By Igor Mendzebrovski, EVP Outsourcing at Itera, Norway, Ukraine – Every forward-looking company reaches a point at which it must make fundamental changes to continue growing. This point often comes when development demands exceed the capabilities of current resources.
Companies can hire more staff, but then they face the added challenges of managing that staff, and providing the infrastructure to house them. Another option is to create a Delivery Center (DC), which can help organizations control costs, focus on core functions, overcome talent shortages, and maintain flexibility based on market conditions.
But, while these advantages can help propel a company forward, establishing a DC has the potential to hold it back with interruptions to established workflows. This paper will describe the primary methods for getting a DC underway, building a solid organizational structure, effectively managing resources, eliminating disruption, and constantly growing revenue.
1. Key Considerations for Companies Operating Their Own Delivery Center
Many companies could benefit from their own DC, but not all have the capacity to operate one. Typical roadblocks to DC implementation include the wrong strategy, organization immaturity, and a lack of HR involvement.
The following table further describes these roadblocks:
Knowledge of DC lifecycle management is crucial for both big multinational companies and mid-sized businesses. Renting an office and hiring resources are just the tip of the iceberg, with a lot of processes hidden below. When thinking of launching your own DC, start with a feasibility assessment to analyse the viability of your idea. This study will serve as a major information source for a go/no-go decision. Once you have decided to pursue a business scenario, there is usually no turning back.
The next step in this process is to choose an optimal location for your DC. The IT outsourcing market is huge and variable. It starts with India, a low-resource market, and moves through a good ratio of price to quality in Ukraine, Poland, and Byelorussia, and ends with high-priced services from the US and UK. It’s up to you to decide which destination you prefer.
Every DC lifecycle is divided into transition phases. This is an important concept, because it means you should analyze each phase to identify and prevent crisis periods. Sometimes it’s crucial to invite an external consultant to analyze your DC critical stages, as it’s almost impossible to identify them beforehand on your own.
Another area to pay attention to in your DC management is an effective approach to talent attraction, retention, and development. In intellectual industries, resources are a critical asset, and managing them effectively is always an issue. At Itera, we have two main tools that help us deal with talent: the Resource Pyramid and 3D Career Concept (see below for details and benefits).
These steps won’t lead you seamlessly through transition phases and are no guaranty against crisis. Be sure to focus on ongoing risk management and have a change management implementation plan prepared to execute where needed.
DC lifecycle management is a serious process of reacting and taking preventive actions to eliminate disruption, which is inevitable when you take no action within a constantly changing environment. You can choose to implement this process on your own, or share the responsibility of your DC lifecycle management with a professional paying much attention to each region’s specific IT competencies, building diverse technological cultures, and providing staff with developed international skills.
2. Typical IT Delivery Center Lifecycle
According to our observations, the DC development lifecycle lasts three to five years on average with two main critical stages.
To note, the critical stage in outsourcing is a transition period with intense change, during which the company is setting up the governance structure between the head office and its delivery center. Clearly, this is one of the riskiest phases in the relationship, and it needs to be carefully examined.
During the critical stages in DC lifecycle management, various types of risk are generated. These include financial risks (i.e. creation of additional costs because of the disruption of normal service delivery), regulatory risks (i.e. risks of not operating in compliance with wider regulatory standards, for example ISO), and operational risks (i.e. risks that present obstacles to the execution of operations).
We suggest to adhere to following terminology to name each of three phases in the DC lifecycle: Startup, Adjustment & Optimization, and Utilization. Between each phase there are transitions when you need to adjust KPIs, execution, and staff, and make general conclusions and set up futher goals.
Why is it so important? The point here is that goals at the beginning of the Startup phase do not usually correspond to those in the Adjustment & Optimization phase. You should always identify what phase you’re going through, as well as your lesson and recovery plan for each one.
At the end of the first phase, only 10 percent of firms experience success, 40 percent need a recovery plan, and 50 percent fail. Only as a result of the second phase of Adjustment and Optimization do companies tend to have a greater chance for success, which is 50 percent. A recent study supports these numbers:
Extrapolating past evidence into 2006–2011, Willcocks and Lacity estimate that 70% of selective sourcing deals will be considered relatively successful. In contrast, they estimate that only 50% of large-scale deals involving complex processes that represent more than 80% of the relevant budgets will be successful.
3. Managing Competencies is Outsourcing 2.0
Resource Pyramid® goes beyond merely managing a resource pool, which differentiates Outsourcing 2.0 services from Outsourcing 1.0. The resource pool concept aligns one person with one competency, a notion that can be cost-intensive, as it leads to staff overgrowth. The resource pool is about managing resources, while the Resource Pyramid is about managing competencies. Each person, team, and network has a number of competencies, which should be utilized by the company. The Resource Pyramid concept is crucial for those looking to open a DC, because it concentrates on delivery quality, optimal rates, and high-level resources.
The Resource Pyramid is a methodology that includes data, approaches, and methods pertaining to resource pool composition and performance. It provides a structure to analyze and proactively build up customers’ organizational efficiency with the best mix of junior-, middle- and senior-level resources.
The Resource Pyramid ensures efficient allocation, deployment, and utilization of resources in DC implementations. With each customer’s satisfaction as the ultimate goal, the specific resources used depend on the following factors:
- Site / location specifics
- Stage of organization development
- Local labor market and costs
- Project complexity and lifecycle
- Employee lifecycle
What’s the value? As the main tool used to manage IT resources, the Resource Pyramid creates numerous benefits for customer, employee, and company. For customers, they include value, team stability, and good delivery. For employees, high job satisfaction and a transparent career are key. And, the company benefits from optimizing costs and IT teams that reflect the best mix of staff.
4. Resource Development Beyond Technical Skills
While the competencies embodied by the Resource Pyramid are important in international collaboration in hybrid teams, it’s not enough for developers to have just technical skills.
The DC business model requires constant work in cross-cultural dedicated teams located in different countries and time zones. So, to ensure high performance and delivery levels, staff must have soft, management, and cross-cultural skills as well.
At Itera, we determine employees’ skills based on the 3D Career Concept®. Our HR team created this career development plan using internal instruments like the Performance Evaluation System, which measures the level of employee competencies; and the Training System, which is the primary tool used for continual education and career advancement.
As shown in Figure 3, the employees are conceptualized as having a number of technical, soft, and management skills, as well as the ability to work internationally. Practically this development can be seen as follows:
- Technical skills: trainings and conferences, paid certifications, participation in IT communities, etc.
- Soft and management skills: extensive training program for newly assigned managers, BizTalks
- International skills: cross-cultural communication trainings, foreign language instruction
What’s the value? The 3D Career Concept gives value not only to organizations, in the best use of internal resources, but also to employees who get to develop their skills, and customers, who receive better quality services. The main distinction of the 3D Career Concept is a switch from cost-saving objectives to long-term value benefits built from the outsourcing model.
5. Future Challenges of Nearshoring
Nearshoring has been a valid solution for IT providers for some time. However, in coming years, it may lose efficacy due to oversaturation. Many companies have found significant skills, low costs, solid infrastructure, and understanding of EU regulations close to home. However, the demand for qualified resources, and the need to continually train and build an effective organizational structure, continues to grow.
To be competitive Nearshore should look toward to develop competencies, grow ability to work internationally and continue to provide high level of intellectual resources. In terms of resources business will always look to cut costs and decrease the number of regulations that require compliance. And Nearshore should always be able to meet this demand.
Company growth can be painful, but it doesn’t have to be. With the right resources, IT-component businesses can expand their workforce easily and smartly. Starting and managing a DC, companies should get on with their core operations, yet still take advantage of an expanded resource set. Just remember that building personnel is good, but building competencies is even better as it allows you to concentrate on delivery quality, optimal rates and high-level resources, which are all crucial for outsourcing model. That’s all what Resource Pyramid is about. Also, consider 3D Career Concept in your organization to ensure high performance and delivery levels with staff acquiring necessary soft, management, and cross-cultural skills.
The business world keeps changing, and you should be ahead of this change.
The author: Igor Mendzebrovski, EVP Outsourcing at Itera Works in IT outsourcing for more than 20+ years as a business owner of SoftServe Group and as EVP Outsourcing at Itera ASA. Igor is a dedicated lobbyist of major IT associations – IT Ukraine, WITSA, ISTQB, EBA. For more than 10 years facilitates Ukrainian IT education being a co-author of Ukrainian National Educational Standard and a visiting lecturer at National Aviation University (Kyiv, Ukraine).
This article was published in the Outsourcing Journal Special Edition “Nearshoring Europe Edition” in Q4/2015. You can download this edition (150 pages, PDF) free of charge here (membership with German OutsourcingA association required (free, personal membership available) >http://www.outsourcing-journal.org/Special-Editions/outsourcing-journal—nearshoring-europe-edition.html