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Guest Speaker on EOA Belgium Round Table 3: Offshoring

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Chris De Mol

Offshoring core activities may not be a good idea for some companies. While offshoring can reduce costs by up to 30%, it also typically increases development cycle times by up to 50%, reducing competitiveness. For a company in a fast-evolving IT market, offshoring core development activities is not recommended due to the need for highly experienced onshore resources close to the business to ensure quick time-to-market. Instead, non-core development, software maintenance, and testing could be offshored to leverage lower costs while keeping core activities requiring high experience levels onshore. Whether to offshore depends on accurately assessing the impact on return on investment from both costs and cycle times.

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Offshoring core activitiesA good idea?EOA Belgium Round Table 3: OffshoringTuesday, September 21, 2010Chris De Mol, Program Manager Technicolor
[Wikipedia]: Offshoring describes the relocation by a company of a business process from one country to anothertypically an operational process, such as manufacturing, or supporting processes, such as accounting...The economic logic is to reduce costs.
The economic logic reduce costsAre projects really significant cheaper in offshore mode?
The strategic logic focus on the corePut own resources on core activitiesTypically 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 two questionsThe economic logic:=> Are projects really significant cheaper in offshore mode?The strategic logic:=> Can you offshore core activities?
And the answer is One size fits all ?
Company XDevelopment of IT solutionsHaving innovative IT solutions is seen as key differentiatorFast evolving market spaceWhy 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 spaceIn 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%
SolutionIdentify 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, )

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Guest Speaker on EOA Belgium Round Table 3: Offshoring

  • 1. Offshoring core activitiesA good idea?EOA Belgium Round Table 3: OffshoringTuesday, September 21, 2010Chris De Mol, Program Manager Technicolor
  • 2. [Wikipedia]: Offshoring describes the relocation by a company of a business process from one country to anothertypically an operational process, such as manufacturing, or supporting processes, such as accounting...The economic logic is to reduce costs.
  • 3. The economic logic reduce costsAre projects really significant cheaper in offshore mode?
  • 4. The strategic logic focus on the corePut own resources on core activitiesTypically 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?
  • 5. The two questionsThe economic logic:=> Are projects really significant cheaper in offshore mode?The strategic logic:=> Can you offshore core activities?
  • 6. And the answer is One size fits all ?
  • 7. Company XDevelopment of IT solutionsHaving innovative IT solutions is seen as key differentiatorFast evolving market spaceWhy would you offshore your core IT development process?
  • 8. 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%
  • 9. Fast evolving market spaceIn most cases cycle times increase in case of offshoring IT development. Up to 50% Loose competitive advantage of being the first on the market
  • 10. ROI = Throughput Operational Expenses Inventory-30%+50%
  • 11. SolutionIdentify value of onshore and offshore team
  • 12. 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, )
  • 13. Map projects to the strengths of the teams Core new development Onshore (to guarantee fast Time2Market) Non-core new developmentSoftware maintenanceTesting OffshoreConclusionsFocusing 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.