Does location really matter when offshoring your IT services?

Not too long back, many global IT service providers were known to move delivery of IT services of their clients to offshore locations (like South Africa, Latin America or India) without informing their clients. This was seen as an internal lever to make customer contracts more profitable in a multi-year deal as services were first stabilised in a high-cost onshore delivery location before being shipped to an offshore location. With maturing client awareness, most contracts today include provisions requiring the service provider to state up-front the offshore play along with details of all countries from where services would be delivered. In many cases it also includes the specific cities from where the services will be delivered in the period of the contract.

As an enterprise, what do you do with this visibility? Beyond knowing that some of your services will be delivered from a particular offshore location, does it really matter? Further, can you use this to ensure you get better quality of services or even more cost efficient services when discussing with your down-selected IT service providers? Yes, yes and yes!

To understand this, we should delve deeper into what goes inside most IT service providers’ organisations when it comes to building their location strategy. From my personal experience with some of the largest global IT service providers, offshorebased IT service providers and other mid-sized providers, the location strategy is at times built with a well-crafted plan but at other times has seemingly bizarre rationale. It is important to understand that in most cases the location strategy is a downstream effect of growth of their business. Service providers operate in a highly competitive market and would ideally like to ramp up the size of their delivery locations as new business comes in which provides them revenue to fund these expansions. Unfortunately, most service providers still have a labour-intensive delivery model and clients expect services to start within weeks of signing contracts. Thus lead time (of few weeks) is too short to stand up new facilities to deliver for new contracts.

In case of very large and even mid-sized providers operating for couple of decades, the location strategy today is often seeded in the way they grew historically. In several cases, historically few locations emerged when either existing space was available at short notice, or there was a good real estate deal available – and sometimes even when it had to be the home town of the top leader under whom the delivery of a major client was dependent (typically a vice president or someone as senior)! Access to skills and tax holiday criteria are some other factors which have driven the locations that were developed historically.

In today’s times when things are better organised and that approach cannot be taken any longer, most service providers retain hard shell spaces in major cities where they operate. These places can then at short notice be converted into warm shells with interiors and other aspects of getting the space ready for delivery. Thus the longest lead time of identifying and acquiring space is taken care of. With the current space challenges at most significant offshore locations, it is also a challenge to find new space contagious with existing operations. In most cases the service providers look for spaces either in the same IT park (if not in the same building) or even in the same city to still leverage local management.

Many service providers have Centres of Excellence (for specific verticals like Insurance or Retail) in a particular offshore location. Most often these are cities where they started few major clients in that vertical historically and it helped to move across team members across accounts which resulted in these developing into hubs for a particular industry vertical. It also helped to cross-leverage best practices and management focused on a particular vertical.

So, what can a CIO and her team do with this awareness when signing their next significant outsourcing contract? Here are few imperatives which can help:

Insist all locations being used to deliver services for their contract are stated up-front. Further the service provider should be obligated contractually to inform and get a concurrence in advance before changing the locations to deliver services.

  • Ask for the names of other major clients from their industry vertical that are being serviced from that location? A good set of clients from the same vertical ensures that there will be access of skilled resources, seasoned managers and that the account is not a victim of BOCA (best option currently available) factor.
  • If feasible, insist on getting services delivered from a single offshore location (or not more than two or three locations if the contract is really big). Clients have been known to have discovered that services were being delivered from as many as six to eight offshore locations. This leads to poor quality of service due to poor control, lack of strong management and operational rigour.
  • Ask for a discussion with the local leadership team who would be responsible for the delivery of services. Understand their experience in delivering for the industry vertical. This is more relevant for consulting, application services and BPO (as against IT infrastructure services).

While there are several factors that determine successful delivery of services for a contract, given the same provider, the choice of location can have an important play. It finally comes close to the mantra in real estate which states that only three factors are important to consider when choosing a property: location, location and location!

Source: outsourcemag.com-Does location really matter when offshoring your IT services?

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