Types of offshoring models
Business is about saving a dollar rather than selling a dollar. In business, offshoring is one of the ideal ways to save megabucks. In recent times, the majority of the companies prefer to offshore the business to avail the numerous advantages associated with the offshoring along with cutting down the cost. With such increased maturity of offshoring business, various types of outsourcing models have carved their path into the market.
1. Global Shared Services:
Global shared services is a collaborative strategy which involves delegating or centralizing a subset of business functions to a new and separate, semi-autonomous business center. This model of outsourcing could also define the partnerships formed between the separate businesses located in different locations. Services that could be outsourced and shared among various business units include finance, purchasing, payroll, inventory management, hiring process, and information technology.
- Reduced cost
- Faster turnaround
- Improved efficiency and accuracy by avoiding the duplication, inconsistency, and conflict of processes and systems.
- Access to domain expertise and consistent services
- Provides an accurate measurement of time and value that is invested.
In total, the Global shared services model increases business values.
2. Hybrid model:
Medical device market is worth more than $400 billion business globally. For the market that is growing with such an expeditious rate, there is always a need to use external resources which could provide expertise, flexibility while not being hefty on cost. The hybrid model is an apt model for such cases.
A hybrid outsourcing model is a model made up of the best combination of offshore, onshore and nearshore resources to provide the business with the most optimal solution that aligns with the needs and goals of the company while minimizing the cost outlay. This model provides access to the global delivery and skills of an offshore model while facilitating the local presence and communication access of an onshore model.
The concept of outsourcing for just cutting down the cost is long gone. In recent times, it is beyond that. It is about achieving the highest quality and innovation at a competitive cost. Hybrid outsourcing model lets the business to conduct the core functions in the geographic proximity to the client and other functions to be offshored. Organizations could also avail the cost efficiency of the offshore while indulging the convenience and the seamlessness of onshoring. Although this hybrid model is apt for most of the businesses, it often can’t compete with a purely offshore model in terms of cost which is way more cheaper than the hybrid model.
3. Multi-sourcing model:
In the Multi-sourcing model, the company enters into separate, parallel agreements with different suppliers/vendors to satisfy all the needs of the business. The multisourcing approach is usually in contrast with full in-house facilities and outsourcing to a single vendor. A typical multi-sourcing model involves having various suppliers offering different services needed for the successful running of the business. It provides access to the services from best in breed suppliers and often offers a way around the common pitfalls of being locked in a long-term deal with a single vendor.
A classic example of the multi-sourcing model could be the following: if supplier A is performing data center functions, supplier B might be performing desktop functions while supplier C could be handling network functions. One such company that is following this outsourcing model is German utility E. ON. It is outsourcing its data center and desktop environments to Hewlett Packard and its network environment to T-systems.
- Reduced dependency on sole suppliers.
- Flexibility to align the products/services to the end-customer needs at a much faster rate
- Access to best in the field services and many other advantages.
The multi-sourcing model could make the business crumble if the company fails to coordinate between multiple providers or if the communication method/system between the different suppliers breaks down.
4. Global Delivery model:
The global delivery model is typically associated with companies that are mainly engaged in IT projects. This outsourcing model could be defined as the process of executing IT projects with the help of resources located at multiple locations across the globe. The teams might be located at the client site or at a remote site (onshore or nearshore or offshore). The tasks associated with the project could be divided among different teams. This model could also be used to deliver customized projects based on the requirements of the clients.
- Minimize investment cost
- 24×7 availability of resources
- Access to expertise and knowledge
- Distribution and integration of workload in a smarter way
- Faster response to changing client requirements
- Mix and match onsite and offshore resources
- Shorter project completion time
- Low risk
- Availability of Back-up facilities in global locations in case of any sort of emergency
- Highly scalable and flexible resourcing
- Increased transparency and visibility
- Multicultural work environment
Although Global delivery model is advantageous, there are a good number of challenges associated with it. A few of those being lack of project control, the risk of communication gaps between onshore and offshore teams, increased coordination costs, cultural issues.
5. Build-Operate-Transfer (BOT) Model:
This model typically has three phases: Build phase, Operate phase and transfer phase. The Build phase involves setting up an operation unit that includes everything – from selecting the buildings, installing the infrastructure, employing the staff, maintaining the required administration and legal framework. The Operate phase is mainly about managing offshore projects. It involves program management, development, maintenance, enhancements, and product support. The third phase of this model is the Transfer phase in which the project owner is handed over to the client. Generally, project ownership is transferred when the client is fully ready to control the project or when the contract expires. This phase involves transferring the assets and handing over the other operations.
- Saves money and increases the profit
- Time zone advantage reduces the time to market.
- Diversifying investment for the investors minimizes the risks.
BOT model could be advantageous to the business but the challenges remain. One of the major challenges is the communication gap between the teams. It could be dealt with by building the gap and being clear in communication.
A final note:
In the business world of today, there are various types of outsourcing models in the market. But the fact remains same – one-size-doesn’t-fit-all. While one model is suitable for a few businesses, the other might be apt for other businesses. But whichever model the company chooses to opt for, the decision should be driven by well-thought-out and well-analyzed sourcing strategy that aims at increasing the overall revenue of the company while sticking on to the best quality products/services.