Today’s businesses are faced with such a plethora of complex situations and operational models when it comes to outsourcing their needs that the only binary aspect remaining for the CTO/CIO seems to be whether he chooses the ”right” or “wrong” approach !
Due to the increasingly volatile and complex global economic situation, there is a pressing need for all businesses to reduce costs and improve operational efficiencies to survive and thrive.
This mostly arises through technological innovation, which in turn translates into the need for a growing number of diverse IT services, all working synergistically towards the same goal.
Success or failure of the business depends on its ability to choose a service model that enables delivery of outcomes on time, within budget, and to specification.
Relying solely on in house IT capabilities to complete projects or provide services comes at high cost and with high risk, as in today’s milieu the IT needs of an organisation are dynamically changing, demanding high adaptability and responsiveness, collaborative innovation that the right partner and IT service delivery model can provide.
Major types of models used :
1. Staff augmentation: At the very bottom of the value chain lies staff augmentation. Staff augmentation usually requires minimal contracting effort, has a simple cost model (i.e. rate times billable hours), can scale up or down quickly to fill in areas where skills are missing by augmenting existing in-house staff with outsourced/contracted workers.
This model can be considered for quick fix solutions capabilities and skill shortages, and in situations where costs are scalable to demand. However, in the long-term costs may be higher than most other models and it requires high client-side involvement managing the augmented resources.
2. Managed Services: In a Managed Services model, the client gives both risk and responsibility to the service supplier, who has to manage the holistic operation including tools ,processes & governance. It is an outcome-based model with result-oriented pricing. With a stringent and exacting operational credo ,detailed planning is of the essence. Specific requirements and desired outcomes must be detailed by the client while the onus for productivity control is on the supplier.
The Managed Services model is often attractive to organisations as the pricing structure is based on regular monthly billing with guaranteed service levels, quality and throughput. This greatly reduces volatility in costs, thereby enabling more stable budgetary planning.
*Risk Reduction via transference of responsibility to the service provider
*Fixed, predictable cost outflows
*Knowledge Retention via maintenance of all company information assets by the vendor
*Focus on Core Business is enabled, large degree of freedom from IT concerns
However, Managed Service Providers(MSPs) do not come cheap, have a low locus of controllability and limitations in technical scope, especially when it comes to dealing with 3rd party software that is not on its list, dealing with new requirements that are not in the original contract.
3. Shared Services vs. Managed Services:
Shared Services on the other hand, is a business model that leverage resources across an organization. This results in lower costs with agreed-upon customer service levels.
Whilst the “managed service provider works in a “fully outsourced model” to remotely manage their customer’s IT infrastructure and/or end-user software & systems, a Shared Services model functions as a separate business unit that delivers varied and numerous services to both the corporate functions and operating business units(http://bit.ly/diffrnce).
By doing so, it enables each business division to concentrate its limited resources on the specific activities that support the division’s business goals with a laser like focus.
*Cost Efficiency via centralization of back office operations and elimination of redundancies
*Optimization via a highly skilled set of vendor resources bringing in their own ideas to optimize business functions at a unit level, cascading into the enterprise
*Enablement of optimized decision making with data analysed and delivered as actionable information
*Scalability of service scope in the case of acquisition and geographical expansion at a relatively low additional cost
*Freeing of business units to focus on their specific operations and be more customer centric with the assurance of the shared services model as support
The Partner Paradox: Having understood the pros and cons of each model enables better decision making as to which is best suited . However, one key element is still missing from consideration-is there really a need to partner with a Third-party Vendor to enable the chosen model ?
Instead, why not have a company retain absolute control of its operations by offshoring its own work-to its’ self-owned, lower cost extended arm offshore operation?
4. Captive Centres: This is precisely the premise behind the establishment of the Global Capability Centre(GCC) also known as the Global Inhouse Centre(GIC) or Captive Operation.
Gartner defines Captive Centres as client-owned-and-operated service delivery centres, typically in a non-domestic, low-cost location, that provide service resources directly to their organization. The personnel in a captive facility are legal employees of the organization, not the vendor (http://bit.ly/Captvs).
Challenges & Deterrents:
*Upfront Initial CapEx investment is required, usually on a huge scale
*ROI is not achieved for a long duration, typically ranging between 3 to 5 years
*Setup of operations brings with it a variety of demands ranging from Business case evaluation to Location identification, Infrastructure Procurement & Set Up, Legal & contractual issues, Recruitment of a team from scratch and 24*7 management of operations .
5. Transforming Service Delivery via Virtual Captives: At ScrumStart(www.scrumstart.net), we partner numerous Fortune 1000 and smaller, dynamically growing companies alike to enable them set up their own captives via a unique model called The ScrumStart Virtual Captive (#SVC) Model. Our turnkey model covers the entire process of GCC/GIC/Captive setup and 24*7 daily operations -with Zero CapEx investment & a transparent, trust-based pricing model.
Clients have the option to completely transfer ownership of all assets of the incubated, fully functional Virtual Captive including resources, infrastructure as per pre-decided Contractual agreements.
Our partners incur 25 to 30% lower cost than they would working with a conventional Third-party Software Services provider and 30% + faster ROI compared to Industry standards. With a “Start up to Operation” time of 6 weeks or less and an ROI breakeven within one year.
In conclusion, in today’s non-binary IT landscape, when it comes to Technology Outsourcing models- there are no “wrong” or “right” choices. Only “educated” ones !
Leverage our proven experience partnering companies in customized business transformations to achieve your desired outcomes.
Letstalk@scrumstart.net or share your comments below !
About the Author:
Mr. Santosh Panicker, CEO ScrumStart, is a specialist in setting up business processes and has established himself as an inspirational leader in the corporate world. Mr. Panicker has demonstrated his capabilities in setting up end- to -end HR, legal, and business process operations for 9 start-ups through his career years. He has over 22 years of experience working across diverse industries including IT, FMCG, Retail, Automobile and consumer durables with blue chip companies