Better Global Sourcingof Services
A research study, using input from leading
multinational companies, develops a
systematic decision-support tool that
drives effective sourcing decisions
by George S. Yip, Yacine Chibane, and Melanie Knight
Capgemini Consulting how we see it
2
The rise of global sourcing of
services
Physical products and componentsconstituted the initial wave of globalsourcing that started in the 1980s.Since the 1990s there has been asteady growth in the number ofservices, particularly in financial andinformation technology processes, thatare being sourced globally. Thephenomenon of business processoutsourcing (BPO) has been anelement of this. During this time,more countries have become suitablelocations for providing such services,and more qualified service providershave emerged. The global sourcing ofservices is even more complex thanthat for products—the deliveredservice is harder to define, the processneeds more constant monitoring, ithappens in real time, quality variesmore, and so on.
[Exhibit 1 Potential of DifferentServices for Global Sourcing]
“Sure, we already outsource a
lot of IT work to India and our
customer helpline to Scotland.
But what about offshoring our
human resources
administration to Poland, or
even some of our R&D to
China or Russia and should
that stay in-house even if
overseas? Those are scary
decisions.”
Companies and public sectororganisations are outsourcing andoffshoring more and more services.However they face a bewilderingvariety of choices. Developed fromextensive and original research, thisarticle describes an approach andsupporting model that can helporganisations make sourcing decisionsmore effectively. By providing asystematic approach to diagnosingdecision parameters, this modelallows decision makers to explore theright options for their own particularcircumstances.
Our Research
The development of our Global Sourcing of Services Model has been driven by several
research methods:
n A review of prior research, by other organisations and by academics
n Extensive original research working with a number of major multinational companies, all
leaders in their industries: an American document company, an American computer and
related technology company, a British consumer packaged goods company, a British
financial services company, a British marketing services company, a European
insurance concern, a European software company, a European energy company, a
European telecommunications company, and our own company, Capgemini. In
addition, we conducted research at a British local government entity, and obtained
advice from the U.K.’s National Outsourcing Association
n Our company’s extensive consulting experience around the world in outsourcing,
offshoring, our Rightshore™ service, Business Process Outsourcing, and shared
services
n Advice from two leading academic experts on global sourcing, as well as their own
expert contacts
n Input from Capgemini subject matter experts
The model derived has been validated by testing with the companies that participated in
the original research
Acknowledgments: The authors thank Dr Phanish Puranam, London Business School;
Professor Mari Sako, Saïd Business School, University of Oxford; and Yoram Bosc-
Haddad, Neil MacKenzie, Oedger Meijborg, Carole Murphy, and Greg Watkins, all of
Capgemini, for their contributions.
Capgemini Consulting the way we see it
Better Global Sourcing of Services 3
Exhibit 1: Potential of Different Services for Global Sourcing
Current Potential for Aggregation
Cu
rre
nt
Exte
nt
of
Glo
ba
l S
ou
rcin
g
Low
High
High Touch-High Sensitivity Specialty Transactional Physical
HR StrategyDevelopment
FieldSales
ProductPrototype
& Test
FieldServiceDelivery Customer
Order &Entry
Tele-marketing
FinancialAccounting &
Reporting
EmployeeBenefitsAdmin
CustomerOrder
Processing
Research &Development
Help DeskServices
Data CentreOperations
BusinessDevelopment
&Maintenance
DesktopManagement
PayrollProcessing
InternetServices
Advertising
Warehousing& Distribution Legal
Catering
EngineeringMaintenance
TravelServices
Note: Services below the diagonal bar have high potential to increase their extent of global sourcing.Source: Data from Michael F. Corbett, The Outsourcing Revolution, 2004; and Capgemini analysis.
Special Issues In The Sourcing
Of Services
The sourcing of services has a numberof special challenges when consideredagainst the sourcing of materials.These result from the need to:
n Take into account the requirementsof an often broader range ofstakeholders
n Manage knowledge effectively
n Manage performance against servicelevel criteria that are sometimesdifficult to define and measure
However, specific requirements varyby service and the more that servicescan be aggregated as discrete packages
of inputs, outputs and service levels,the greater the potential for globalsourcing. Exhibit 1 illustrates howdifferent types of services map ontothe combination of aggregationpotential and current extent globalsourcing. Services below the diagonalbar have high potential to increasetheir extent of global sourcing.
The need for a systematic
approach
It costs a lot in time and expenses toinvestigate global sourcing options. Sowe recommend starting with adesktop analysis to narrow down therange of options. But this analysis hasto be done on a comprehensive and
systematic basis, otherwise promisingbut less obvious options might beignored. Hence, we have developedan approach and a model that:
n Can be applied to any service
n Incorporates the major elements,both internal and external, affectinga sourcing decision;
n Uses data from external benchmarks;
n Allows for the incorporation ofcompany-specific data; and
n Provides for sensitivity analysis.
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Global Sourcing Modes
It is well established that the two keydecisions in global sourcing concernownership (in-house or outsourced)and location (onshore or offshore).Our research found that there is athird key factor to be taken intoaccount, particularly for services. Thisis the level of management required toensure that the service delivers. Someservice providers will require ongoingtight management, while others canbe held at arms’ length after thetransition and be only lightlymanaged. There is clearly a trade-offhere between cost and risk and theright place on the spectrum dependson the characteristics of theenvironment the sourcing organisationfinds itself in.
To make it easy to visualise andremember the choices, we havesimplified these three dimensions ofchoice into a “global sourcing cube”(Exhibit 2). This cube has two choiceson each of the three dimensions,although there are obviouslyintermediate points on each. Forownership there is a spectrum from0% to 100%, including partialownership or joint venture. Forlocation, there are near shorelocations (e.g. Poland), and someoffshore locations (e.g. India) whichare further than others in terms ofboth geography and dissimilarity, suchas in culture. It does not necessarilyfollow that the nearer the location thebetter the fit. By way of illustrationconsider a UK business, whereby aservice offshored to Australia will beculturally closer than one outsourcedto Poland. Similarly, some Frenchcompanies offshore to Mauritius,thousands of kilometres away, butcloser in language and time zone thanother, geographically closer locations.For management, the tightness ofsupervision is obviously one ofdegree. Nevertheless, the use of eightsimplified choices fits within anumber that is readily grasped. Toincrease the intuitive understanding ofthese eight modes, we have chosenmemorable labels for each, as shownin Exhibit 3.
[Exhibit 3 Eight Global SourcingModes]
Exhibit 2: The Global Sourcing Cube
Offshore
Onshore
Tight Management
Light Management
Inhouse Outsourced
Exhibit 3: Eight Global Sourcing Modes
INL
“Back of House” – close but not at the forefront of attention;light management of an in-house, onshore process
INT
“Under My Nose” – keeping the most control; tightmanagement of an in-house, onshore process.
IFL “Hand Over the Car Keys” – it stays in the family but your“car” is driven away; light management of an in-house,offshore process.
IFT
“Trust but Verify” – what Ronald Reagan said about armstreaties with the Soviet Union; tight management of an in-house, offshore process.
ONL
“Someone Else’s Problem” – light management of anoutsourced, onshore process; the process cannot becompletely ignored but an outsourced, onshore mode canminimise the amount to attention that needs to be paid.
ONT
“Cohabitation” – how the French refer to a government withdifferent parties holding the presidency and the legislature;tight management of an outsourced, onshore process resultsin the two independent organisations collaborating closely.
OFL “Move and Forget” – keeping the least control, although youshould not really “forget” about the process; lightmanagement of an outsourced, offshore process.
OFT
“Gold Frequent Flyer” – lots of travel for tight management ofthis outsourced, offshore process.
I = In-house O = OutsourcedN = Onshore F = OffshoreL = Light Management T = Tight Management
Capgemini Consulting the way we see it
sourcing modes, and see which modesget the most recommendations.
The questions on servicecharacteristics mainly cover the extentto which the service can bestandardised and easily sent outsidethe organisation and home country.Therefore, these questions shoulddistinguish between easy to outsourceservices such as travel bookings anddifficult ones such as field sales.
The questions on customer demandcharacteristics cover such issues asinternal customer demand andexternal customer impact, and thesensitivity of local cultural influences.These questions would get at effectssuch as the need to stay onshore ornear shore to get language andcultural compatibility. This is why, forexample, a number of UK companieshave been bringing their customerservice operations back on shore. AnAmerican document managementcompany we researched set up an in-house shared services centre (SSC),for translation services in oneEuropean city. Its customers in variousEuropean countries, however, becameincreasingly frustrated by the SSC’slack of local knowledge, which meantthat a high proportion of queries werereferred back to local teams--therebydiminishing the value of the SSC.
The questions on organisationcharacteristics mainly cover the abilityof the sourcing organisation toperform the process itself and also itsexperience and ability in managingproviders. These questions directlyaddress the choice of ownership,location, and management mode.Capgemini has kept its finance andaccounting function in-house becauseof the capabilities it has developed toserve external clients. Thesecapabilities reside in our BusinessProcess Outsourcing service and areoff-shored in Poland and India. Aglobal software company weresearched found that its in-housefinance and accounting shared servicecentre was best in class and has
Better Global Sourcing of Services 5
Where you are on the sourcing cubewill dictate the level of cost,innovation and risk: moving from thesourcing mode at the front lower leftof the cube, to modes at the backupper and right side of the cubegenerally reflects movement to lesscontrolled modes but potentially tohigher levels of cost reduction, servicequality and innovation.
Characteristics Affectingthe Choice of GlobalSourcing Mode
How should managers choose fromthe available modes? Our researchsuggests that there are a number ofcharacteristics to evaluate:
n The nature of the service underconsideration for sourcing options
n Customer demand in relation to thatservice
n The sourcing organisation’sexperience and capabilities insourcing, including its ability tocollaborate with anotherorganisation
n Competitors’ best practices andthreats
n The supply market of potentialproviders
Key questions to ask
By asking 30 key questions under thefive characteristics, managers can get agood idea of which mode to select.Exhibits 4 to 8 list these questionsand how a “highly agree” answer toeach would suggest particular globalsourcing modes (please see pages 12 -14 at the back). Readers shouldanswer all the questions. If you“highly agree” with a question, thenyou should record therecommendations. If you “highlydisagree” with a question, then youshould record the opposite of what isrecommended. If your answer is in-between “highly agree” and “highlydisagree” use your judgment to recordthe recommended choice(s). Afteranswering all the questions, add up allthe recommendations for all six
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How the Characteristicscan Drive SourcingDecisions
The following case examples showhow the Global Sourcing of ServicesFramework and its questions can leadto the right decision. The decisionsdescribed here were made withoutapplication of our framework but ourdiscussion below shows how theframework justified the actualdecisions made. In each case wehighlight those few questions of the30 under the five characteristics thatreally drive the choices along the threedimensions for the examples inquestion.
Managing insurance repairs:
combining “co-habitation” with
“Gold Frequent Flyer”
A European insurance company,“InsureCo”, has to decide how tosource non-automotive repairscovered by insurance policies.Following a customer requesting aclaim, InsureCo has four ways ofdealing with it:
1. The claim is authorised over thephone and the customer is paidand asked to arrange for their ownrepairs
2. InsureCo proposes to carry out therepairs (less than 10% ofInsureCo’s work)
3. An expert calls upon the customerand assesses the damage
4. An expert is sent to the scene ofthe damage
This case example focuses on option 2. InsureCo outsourced themanagement of this activity entirely tofour different service providers, ofwhich one company, from a differentEuropean country, holds the biggestshare. Hence InsureCo chose theoutsourcing mode for ownership anda mix of onshore and offshore for thelocation mode. In addition, InsureCo
decided not to outsource theseservices despite the current trend todo so.
The questions on competitorcharacteristics cover the extent towhich competitors set precedents orpose threats in global sourcing. Inmany cases, companies need toglobally source in order to match acompetitor’s level of costs or service. Aglobal professional services companywe researched found that its financeand accounting function costsignificantly more as a percentage oftotal costs than those of itscompetitors, and decided to offshorethese services in order to matchindustry norms.
The questions on supply marketcharacteristics cover the extent towhich suitable providers are available.It is easy to decide to source aninformation technology processbecause of the extensive supply thathas developed in India, andincreasingly in other countries such asChina. But it is much more difficult todecide to globally source services suchas product testing, which is only justbeginning to develop capableproviders. The American documentmanagement company, which wementioned earlier, finds thattranslation services are more readilyavailable offshore for many languages.
These questions are both genericenough (not specific to a particularservice) and detailed enough (aboutparticular aspects of the sourcingsituation) that they can address adecision about any service, from anysourcing organisation, to any providerorganisation, and sourcing to andfrom any country. Obviously, readersshould use these questions only as achecklist to stimulate their ownthinking, to support their owndetailed analyses, and to cross-validatedecisions they have made or areconsidering.
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Better Global Sourcing of Services 7
Next, why was the largest supplier ofthe first stage process an offshorecompany? Although language isclearly an issue, it is easily solved bythe use of InsureCo home languagespeakers based in the suppliercountry. The Customer DemandCharacteristics question, 12. Isprocess success independent of localcultural influences? yields a fairlypositive answer as the customerinteraction is about the practicalitiesof scheduling repair work rather than,say, more sensitive interrogationsabout personal information (e.g., forhealth insurance claims). AnotherCustomer Demand Characteristicsquestion, 9. Are internal customersmore concerned about the cost of theservice rather than serviceexcellence? is the clincher with afairly positive response, and the latteris true partly because of the positiveresponse to a Service Characteristicsquestion, 6. Can decisions within theprocess be based on standardspecified criteria?
Lastly, why does InsureCo use TightManagement? That decision derivesfrom positive answers to twoCustomer Demand Characteristicsquestions, 10. Does the process inscope have significant brand impact?and 12. Does the process in scopedifferentiate the organisation in itscompetitive landscape? InsureCo’sreputation is at stake and customersare sensitive to how they are served,particularly when the choice of repairby an InsureCo repairer is thecustomer’s last resort, having rejectedother options. In addition, the near-shore supplier was under severepressure from its head office to makebetter returns. So a real differenceexists between the economic modelused in the supplier country to thatused in the home country: thesupplier is more cost conscious whilstthe client organisation has to regulatequality.
uses the tight management mode.How did the company choose thiscombination (ONT Cohabitation andOFT - Gold Frequent Flyer)?
In the choice of Outsourcing, twoSupply Market Characteristicsquestions seem to determine thechoice: 30. Is the supply market ableto provide this process at maintainedservice levels at lower cost? and 28.Is the capacity of skills required allavailable in the vendor supply base?The strongly positive answers to thesequestions make it clear that the repairservices should be outsourced. Afterall InsureCo provides insuranceservices rather than the myriad ofskills needed to repair many differentaspects of housing and personalproperty. Indeed, InsureCo uses about1,200 private repairers, such asplumbers, decorators and builders.
But there are actually two servicesinvolved, of which repair is the laterstage. The earlier stage is provided bywhat InsureCo calls the “supplier ofthe repair platform.” In this first stageprocess, the householder contacts therepair platform to establish the claimand the repair platform selects andmanages the independent repairer.This service used to be carried out in-house by an InsureCo team of about30 individuals across the homecountry. So why did InsureCooutsource this first stage also? Thiswas because, whilst option 2(InsureCo doing the repairs) accountsfor less than 10% of all claims, itconsumed a much higher proportionof management attention due to thenumerous tradesmen that wereengaged to do the work. So a furtherService Characteristics question thatapplies to the service platform activityis 5. Can the service be deliveredremotely without internal staff orcustomers’ involvement? The stronglypositive answer confirms that theprocess can be outsourced.
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This example also shows theimportance of persistence andevolution. InsureCo’s initial forays intooutsourcing the work as a managedservice were not impressive.However, rather than withdrawingfrom outsourcing, lessons werelearned and a more consideredapproach was adopted to furtherdevelop corporate understanding ofhow to make sourcing decisions work.InsureCo decided to adopt anevolutionary approach. The vision isto ultimately have two suppliers. Tobegin with four are being tried, thenat the end of the first year this will bereduced to three and then later twobased on the competencedemonstrated and the suppliers’ability to work with InsureCo.
This case demonstrates the value ofregularly reviewing decisions using aset of evolving decision criteria suchas those used in the GSS decisionsupport tool, even when anorganisation is relatively experiencedat making global sourcing decisions.
Sourcing software development
and support: Combining Gold
Frequent Flyer with Trust but
Verify
Between 70% and 80% of what globalbusiness software company, “SofCo”,outsources are services. The companyhad been off-shoring non-coreactivities for some time and this hadproven beneficial. Effective ways ofworking with vendors had beenestablished. So it decided to look atoff-shoring more core activities.
The development of software involvesthe writing of code followed by thetesting of code. Also, when thesoftware is released, the support of theapplication in service may requiretraining or consulting on how best touse the application. Clearly, thereputation of SofCo is largelydependent on each of these aspectsbeing carried out properly and sothere is a strongly positive response toquestion 10. Does the process in
scope have a significant brandimpact?
SofCo has chosen to outsource andoffshore the development of softwarelargely to India and increasingly theirIndian service providers are involvedin supporting the software in service.Performance is relatively lightlymanaged but a significant effort ismade to tightly manage therelationships with their Indiansoftware developers. In addition,SofCo is finding capability elsewherein the world and has establishedcaptive centres, SofCo in-housefacilities, in Israel and South America.But why does SofCo consider theOFT, Gold Frequent Flyer, mode to beright for India and the IFT mode,Trust but Verify, to be the right choicefor other countries?
The decision to outsource and off-shore software development andsupport to India was based on anumber of characteristics. The groupprocurement organisation waschallenged to find ways to take costout of the operation and havingresearched the supply market itbecame clear that for India theresponses to questions 24. Is thesupply market of service providersmature?, 27. Are the key skillsrequired in the process all availablein the vendor supply base? 30. Is thesupply market able to provide thisprocess at maintained service levelsat lower costs? and 28. Is thecapacity of skills required allavailable in the vendor supply base?were all strongly positive.
However, these positives werecountered by initially negativeresponses to question 8. Are internalcustomers convinced that outsourcingwill be beneficial? It was, therefore,necessary to move cautiously to provesuppliers’ capabilities. SOF, therefore,limited its initial moves offshore tosoftware testing because of thestrongly positive responses toquestions 1. Is the service
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Better Global Sourcing of Services 9
contract is managed lightly, withservice levels based on response timesand outcomes. The sourcing mode istherefore effectively OFL, Move andForget. An important distinctionneeds to be made, however, betweenthe performance of the contract andthe management of the relationship.Both the Indian service providers andSofCo continue to put significanteffort into managing the relationship,suggesting that, even when themanagement mode is light, successfulorganisations continue to invest in therelationships with external parties.
A Business Case ModelWe have also used the 30 questions todrive a decision support model basedon the business case for globalsourcing. While the latter has toexamine many factors, our modelfocuses on three critical ones:
n The potential benefit in terms ofpotential cost savings
n The costs of sourcing andimplementation
n Factors that might mitigate thepotential cost i.e. collaboration
The business case can be described asan algorithm with the following keyelements:
1. Expected Value (EV) – the bottom-line business case
2. Potential Value (PV) – themaximum possible savings from aparticular sourcing mode
3. Cost Impact (CI) – the end-to-endcosts associated with the sourcingof the service and theimplementation of the serviceprovision
4. Probability (Pr) of incurring theCost Impact
5. Collaboration Mode (CM) – tomitigate costs
6. Cost of Collaboration (CC) –indirect costs in relation to theservice
standardised and documented inprocedures? and 2. Can requirementsfor performing this process be easilyspecified and effectively monitored?Interestingly, as the suppliers’performance was proven so thescepticism from the internalcustomers changed to demand morework to be carried out offshore,indicating a strongly positive responseto question 8. The range of work hassubsequently expanded to includesoftware coding and service support.
The decision to outsource or not forother countries was more complex.The supply market in India wasparticularly mature. However, whenSofCo looked at other locations itfound that the characteristics weredifferent. For example, for Israel theresponses to questions 27. Are thekey skills required in the process allavailable in the vendor supply base?and 28. Is the capacity of skillsrequired all available in the vendorsupply base? were strongly positive asthey were in India. However, supplycosts were high prompting a stronglynegative response to question 30. Isthe supply market is able to providethis process at maintained servicelevels at lower costs? So SOF decidedto set up an In-house capability inIsrael to take advantage of the skillswhilst maintaining control of the costof operation. South America on theother hand is attractively low cost,prompting a positive response toquestion 30 but the supply capabilityneeds to be developed, so responsesto questions 27 and 28 were negative.Therefore, once again, SofCo hasdecided against outsourcing and hasestablished an In-house captivecentre.
The Indian offshore outsourcedexperience provides an example ofhow SofCo’s approach to managementchanges as capability matures.Initially, the processes were managedvery tightly, but as capability has beenproven so the management effort hasreduced to the point where the
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movement or transitioning of theservice activity incurs costs – about3% of the base cost
Ongoing Costs
n Lost Productivity/Cultural Issues –global sourcing often involves theuse of fewer productive workers,albeit at much lower wage rates; inaddition, there can be culturaldifferences that impose furtherongoing costs – about 10% of thebase cost
n Governance – any form of globalsourcing requires additionalgovernance mechanisms to managethe relationship – about 10% of thebase cost
Probability of Incurring the Cost
Impact
The answers to the 30 questionsdetermine the likelihood orProbability (Pr) that the organisationwill incur these costs. For example, ifthe answer to the question, “Thesupply market is mature,” is “highlyagree,” then there is a very lowprobability that the sourcingorganisation will have to incur thevarious costs. After all, many suppliersare already available in this maturemarket. On the other hand, if theanswer is “highly disagree,” then thereis a very high probability that thesourcing organisation will have toincur the various costs.
Collaboration Mode
Global sourcing, whether in-house oroutsourced, places a strain on theorganisation. In consequence,sourcing organisations need to use theright collaboration mode to reducethe strain and get the process to workbetter. In our model, theCollaboration Mode (CM) affects theCost Impact. A CM of TightManagement (T) reduces the costimpact by making for more effectivecoordination between the customerorganisation and the provider.Numerous studies and our ownresearch show this to be the case.Having the “right” management mode
These elements come together in thefollowing equation:
EV = PV – (Pr x CI/CM) – CC
Potential Value
In our model, Potential Value (PV) isthe possible gross savings from usinga global sourcing mode, as apercentage of current total costs forthe activity under scrutiny. Ourreview of the evidence and our ownresearch suggest that offshoring andoutsourcing can save up to 35% of thecosts of on onshore, in-house process,that offshoring and in-house can saveup to 30%, and onshore, outsourcingcan save up to 20%.
Cost Impact
The potential savings are reduced byvarious costs that have to be incurredto change the sourcing mode. So CostImpact (CI) is the maximum cost ofhaving to create the capability for aparticular service or process, as apercentage of current total cost ofproviding the same activity. Theseextra costs arise in a number of ways,comprising both one-time costs andongoing costs as noted below. Theexact cost will differ by the processand specific company in question. Forexample, costs of voice and ITservices tend to be higher because ofthe greater use of technology than forother types of services such as payrollprocessing.
One Time Costsn Search and Contract – finding a
suitable service provider, and thennegotiating the contract - about 4%of the base cost case of onshore, in-house, light management
n Restructuring – rearranging theelements of work so that the servicecan be sent offshore and/or out ofthe organisation – about 5% of thebase cost
n Process Changes – changingprocesses so that the overall servicecan be separated and performedoutsourced and/or offshore – about10% of the base cost
n Transitioning Work – the actual
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Better Global Sourcing of Services 11
is crucial. In our model, the choice ofa Tight (T) collaboration mode halvesthe Cost Impact relative to a Light (L)collaboration mode.
Cost of Collaboration and
Management
Although tighter collaboration reducesthe cost impact, it also incurs its owncost. The base case is that of In-house,Onshore, Light Management, whichincurs no extra costs. Changing thesourcing mode and the managementmode increases the cost ofcollaboration or management, up toan additional 10% of base costs forthe case of Outsourced, Offshore,Tight Management.
Expected Value
Our model gives an Expected Value(EV) calculation for each of the 30questions that reflect thecharacteristics of an organisation,netting out the potential savings andcosts for each of the eight possibleglobal sourcing modes. The modelthen ranks the eight sourcing modesbased on the average EV produced bythe 30 questions. These ranks (from1st to 8th) are the model’srecommendation for the priority inwhich to consider the possible globalsourcing modes.
How to Use the Global Sourcing
Model
The Global Sourcing Model is adecision support tool that should bepart of an approach to optimising anorganisation’s operating model. Itshould be used in conjunction with adiscussion and investigation of theissues involved. The model will act asa prompt during the process and maywell generate issues for furtherinvestigation. The interactive nature ofthe model (via the ability to changeboth the answers to the questions andeven some of the parameters in themodel) means that it can be used in anumber of roles including:
n Assessing the impact of changingassumptions (for example, on the
cost savings from off-shoring)
n Resolving disputes (for example,how much difference it might maketo the decision if there are differingopinions on the brand impact of theservice)
n Examining which services are moresuited for global sourcing
n Running alternative scenarios; and
n Comparing the model’s output withinternal views on strategy
The Importance of BeingAnalytical
In summary, making decisions onglobal sourcing can be a realheadache, and risky too. Key choicesconcern the three dimensions ofownership, location and management.To make these choices you shouldanalyse five sets of characteristics inregard to:
n The nature of the service underconsideration for sourcing options
n Customer demand in relation to thatservice
n The sourcing organisation’sexperience and capabilities insourcing, including its ability tocollaborate with anotherorganisation
n Competitors’ best practices andthreats
n The supply market of potentialproviders
You can conduct this analysis in aqualitative way using the 30 questionswe have provided. Or you can do it ina quantitative way using our businesscase model. In either case, conductingthorough and systematic analysis ofthe type we recommend here will notmake the decision for you. Howeverthat analysis can guide you to thesourcing modes worth deeper, andmore expensive, investigation.
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Exhibit 4: Service Characteristics Effects on Choice
Light Management
Easy to monitor performance.
7. Can responsibility for performance
of this process be clearly defined?
Light Management
Once the process is documented, little
monitoring needed.
6. Can decisions within the process
be based on standard specified
criteria?
Outsourced, Offshore
Easy to send out.
5. Can the service be delivered
remotely without internal staff or
customers’ involvement?
Inhouse, Onshore, Tight
Management
If do send out, runs risk of poor
process performance causing loss of
reputation and customer satisfaction,
which in turn leads to loss of business.
4. Does the process involve direct
contact with the organisation’s
clients (e.g., external clients,
suppliers)?
Inhouse, Onshore, Tight
Management
If do send out, then need to restructure
and reengineer process, and train
outside staff carefully.
3. Will mistakes in this process have
a significant business impact from
a legal, regulatory or financial point
of view?
Light Management
Easy to monitor with minimal
oversight.
2. Can the requirements for
performing this process be easily
specified and effectively
monitored?
Outsourced, Offshore
Low cost to standardise and
document the process before sending
outside.
1. Can the service be standardised
and procedures easily
documented?
If “highly agree”, then favours:Question
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Better Global Sourcing of Services 13
Exhibit 5: Customer Demand Characteristics Effects on Choice
Outsourced
Satisfies internal customers.
8. Are internal customers convinced
that outsourcing will be beneficial?
Outsourced, Offshore, Light
Management
Go for the modes with the maximum
savings.
9. Are internal customers more
concerned about the cost of the
service rather than service
excellence?
Inhouse, Onshore, Tight
Management
Play safe, or if do send out, then need
to train outside staff carefully and
manage relationship tightly.
10. Does the process in scope have
significant brand impact?
Inhouse
Keep inhouse if the organisation has
distinctive competence, but outsource
if the provider can provide a superior
process that also protects the
organisation’s differentiation.
11. Does the process in scope
differentiate the organisation in its
competitive landscape?
Offshore
Can go to countries that are quite
dissimilar in culture and language.
12. Is process success independent of
local cultural influences?
If “highly agree”, then favours:Question
Exhibit 6: Organisation Characteristics Effects on Choice
Outsourced
Little specialisation involved, so makes
it easy to find outsourced providers.
13. In this specific process, are most
“generalist” employees capable of
performing other employees’ jobs?
Inhouse
Or invest to bring outside provider up
to best in class.
14. Are the current inhouse processes
best in class?
Inhouse, Onshore
Hard to send jobs out of organisation
or offshore.
15. Is there potential for industrial
unrest if jobs are lost?
Inhouse, Onshore
If do send out, will incur regular extra
costs to reengineer processes.
16. Is the organisation evolving and
are requirements changing
quickly?
Tight Management
Will need regular management
involvement
17. Are contracts with service
providers or vendors reviewed
frequently and actively managed?
Inhouse
Provides a real choice, depending on
effectiveness and cost of outsourced
alternatives.
18. Does the organisation have the
capability to deliver the process or
service inhouse?
If “highly agree”, then favours:Question
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Exhibit 7: Competitor Characteristics Effects on Choice
Offshore
Competitors have shown that
offshoring works for this service in this
industry.
20. Are competitors offshoring this
service successfully?
Light Management
Can have similar long term relationship
that requires only light management.
21. Do competitors have longterm
relationships with their service
providers or vendors and is re
tendering, therefore, infrequent?
Outsource, Light Management
Costs are not expected to increase
hugely as competitor behaviour
suggests that processes have settled
down.
22. Do competitors have distant
relationships with their service
providers?
Inhouse
Any sourcing decision is constrained
by the threat of a loss of competitive
advantage.
23. How unacceptable is it if
competitors were to gain access to
detailed knowledge about the
process in scope (e.g., via a
service provider or vendor)?
If “highly agree”, then favours:Question
Exhibit 8: Supply Market Characteristics Effects on Choice
Offshore
Savings are highly likely.
30. Is the supply market able to
provide this process at maintained
service levels and at lower cost?
Offshore
Reduces potential costs of
recruitment, induction and retention.
29. Is the labour attrition rate low off
shore?
Outsourced
Wide choice of effective suppliers.
28. Is the capacity of skills required all
available in the vendor supply
base?
Outsourced
Startup investment is minimal.
24. Is the supply market of service
providers (vendors) mature?
Outsourced
Can enjoy cheaper provision.
25. Can this organisation leverage
vendors’ economies of scale for
this process?
Inhouse, Tight Management
Keep inhouse or avoid high threat
providers. If outsource, then manage
tightly to avoid leakage of proprietary
knowhow.
26. Does an external vendor or service
provider have the potential to
become a competitor within the
next five years?
Outsourced, Light Management
Providers will not have to acquire skills
at additional cost, and need less
management.
27. Are the key skills required in this
process all available in the vendor
supply base?
If “highly agree”, then favours:Question
Cove
r-R
efe
rence N
um
ber
Copyright © 2008 Capgemini. All rights reserved.
www.uk.capgemini.com
For further information, please contact
George S. Yip
Dean and Professor
Rotterdam School of Management
Email: [email protected]
Tel: +31 (0) 10 408 1901
Yacine Chibane
Senior Consultant
Email: [email protected]
Tel: +44 (0) 870 238 2444
Melanie Knight
Executive Consultant
Email: [email protected]
Tel: +44 (0) 870 909 5194
This Point of View is based primarily on
George Yip, Yacine Chibane, and Melanie
Knight, “A clearer world view of services,”
CPO Agenda, Vol. 3, No. 4, Winter 2007-
2008, pp. 18-26.
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