Moving from Offshoring to Global Shared Service Centers

My apologies for the delay in my post. It has been a busy few months and it has taken an extended time since there is quite a bit I wish to cover in the global shared service center model. Since my NCAA bracket has completely tanked, I am out of excuses to not complete the writing, so here is the first post with at least one to follow. 

Since the mid-90s, companies have used offshoring to achieve cost and capacity advantages in IT. Offshoring was a favored option to address Y2K issues and has continued to expand at a steady rate throughout the past twenty years. But many companies still approach offshoring as  ’out-tasking’ and fail to leverage the many advantages of a truly global and high performance work force.

With out-tasking, companies take a limited set of functions or ‘tasks’ and move these to the offshore team. They often achieve initial economic advantage through labor arbitrage and perhaps some improvement in quality as the tasks are documented and  standardized in order to make it easier to transition the work to the new location. This constitutes the first level of a global team: offshore service provider. But larger benefits around are often lost and typically include:

  • further ongoing process improvement,
  • better time to market,
  • wider service times or ‘follow the sun’,
  • and leverage of critical innovation or leadership capabilities of the offshore team.

In fact, the work often stagnates at whatever state it was in when it was transitioned with little impetus for further improvement. And because lower level tasks are often the work that is shifted offshore and higher level design work remains in the home country, key decisions on design or direction can often take an extended period – actually lengthening time to market. In fact, design or direction decisions often become arbitrary or disconnected because the groups – one in home office, the other in the offshore location – retain significant divides (time of day, perspective, knowledge of the work, understanding of the corporate strategy, etc). At its extreme, the home office becomes the ivory tower and the offshore teams become serf task executors and administrators. Ownership, engagement, initiative and improvement energies are usually lost in these arrangements. And it can be further exacerbated by having contractors at the offshore location, who have a commercial interest in maintaining the status quo (and thus revenue) and who are viewed as with less regard by the home country staff. Any changes required are used to increase contractor revenues and margins. These shortcomings erase many of the economic advantages of offshoring over time and further impact the competitiveness of the company in areas such as agility, quality, and leadership development.

A far better way to approach your workforce is to leverage a ‘global footprint and a global team’. And this approach is absolutely key for competitive advantage and essential for competitive parity if you are an international company. There are multiple elements of the ‘global footprint and team’ approach, that when effectively orchestrated by IT leadership, can achieve far better results than any other structure. By leveraging high performance global approach, you can move from an offshore service provider to a shared service excellence center and, ultimately to a global service leadership center.

The key elements of a global team approach can be grouped into two areas: high performance global footprint and high performance team. The global footprint elements are:

  • well-selected strategic sites, each with adequate critical mass, strong labor pools and higher education sources
  • proper positioning to meet time-of-day and improved skill and cost mix
  • knowledge and leverage of distinct regional advantages to obtain better customer interface, diverse inputs and designs, or unique skills
  • proper consolidation and segmentation of functions across sites to achieve optimum cost and capability mixes

Global team elements include:

  • consistent global goals and vision across global sites with commensurate rewards and recognition by site
  • a team structure that enables both integrated processes and local and global controls
  • the opportunity for growth globally from a junior position to a senior leader
  • close partnership with local universities and key suppliers at each strategic location
  • opportunity for leadership at all locations

Let’s tackle global footprint today and in a follow on post I will cover global team. First and foremost is selecting the right sites for your company. Your current staff total size and locations will obviously factor heavily into your ultimate site mix. Assess your current sites using the following criteria:

  • Do they have critical mass (typically at least 300 engineers or operations personnel, preferably 500+) that will make the site efficient, productive and enable staff growth?
  • Is the site located where IT talent can be easily sourced? Are there good universities nearby to partner with? Is there a reasonable Are there business units co-located or customers nearby?
  • Is the site in a low, medium, or high cost location?
  • What is the shift (time zone) of the location?

Once you have classified your current sites with these criteria, you can then assess the gaps. Do you have sites in low-cost locations with strong engineering talent (e.g. India, Eastern Europe)? Do you have medium cost locations (e.g., Ireland or 2nd tier cities in the US midwest)? Do you have too many small sites (e.g., under 100 personnel)? Do you have sites close to key business units or customers? Are no sites located in 3rd shift zones? Remember that your sites are more about the cities they are located in than the countries. A second tier city in India or a first or second tier city in Eastern Europe can often be your best site location because of improved talent acquisition and lower attrition than 1st tier locations in your country or in India.

It is often best to locate your service center where there are strong engineering and business universities nearby that will provide an influx of entry level staff eager to learn and develop. Given staff will be the primary cost factor in your service, ensure you locate in lower cost areas that have good language skills, access to the engineering universities, and appropriate time zones. For example, if you are in Europe, you should look to have one or two consolidated sites located just outside 2nd tier cities with strong universities. For example, do not locate in Paris or London, instead base your service desk either in or just outside Manchester or Budapest or Vilnius. This will enable you to tap into a lower cost yet high quality labor market that also is likely to provide more part-time workers that will help you solve peak call periods. You can use a similar approach in the US or Asia.

A highly competitive site structure enables you to meet a global optimal cost and capability mix as well. At the most mature global teams in very large companies, we drove for a 20/40/40 cost mix (20% high cost, 40% medium and 40% low cost) where each site is in a strong engineering location. Where possible, we also co-located with key business units. Drive to the optimal mix by selecting 3, 4, or 5 strategic sites that meet the mix target and that will also give you the greatest spread of shift coverage.  Once you have located your sites correctly, you must then of course drive to have effective recruiting, training, and management of the site to achieve outstanding service. Remember also that you must properly consolidate functions to these strategic sites.  Your key functions must be consolidated to 2 or 3 of the sites – you cannot run a successful function where there are multiple small units scattered around your corporate footprint. You will be unable to invest in the needed technology and provide an adequate career path to attract the right staff if it is highly dispersed.

You can easily construct a matrix and assess your current sites against these criteria. Remember these sites are likely the most important investments your company will make. If you have poor portfolio of sites, with inadequate labor resources or effective talent pipelines or other issues, it will impact your company’s ability to attract and retain it’s most important asset to achieve competitive success. It may take substantial investment and an extended period of time, but achieving an optimal global site and global team will provide lasting competitive advantage.

I will cover the global team aspects in my next post along with the key factors in moving from a offshore service provider to shared service excellence to shared service leadership.

It would be great to hear of your perspectives and any feedback on how you or your company been either successful (or unsuccessful) at achieving a global team.

Best, Jim Ditmore

About Jim D

Jim has worked in the IT field for over 25 years and as a senior leader for over 15 years. He has successfully turned around a number of IT shops to become high performing teams and a competitive advantage for their companies.
This entry was posted in Building High Performance Teams, Efficiency and Cost Reduction, Vision and Leadership, World Class Production Availability and tagged , , , . Bookmark the permalink.

3 Responses to Moving from Offshoring to Global Shared Service Centers

  1. D.A. says:

    Amen! This post hits the nail squarely on the head. Hopefully it will be made required reading in my organisation, which seems to take the easy option of always going for the lowest cost location.

  2. Casper S. says:

    Hi Jim. Very insightful post. Having been through the Shared Service journey the last decade I fully recognise the opportunities (and challenges) described.
    One comment on the global footprint. As you plan your site mix we have seen the need to have a very flexible approach on the split in order to keep the cost estimates. So a 20/40/40 could easily become a 10/20/70 split shortly after the establishment. This shift could be accellerated if your high/medium cost sites are in the Shared Service “hotspots” in Eastern Europe, India, China or specific parts of LA. We have seen that unless we thought that flexibility into the approach from the beginning we faced high transition cost down the road.
    Otherwise I am really looking forward to part 2 on the Global Team. I am especially curious to get your thoughts on the critical split of ownership between the “ivory tower” and the Centers. Ownership in terms of performance, budget, controls, transformation etc.

  3. Pingback: Moving from Offshoring to Global Shared Service Centers | Recipes for IT

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