EOA Belgium Round Table 3: OffshoringTuesday, September 21, 2010

Chris De Mol, Program Manager Technicolor

[Wikipedia]: Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting.

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The economic logic is to reduce costs.

The economic logic reduce costs

Are projects really significant cheaper in offshore mode?

The strategic logic focus on the core

Put ‘own resources’ on core activities

Typically the mentality of offshoring the operational and supporting processes. Offshoring those processes that are not seen as a differentiator compared to competition.

Can you offshore core activities?

The economic logic:

=> Are projects really significant cheaper in offshore mode?

The strategic logic:=> Can you offshore core activities?

The two questions …

One size fits all ?

And the answer is …

Company X Development of IT solutions

Having innovative IT solutions is seen as key differentiator

Fast evolving market space

Why would you offshore your core IT development process?

Reduce costsAre IT projects really significant

cheaper in offshore mode?

Average experience in “home base” is in a lot of cases 3 to 4 times higher than on the offshore site due to high retention rate (30%- 50% impact on throughput)

Lack on business domain knowledge (20% - 40% impact on throughput)

Extra overhead due to offshoring (Management, extra documentation, … ; 20%)

=> Net gain around 30%

Fast evolving market space In most cases cycle times increase in case of offshoring

IT development. Up to 50%

Loose competitive advantage of being the first on the market

ROI = Throughput – Operational Expenses

Inventory

-30%

+50%

Solution Identify value of onshore and offshore team

Onshore

+ Highly qualified and experienced team

+Close to the business

- Expensive

Offshore

+ Big pool of resources that can be used in a flexible way.

+ Significant lower man hour cost

- “Distance” (location, cultural, business, …)

Map projects to the strengths of the teams “ Core” new development

Onshore (to guarantee fast Time2Market)

“ Non-core” new development

Software maintenance

Testing

Offshore

Conclusions Focusing on Operational Expenses (man hour cost) as key success

factor can lead to wrong conclusions.

To measure success calculate the ROI (taking into account the cycle times)

Lower experience level and the “distance” towards the business are facts that should not be minimized. Both have a huge impact on the ROI.

Use them as selection criteria to decide where to do what (onshore versus offshore).

Core activities are those activities that require high experienced resources close to the business. Those activities you should not put in an offshore mode.