AUTUMN CONFERENCE 2016 What has outsourcing ever brought to us?KEYNOTE AT
A deep dive into the true cost of offshoringDARJA ŠMITE and RINI VAN SOLINGEN | 2016-11-10 | UTRECHT, THE NETHERLANDS
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
Darja ŠmiteProfessor
Blekinge Instituteof Technology
Rini van SolingenProfessorDelft University of Technology
Who are we?
DARJA SMITE AND RINI VAN SOLINGEN
What has outsourcing ever brought to us?
Access to large labor pool
Significant cost-
savings
Better quality
Reduced overheads
Faster time-to-market
Freed-up resources
Innovation and shared
best practice
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
Two extreme views
Offshore outsourcing does
not lead to any cost savings
Offshoring pessimist Offshoring optimist
Offshore outsourcing leads
to significant cost savings
DARJA SMITE AND RINI VAN SOLINGEN
7 companies, including
report cost savings in different ranges, i.e. 10-15%, 35-40%, 3x and 10x savings.
8 companies, including
report that cost savings were not achieved. One reports significant decrease in profit.
Cost-savings in research
Cost savings achievedCost savings not achieved
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
What do we know about cost savings?
But were are the doubts?
Do we portray the real picture?
Offshoring pessimist
Offshoring optimist
DARJA SMITE AND RINI VAN SOLINGEN
The DutchCo and InVend study
› DutchCo was founded in mid 90s › Product-focused software-related
service supplier for enterprise customers› Competitiveness through ability to innovate› Growing number of customers › New customer market› Outsourcing to InVend in Bangalore since 2009› For cost reduction and “adventure of doing business globally”› In 2014 there were 1 “Dutch team” and 1 “Indian team”
DARJA SMITE AND RINI VAN SOLINGEN
Our approach
Interviews Two focus groups Further data collection
Data analysis
Feedback session
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
Direct costs as a bottom line
Yes, but we must avoid unfair comparisons
Offshoring pessimist
Offshoring optimist
Let’s look at the bottom line differences
DARJA SMITE AND RINI VAN SOLINGEN
Direct cost calculation
–Cost
savingsIn-house costs
Contract-based costs
Extra costs–=
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
Direct cost calculationDARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
Direct cost calculation
DutchCo InVend› Salary-based hourly costs 38 € 26 €› Hourly costs with overhead 49 € 29 €
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
How to measure
effectiveness?
But what is the value for
money?
Offshoring pessimist
Offshoring optimist
Direct + indirect costs
DARJA SMITE AND RINI VAN SOLINGEN
THE bottom line cost
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
Time perspective
What about the whole collaboration
year period?
Offshoring pessimist
Offshoring optimist
This looks successful!!!
DARJA SMITE AND RINI VAN SOLINGEN
Total costs for the 5 year period
DARJA SMITE AND RINI VAN SOLINGEN
DutchCo InVend› 2009 55 € 706 €› 2010 55 € 168 €› 2011 64 € 66 €› 2012 63 € 56 €› 2013 65 € 47 €› Average 61 € 68 €
Total costs for the 5 year periodDARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
Comparing teams with different experience
It depends!
Offshoring pessimist
Offshoring optimist
But this is an unfair
comparison
DARJA SMITE AND RINI VAN SOLINGEN
Staff turnover or attrition
DutchCo InVend
2009 2011
Empl
oyed
Lost
2010 2012 2013 2009 2010 2011 2012 2013
Empl
oyed
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
Ab
ility
to s
olv
e t
he g
iven t
ask
s
Years of experience0 0.5 1 1.5 2 2.5 3
100%
75%
50%
25%
Years of experience0 0.5 1 1.5 2
Indian team Dutch team
Learning curves Associated efficiency
Impact of the learning curves
0 0,5 1 1,5 2 2,5 3Years of experience
DutchCoInVend
0 0,5 1 1,5 2Years of experience
DutchCo
InVend
DARJA SMITE AND RINI VAN SOLINGEN
Lesson #1
Agile approach
Long learning curves
Highattrition
Deadly combination
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
Lesson #2
Not our business
Doing our best
Onshore customer Offshore vendor
DARJA SMITE AND RINI VAN SOLINGEN
Lesson #2
Our shared responsibility
Onshore partner Offshore partner
DARJA SMITE AND RINI VAN SOLINGEN
Lesson #3
› Cost calculation shall take into account the learning curves and the turnover of the employees› Performance measurements–Perception based measurements – easy to gather, but simplified–Actual performance measurements – difficult to measure
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student
DARJA SMITE AND RINI VAN SOLINGEN
Thank you for your attention…
Darja ŠmiteBlekinge Instituteof Technology, [email protected]
Rini van SolingenDelft University of Technology, [email protected]
DARJA ŠMITE
Associate professor
CLAES WOHLINProfessor
RICARDOBRITTO
PhD Student
NILS BREDEMOE
Senior Researcher
AIVARSŠĀBLIS
MSc Student