About Arin Brahma

Arin Brahma has over 18 years of general management, marketing and engineering experience in the field of Information Technology and Business Process Outsourcing. Currently Arin is Executive Vice President at Equinox. Before joining Equinox, Arin held senior management position with Nexgenix. At Nexgenix, he spent 8 years in building the company from a boutique consulting firm to a 600 employee strong national IT integration company that leveraged an offshore based delivery model. As an IT professional Arin had consulted and delivered solutions for several large global corporations such as Disney, AT&T, Longs Drugs, Amgen, Olivetti, Deloitte & Touch etc. Arin has published several articles on technology and business issues in national publications and has appeared as speakers in several national conferences and panel discussions.

Paul heads up TPI's International Financial Services team. Paul joined TPI in 2003 from BearingPoint, where he was Managing Director - responsible for European Financial Services MultiSourcing Transformation, including outsourcing and shared services assignments.

Paul Turrell has over 18 years experience of helping clients transform their businesses through business process and technology sourcing, with underpinning expertise in working capital improvement and operational transformation initiatives. Paul has a proven depth of knowledge in the development of sourcing strategies, including Outsourcing, Offshoring and Shared Services solutions, with a specialization in the Financial Services domains. His extensive international industry experience includes the Financial Services, Professional Services and Telecommunications sectors.

Paul : Although the UK has definitely been at the forefront of offshoring, many large European multinationals are following suit. The likes of Deutsche Bank, AXA, ABN AMRO and ING, have taken to offshoring as a sustainable strategy across their retail and wholesale domains.

Paul : I think that if you look at the way the demographics of offshoring have developed, the larger financial institutions have either established exclusive captive sourcing strategies or have adopted a third party approach and in some cases both. Smaller institutions (with lower levels of economies of scale) have been slightly slower in embracing the benefits of offshoring.

Some financial services organizations have been slow to adopt offshoring and outsourcing due to the complexities of local regulations and compliance issues. We are now, however, beginning to see more activity as these organizations appreciate the benefits of offshoring not only to India, but also Eastern Europe. German speaking countries are focusing on areas such as Romania and Hungary. It is also of note that some of the larger Indian service providers, such as TCS and Genpact, are developing capabilities in Eastern Europe.

Paul : In Continental Europe employment rules and the strength of tax authorities and local regulators has made outsourcing more complicated than in other regions. However, there is a growing appetite and understanding for the benefits that a comprehensive sourcing strategy can bring.

Although it is likely, in the longer term, that Governments in Continental Europe will take a more favourable view of outsourcing, Government legislation is not the only hurdle. Works Councils, for example, can be one of the biggest hurdles for outsourcing. However, with true consultation and a close working relationship, these obstacles can be overcome.

Paul : Offshoring and outsourcing is not just about cost saving and labor arbitrage. Many European organizations are struggling with the dynamics of a fixed and variable cost structure. For example, if an institution wishes to change focus, it can be difficult to reorganize the workforce accordingly, however outsourcing allows companies to be more flexible and respond more effectively to market changes. Although, the cost of labour in the Netherlands, Germany and other European countries is not as high as in the UK, there are still arbitrage benefits to be had from offshoring. Outsourcing also offers the flexibility to deploy resources and increase and decrease volume as needed.

Paul : Due to public opposition to call centres and the complexity of language requirements, there has been a fairly slow adoption of this type of outsourcing in Continental Europe.

Although we are now seeing some growth in call centre outsourcing due to the capabilities found in Eastern Europe, there is an even more significant demand for outsourcing back-office functions. As a result we are seeing a growth in bundled service offerings, where the service provider is offering a combination of process capability and technology support.

Another driver for back-office outsourcing is the legacy technology, with which many of the larger European organizations are struggling.

It is interesting that in the UK we are beginning to see Indian service providers taking on affected staff as well as providing the technology. Indian providers are increasingly looking to provide transformational as well as arbitrage benefits to their customers.

Paul : Countries in Northern Europe are more likely to consider outsourcing than their southern counterparts. Traditionally, companies have looked to outsource to save costs and this is best achieved where you have higher labour costs. In Southern Europe there is less scope to benefit from labour arbitrage. As companies look beyond cost as a driver for outsourcing, we should see a higher take up off outsourcing across Europe.

Paul : As service providers become more experienced and increase their capabilities they are able to offer a wider range of services beyond simple cost savings. At the same time clients are also growing in experience and are demanding more from their service providers. As well as cost savings, clients are increasingly demanding ongoing process improvements and innovation.

Arin : Companies have the option to build and test new methodologies and systems in an offshore environment and thereby avoid the risk and disruption to their day-to-day service. Once implemented and thoroughly tested these innovations can be adopted company-wide.

Paul : The three most common approaches deployed in outsourcing today are: captive operations, working with an outsourcing provider, and the use of a synthetic captive. In this third model, the organization is able to retain more control and the relationship is more of a partnership than a simple service provision agreement.

All of these models have their advantages. The approach selected will depend on whether the primary driver for outsourcing is cost, or whether the client wishes to retain control of its processes and intellectual property. Many financial services organizations have built captive operations in order to leverage offshore labour arbitrage, whilst retaining full control.

Arin : Why are people trying different models?

Paul : Many organizations start with a captive model, take the benefits of arbitrage, then reinvent the processes. Many then realize that these processes are not sufficiently differentiating and they, therefore, move them to a third party provider to achieve ongoing economies of scale.

Others are simply not interested in setting up their own offshore operation and go straight to a third party provider. This allows them to benefit immediately from proven processes and labour arbitrage.

In a synthetic captive model, the client retains control over selection hiring, governance etc while the provider gets the benefit of a guaranteed revenue stream. This allows the client to retain control of their intellectual property yet also save costs.

Arin : Is there a trend towards companies using synthetic captives?

Paul : Clearly a key determinant of the captive versus non-captive debate centres on the regulators. It is easier to offshore a highly regulated activity to an in-house environment, than to an offshore third party.

Arin : What are the benefits and challenges of a multi-vendor strategy?

Paul : The bottom line is not whether you choose a single or a multi-vendor strategy, rather that you build a strong governance framework to effectively manage the relationship. There is now a growing awareness, especially amongst companies with experience of outsourcing, that multi-sourcing or best-of-breed is often the better approach. Multi-sourcing allows clients to leverage multiple service provider capabilities, deploying the best of each provider’s core competencies. It also keeps the cost of service delivery at market-competitive levels. By working with two or more outsourcing providers, the client can expect one to bid against the other to provide the same services. Such competition among providers is beneficial to clients, as it tends to drive pricing down and the quality of service delivery up. Organisations must, however, ensure that they are able to handle this new level of complexity by having adequate governance and relationship management arrangements in place.

Arin : How are the traditional outsourcing companies coping with competition from their offshore counterparts?

Paul : Within the medium term, the larger offshore providers such as Infosys and TCS will be almost indistinguishable from the likes of Accenture and IBM. In addition, the established outsourcing providers will continue to develop their global capabilities to match those of the larger offshore providers. Some smaller providers will focus on developing niche capabilities rather than trying to compete on a global scale.

Arin : Is a service provider’s scale more important than their domain knowledge?

Paul : As clients gain experience of outsourcing they are increasingly looking for a provider who can meet their business needs as they evolve over the lifetime of the contract. Both scale and domain knowledge will continue to be important and which takes precedence will depend on the scope of the work being outsourced. By employing a multi-vendor strategy companies can leverage the benefits of both scale and domain knowledge.

Arin : How do advisory firms like TPI assist companies in formulating their offshore strategies?

Paul : TPI works with clients to develop a concise and precise definition of requirements, including statements of work, service level agreements, pricing structure and business terms. Then we help guide the client-selected service provider(s) to develop the best solutions for client’s needs and create and maintain strong client relationships throughout the entire sourcing lifecycle.

Sourcing advisors work most effectively with clients when they are involved in the process from an early stage. By helping clients to define their operating models and how these will evolve over time to meet ongoing business needs, it is then possible to develop a comprehensive sourcing strategy.

TPI is the world’s largest sourcing advisory firm working only for the client-side of sourcing transactions. We help organizations make informed, lasting and substantial performance improvements through the appropriate use of sourcing, based on our objective advice and independent stand in the marketplace.