Outsourcing to Rightsourcing through Virtual Captives

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Third party outsourcing model has been primarily generating lots of jobs over last two decades in India. The focus for these companies had been traditional to increase their headcount as revenues get tightly linked to headcount numbers.

Technology has been all along reducing the manual labor need in the industry. Information technology only accelerated this trend. The irony is the fact that while technology automated so many things, it remained so far the most workforce intensive business. With 200,000 plus headcount and about $10 Billion in revenues, Infosys stands in total contract with another Indian company Reliance Industries that is $51 Billion with only 25000 employees. This data proves that IT outsourcing industry always remained low value added business model per employee, but over last few years, IT started automating itself. Information technology this time started the initiative of improving its value per employee through rapid automation and by introducing technologies that are shaping up the new industrial revolution.

Automation is rapidly killing the need for more workforce and forcing traditional IT companies to cut down their headcount to keep their costs low. This vicious cycle is certainly going to eliminate those companies who would not evolve and keep their focus on the traditional way of doing business. The first collateral damage in this cycle is the quality of the workforce. A higher paid and better-experienced person is moved out for lower cost and less experienced. This cycle continues and with digital push becoming harder, removing the old layer is easier than another form of cost reduction drive.

Bimodal working that CIOs had been following and still try to follow in organizations have also come under severe strain. They continued to manage the old IT the old way, through standard outsourcing and perpetually trying to bring down cost through cost cuts, vendor negotiations and whatever limited options they have. However, the other model of digital IT is slipping out of their control and getting controlled by the businesses. IT is no more a support function; it is now deeply embedded and the business itself in most of the cases. With this, a new form of technology service is evolving that is owned and managed by the business heads instead of the CIO. These businesses are not interested in the cost cut, but value improvement. They see high-quality talent as their principal focus and not low cost as their priority. They are not looking at a significant number of resources, but the right quality of resources. The virtual Captive model comes out with a different way of working.

Virtual captive model focusses on high-quality resources and adds the advantage of cost through transparent costing model.
Virtual captives provide this option and give freedom to customers to choose from the best talent they need as the cost is not the driving factor due to the integrated pricing models. We have seen the difference in cost to end customers varying from 20% to 70% for resources. On top of it, customers have freedom to move the resources in their payroll after a period. When data scientists can be hired for less than twenty dollars per hour and dev-ops engineers less than fifteen dollars, who will not see the value in such a deal. Smaller cities in India also provide further respite as bigger cities are fast becoming expensive. Outsourcing has anyway breached the boundaries of location, and smaller Indian cities can easily compensate for at least 20 to 30% of the infrastructure cost otherwise seen in larger Indian cities.

Related BlogVirtual Captives in India, The Future of Outsourcing

With such a cost advantage, it is far easier for even smaller and mid-sized companies who typically are shy of outsourcing to try the model and come up with their contribution in adding jobs that have not existed so far. It is high time both customers and providers evolve with the new form of right sourcing through a virtual captive instead of blindly adding headcount that has no future.