The offshore service opportunity

With the outsourcing industry booming, it's time to ask a pertinent question: What does it take to be an offshore service provider? The first thing to do, perhaps, is to go to an offshore advisory firm.

Says Avinash Vashishtha, chairman and MD of neoIT, one of the prominent firms in offshore advisory and management: "IT outsourcing has grown rapidly over the past ten years, from just software development to now a much broader range of IT services. It has moved from simple tools development to mission critical products, solutions and services development. As we progress, we will see a strong move from companies across the board to focus on their core strengths and outsource all IT services to an external provider. Also as companies move up the value chain, technology companies will increasingly look for partners to even outsource technology and R&D."

So what does offshore advisory involve and how does it help one become a service provider?

Offshore advisors usually represent buyers in a sourcing transaction and focus exclusively on assisting companies in maximising returns from offshore sourcing of both information technology and business processes on a project or enterprise wide basis.

Their solutions deliver results in the form of cost savings, improved governance, reductions in sourcing process time and decreased risks with offshore supplier partnerships.

"It's not just consulting. Companies who are looking at these services want someone to roll up their sleeves and do the initial operations work in addition to strategy consultation. This requires deep-rooted knowledge of how offshoring is done and the skill-sets for this is got by working in, for example, in India and as well as in the US.

More importantly, one should have handled offshoring work by being a client and as well as a service provider.

I went through this process by working for Nortel where I was involved in offshoring work to Wipro and later also being at Wipro and understanding what all the problems a service provider goes through in servicing a client.

This gave me tremendous understanding of both sides of offshoring and this was the basis on which I started the offshore advisory," Vashishtha said.

With MNCs looking at global sourcing, one must understand what best suits your client - whether they should offshore to India or to Mauritius or to Ghana.

"Indepth knowledge of how your client can leverage global talent should be the main criteria for any offshore advisory," he adds.

Detailing further about key aspects of this services, Vashishtha said: "We start working with the client at the thought process stage when the idea of offshoring arises. We go through the entire organisation workflow, analyse what should be offshored and what process should not be disturbed. We support in strategy formulation, external and internal risk environment, analysis of IT application portfolio and then suggest whether they should go in for a captive offshore unit or a third-party service provider or a hybrid mix of these two."

Once a decision is taken to offshore work, the major challenge is in communicating to internal shareholders and employees.

"Offshoring is not all that bad as is being made up. If you look at a company's growth each year in the number of new employees and the attrition levels, this equates to the initial offshoring move. Employing a team of 100-150 initially at an offshoring location is not at all bad and this needs to be communicated precisely to your employees. It is a very doable thing and offshore advisory involves this aspect too," Vashishtha adds.

The next step in this process is execution of the offshoring strategy.

"Due-diligence of suppliers, governance issues and making a client feel that they have made the right decision in offshoring is the key step. If we feel that our client needs to go in for a merger or acquisition, we do the entire work for this and advice our client on this. To a third-party supplier, we are the client. We are supplier-neutral and need to maintain all suppliers in good books," Vashishtha points out.

Once the offshoring is in place, the next challenge is to transit the process in the exact fashion which was being done by the client.

"Transition is among the most important aspects in offshoring and even if there is a small aberration, it will result in huge cost runs and pain at an client organisation. Productivity will go for a toss and the entire process will be in a mess. To safeguard against such mishaps, we develop transition modelling, support in transition, benchmark audits, get involved in budget cycles, understand organisation dynamics and analyse resource constraints. One should think like a client and should put yourself in customer shoes," Vashishtha added.

Commenting on the how the services for offshore advisory is being remunerated, he said: "We do not offer our services on hourly rates. We have a fixed price, which is value-based. We have a research team which constantly scans supplier companies, analyse their skill-sets and capabilities, manage suppliers, deploy knowledge management systems, invest in knowledge-base and build our fee on the basis of the knowledge and the operation expertise we bring to our client."

Companies such as TPI, PA Consulting, Everest Strategy Consulting, and to an extent global giants such as IBM, Accenture, McKinsey & Co, Gartner and Bain are some of the key players who are active in this field. But there are few players in this field who do the entire range of services required in the business.

Sound footing
According to a study conducted by Ross Research:

• The growth of sourcing advisory services is generated by a number of factors, but the major driver is the increasing focus on international or global outsourcing where contracts encompass entire enterprises, across multiple functions and countries
• Similarly, the increasing use of offshore outsourcing is another trend fuelling the use of sourcing advisors
• With their extensive experience in negotiations as well as communication with organisations from different cultural backgrounds, including understanding the legal and regulatory environment, sourcing advisors are uniquely prepared to assist outsourcing vendors and clients on contracts with an international component. Indeed, achieving cultural compatibility with a client organisation is a major issue.
• As outsourcing has become an increasingly viable and attractive solution to companies around the world, the importance of involving advisory firms in sourcing process has grown. More and more advisors are playing a significant role in providing guidance in outsourcing negotiations and helping clinch deals and even manage them post contract.