Monday, October 16, 2006

'Multishoring' alleviates 2nd year offshoring costs

By Satish Maripuri

It comes as no surprise that New England companies are just as likely to take advantage of global sourcing opportunities as companies based elsewhere. Research has shown however, that as a result of the region's relatively low concentration of manufacturers, regional job losses accumulate slowly, rather than from a single event involving thousands of workers. This may mask the full effect of the global sourcing phenomenon locally, and the financial opportunity it presents.

As local organizations expand globally, the demands on IT departments increase exponentially. To meet these demands, many companies outsource IT services offshore. The traditional focus has been on cost savings due to the increased availability of lower-cost skill sets in global locations. On this level alone, the value of an offshore model is compelling. Gartner reports that an engineer in the United States costs $87 per hour, while the same skill set in India costs just $25. A successful transition can therefore result in an almost instant cost savings of 70 percent.

Cost savings, however, are a one-time return. The year following the transition looks terrific against the prior year. But in the second year, baseline costs are reset to the existing offshore model and additional cost savings are not forthcoming.

Like the rest of the country, many midsize to large companies in New England have already either moved, or are moving, work offshore. As these programs mature, they are faced with this "second year" paradox, which requires them to look beyond the one-time, cost-based decision to move offshore and broaden the scope of their global sourcing strategy.

Called "multishoring," this model moves IT sourcing away from simple offshoring to a full global delivery model. Multishoring follows the sun. With locations in multiple regions, redundant skill sets, and knowledge contained in workflows and workspace tools, production can continue 24 hours a day, in all regions of the world.

Ensuring the organization understands the objectives, goals and approach to the model is critical. Some key things to consider when planning a multishore strategy include:

Secure appropriate sponsorship and buy-in from your organization. To ease the transition, communication and buy-in efforts must reach deep into the organization. Focus on current IT "customers" internally and meet with both the leaders and the users, giving comfort that they had direct input in the decision.

Identify a particular set of projects or programs to source globally. Show restraint in the face of monumental ROI analysis. Not all programs are well-suited to be moved to a provider. Selected projects should be well-established and have enough scale to be externally sourced.

Choose the right size provider for your program or project. Look for vendors with experience operating in a global footprint and make sure they manage their own IT infrastructure appropriately.

Find a provider who has the appropriate domain experience. Make sure your provider has the technical and business skill sets required for your project. Choosing one with experience in the target service or business area will minimize scoping issues and improve the transition experience.

Work with a provider with a global footprint to deliver economies of scale. Be sure to explore the breadth and diversity in both front-end and back-end operational capabilities in each of their locations. Do they have the scale and expertise in each of their locations to respond to a catastrophic event and shift to alternate facility?

Look for global program management (GPM) capabilities. Evidence of GPM demonstrates that a provider has successfully managed and coordinated programs across multiple geographies. Ask for references and specific examples of follow-the-sun support.

Adopt a governance model. Establish a governance model that ensures your operations are working and moving in the right direction. A governance plan defines intangibles such as innovation, process improvement and mutual investment.

Establish metrics and requirements with your provider. Agreeing on metrics helps providers gauge expectations and enables better communication between teams. Ensure ongoing measurement and reporting throughout the contract period including cost/benefit, operations and service-quality analysis.

The mix of global talent and money that makes New England a prime location for entrepreneurs also provides a deep pool of resources for midsize to large companies that are expanding globally. Local companies expanding their multishore strategy beyond India to include China, Eastern Europe and other regions can bring this talent and expertise into their operations to help keep the cost savings associated with growing their global footprint.

Satish Maripuri is chief operating officer for Waltham-based Lionbridge Technologies Inc. He can be reached at smaripuri_listsender@lionbridge.com.