Michael Hart : In order to best serve our clients, we at EquaTerra continually monitor and research all outsourcing and shared services market activities and trends. With respect to offshore outsourcing, the results of our 4Q05 (fourth quarter of 2005) “Pulse Surveys” indicated strong growth, although it was flat quarter-to-quarter.

The bulk of the growth over the next 12-24 months in the Human Resources Outsourcing (HRO), Finance & Administration Outsourcing (FAO) and procurement spaces will occur more through the utilization of remote delivery centers of multi-national BPO service providers as opposed to offshore-based providers, though that option will grow in 2006-2007. Other observations include :
• There has been a substantial increase in the offshoring of mid-tier, back-office FAO processes.
• The size of contracts has reduced, and this trend is likely to continue.
• Major investments are being made in regard to training and recruiting skilled people.
• The focus is shifting more toward quality and away from cost savings alone, but labor arbitrage will still remain.

Michael Hart : Most of the questions we receive focus on the issue of quality, especially as it relates to call center and help desk offshoring where good verbal skills – in terms of accent and dialect – are critical to providing solid customer service. The queries also focus on the knowledge transfer issue, primarily in the areas of domain expertise and training.

Michael Hart : There has undoubtedly been an evolution in the reasons organizations decide to offshore components of their IT or business processes. Today’s reasons include: 1) There is now a true global economy; 2) The offshore pricing model is now better understood; 3) Technological advancements make IT and business process offshoring more feasible; 4) Customer and vendor relationships have become more sophisticated; and 5) There is a greater acceptance that a properly offshored process can be done faster, more effectively and more efficiently.

Michael Hart : I have less experience in terms of captive offshoring. However, the motive would be to obtain internal centralization and leverage the global labour arbitrage offshore markets. At EquaTerra, our process and experience is to advise according to the delivery scale and requirements of the client. A service delivery assessment would include review of captive centers and how their benchmarks compare for the in-scope work to other delivery models like shared services or outsourcing. Very few organizations have the volume and scale to establish a cost efficient captive center.

Michael Hart : There are several sustainable advantages to the third party service delivery model. First is the proven ability to deliver high-quality services efficiently and cost-effectively. Second is the fact that the third-party service provider has already made significant investments in setting up a state-of-the-art centre equipped with the right people and the right infrastructure. Third, they must periodically reinvest in their delivery model and re-engineer the services they provide, which can only benefit their clients.

Michael Hart : The hesitation initially develops when an organization considers the existing employee base and whether or not the transition is reasonable and feasible simply for labor arbitrage’s sake. The corporate culture “fit” between that of the company and that of the service provider is also a major concern. The customer-facing quality issue also looms large in weighing whether or not to offshore. Offshore outsourcing has proven to be a very valuable service delivery model for many organizations, but the many business and people-related factors make the go/no go decision-making process extremely difficult.

Michael Hart : We don’t advise our clients to evaluate a vendor based on their tier standing. Rather, we help our clients evaluate the short list of vendors that we are certain excel in the type of IT or business processes that are going to be offshored. Our firm maintains an extensive database of vendor profiles for most of the major BPO and IT outsourcing services globally.

Equinox : What common mistakes do companies make when they offshore?

Michael Hart : The most common mistakes include:
• Lack of strong executive sponsorship.
• Underestimating the magnitude of transaction, the training and the knowledge transfer involved.
• Executing too quickly.