Economies of Scale in Global Services – Realities and Limitations

Executive Summary

At a conceptual level, EOS is understood by most global services participants. However, service providers and buyers (both for GIC administration and vendor management reasons) are increasingly trying to understand the extent to which EOS can “practically” influence their cost of operations. We have identified five primary factors that create EOS for any organization. These are real-estate, IT infrastructure, optimization of delivery pyramid, management & administration overheads, and employee transportation costs.

The impact of these factors on operating cost varies by location and type of work. According to our analysis, EOS can reduce the cost of operations of a 5,000-FTE center by up to 18-22% versus that of a 500-FTE center on a per-FTE basis. Does this mean that organizations can reduce their operating costs indefinitely by increasing scale? Theoretically, maybe. Practically, definitely not. The extent to which an organization can leverage EOS is largely determined by the demand/supply dynamics for talent in the location and also talent management considerations. Further, other business considerations, such as concentration risk management, also play a vital role in designing the organization’s overall locations portfolio and may supersede the benefits of EOS.

Additionally, an organization’s global sourcing decisions are not only affected by their ability to leverage EOS, but also by their inability to optimize costs in a small-scale center because of resource under-utilization. Thus, EOS cannot be used as the only yardstick to compare/select one location over another while designing/optimizing a global delivery portfolio.

Read more at: Economies of Scale in Global Services – Realities and Limitations (Everest Group)

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