

The key question was, could the offshore centre in Bangalore handle future growth in headcount, and if so, which roles were most “fit” to grow there?

In order to find the best answers to those questions, the Neo team studied the gaming industry value chain and categorized the various kinds of processes and roles as: Business, Creative, Engineering and Operations, based on the primary competency involved in successfully performing the tasks involved. For each role under consideration, Neo evaluated the “Attractiveness” and “Fit” on a scale of 1 to 5. The Attractiveness data was scored based on interview feedback and the Fit data was scored based on offshore market knowledge and research. Plotting the roles on the Attractiveness & Fit grid based on their scores clearly maps an appropriate course of action for each role:

  1. Roles with high scores for both “Attractiveness” and “Fit” tend to have low affinity for being physically in the US and are easy to hire/train and retain (offshore), thus they should be relocated to Bangalore.
  2. Roles with low scores for both “Attractiveness” and “fit” tend to require a high degree of expertise and would be difficult to manage offshore, thus they should be retained in-house.
  3. Roles with high scores for “Attractiveness” but low scores for “Fit” may be easy to move out from their US team, but the Bangalore GDC doesn’t have the skills or capacities to take on the work. In this case, we recommend exploring other GDCs.
  4. Conversely, roles with high scores for “Fit” but low scores for “Attractiveness” could include roles that the Bangalore GDC is already performing for other clients or has the capacity to take on, but potential benefits aren’t strong enough to warrant offshoring.

“The criticality of a given process and how it fits within the company’s value chain may prove too close to its core competencies to be considered appropriate to offshore.”

For this gaming client, roles such as “Art Director” scored low on Attractiveness, whereas roles such as “Release Engineer” and “Flash Artist” scored high on Attractiveness. Roles such as “Performance Engineer” and “Ad Ops Coordinator” emerged as being Fit to be grown in the Bangalore facility, whereas roles such as “Data Scientist” and “Director of Insights” did not seem to be Fit for transition to Bangalore.

Benefits Through this analysis, the following objectives were achieved for the client:

1. Realistic assessment of globalization aspirations

2. A n industry agnostic methodology to be used in future initiatives as well

3. A blueprint for project planning

4. A workable plan to strengthen management capabilities – onshore and offshore

5. Effective onshore/offshore operating model

6. A point of arrival for its offshoring overall benefits case.

The Attractiveness & Fit analysis enabled the gaming client to identify the opportunities that could be moved to the evaluated GDC immediately and in this manner, the company was able to optimize its sourcing portfolio and get the best of its supply side resources.

Conclusion

As you consider your options for your next wave of global sourcing initiatives, here are some additional thoughts to keep in mind:

  1. When considering new sourcing requirements it is tempting to issue a new RFP. The RFP gives executives the opportunity to explore new partnerships, enjoy the possibility of working with new partners or in new locations. However, with companies already using outsourced suppliers and/or captive centres, diligence is required to evaluate upfront whether the existing supply base can cater to the new demand.
  2. B y stepping back and methodically analysing data pertaining to each process to determine its attractiveness to move offshore and its fit with any of your existing GDCs, considerable efficiencies can be gained – as compared to opening a new sourcing location or supplier relationship.
  3. Parameters that characterise Attractiveness and Fit may vary across companies, but broadly range across: a customer/partner affinity b. location economics and talent availability c. ease of acquisition and retention.
  4. There can be difficulties involved in scoring these parameters. Although this process is designed to be more systematic than using just experience or hunches, it still relies on the skill of human experts to assess the difference between scoring a 3 and a 4 when evaluating a particular process out of 5. By having more knowledgeable and skilled practitioners carry out the scoring, subjectivity is reduced.

Analytical tools and methodologies offered by global sourcing consultants have become an essential part of the solution to sourcing puzzles. The balance of quantitative data and qualitative expertise help global companies realise optimal benefits from global sourcing while remaining aligned with strategic long-term objectives.

Hemant Puthli is a Partner and Senior Vice President at Neo Group, where he is responsible for assisting clients in the development of their outsourcing strategies and governance models. Hemant brings over 25 years of experience in Management Consulting and IT Services, having served several clients in North America and India.

Pankaj Dheer is a Senior Director at Neo group, Pankaj brings over 20 years of experience in Buy Side Strategy Roles, Client Management and Operations. He has procurement, offshoring and ops experience across BFSI, Media, Gaming and Telecoms. Having worked in the APAC, Americas and UK region, he is adept at understanding the pulse of Client Communities, their areas of stress and partner expectations.

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