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OUTSOURCING A Cybage perspective

Abstract India is a successful outsourcing des na on in the world of IT and IT-enabled services. This paper discusses both the benefits and the challenges in outsourcing and offshoring. The premise used is India as a des na on for

offshoring. This paper also touches upon various engagement models used in offshoring and shares a unique perspe ve on how Cybage determines which model is best suited for the needs of a par cular project and client needs.

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Table of Contents 1. Introduc on .......................................................................................................................................... 3

2. India as Preferred Offshore Outsourcing Des na on .......................................................................... 3

3. Benefits and Challenges of Offshore Outsourcing to India ................................................................... 5

4. Engagement Models for Offshore Outsourcing to India ....................................................................... 8

5. Engagement Models at Cybage ............................................................................................................ 9

6. Cybage Differen on: ExcelShore® Model ....................................................................................... 11

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1. Introduction

The term ‘outsourcing’ refers to the p ce of con g out a company’s internal business processes and IT opera ons to a third-party organiz on, primarily to enhance internal focus on core competencies and reduce oper onal costs. This p e started in the late 1980s and gained popularity at the turn of the 21st century with special emphasis on offshore outsourcing (also known as offshoring), which involves reloca ng parts of a business fun on to another country. Today, a majority of Fortune 100 companies and a mu de of SMEs of various sizes offshore parts of their IT opera ons and business processes. Following is a diagram from the industry’s leading outsourcing analysts firm Horses for Sources. The pie chart provides an es mate of the size of the outsourcing market for the year 2013, which is expected to grow at 5 percent per annum ll 2017.

Figure 1: Global Outsourcing Market

Source: h p://www.horsesforsources.com/wp-content/uploads/2013/06/Webcast-deck-outsourcing-is-dead_HfS_FINAL1.pdf

2. India as Preferred Offshore Outsourcing Destination

Since the early 1990s, India has been riding the wave of offshore outsourcing. India accounts for 43 percent of the world’s IT services offshoring market (this is followed by the Western European Union at 12 percent) and 35 percent of the world’s BPO offshoring market in 2013. How India emerged and con nues to maintain its dominance in the world outsourcing space has been spoken about quite eloquently

Indians account for 43 percent of the world’s IT services. offshoring market

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by Thomas Friedman in his acclaimed book ‘The World is Flat’. Also witnessing the surge in outsourcing are China, Brazil, Mexico, Russia, Ukraine, Romania, and Vietnam, along with emerging African countries such as Ghana and South Africa. The advantages India has over these countries are as follows: • The largest English-speaking workforce in the world. • More than three million graduates pass out of Indian colleges every year. • India has already experienced a couple of genera ons of outsourcing. Hence, stronger project

management and governance processes are in place here to m gate the risks of offshore outsourcing.

• The Indian government provides significant incen ves to so ware exporters through its So ware Technology Park scheme. This is a mature process, which has been in existence for 25 years.

• India has the largest number of SEI CMMI Level 5 appraised companies in the world. This is a testament to a strong engineering discipline and organized work force in the so ware industry.

• Businesses in mu ple disciplines: Be it in the realm of financial services, legal, hospitality, healthcare, manufacturing, or technology—businesses are flourishing in India (which also has a burgeoning middle-class popu on). This domain exp e can be harnessed by foreign clients for driving business efficiency and developing new genera on products and services for their markets.

• Cost of doing business in India con nues to be significantly lesser compared to many other countries.

• Figure 2, from leading outsourcing consultant Tholons, gives a ranking of c in various countries for outsourcing, using the aforemen oned criteria and other associated factors such as climate, environmental stability, ease of travel, and technological maturity. Indian ci es occupy six top slots.

Figure 2: Top Outsourcing Des na on Rankings

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Source:h p://www.tholons.com/TholonsTop100/pdf/Tholons%20Top%20100%202013_Rankings%20and%20Report%20Overview.pdf In outsourcing literature, it is common to encounter terms such as the following: (a) Onsite: Working from the client’s loca on (b) Offsite: Working from a loca on (not client loca on) away from the same city or country (c) Nearshore: Working from a nearby country (typically in the same me zone) (d) Offshore Each strategy, which varies from client to client and si on to situa on, has its pros and cons from a cost-benefit perspec ve. For a defined business value realized from an outsourcing partnership, the cost savings vary, as shown in Figure 3.

Figure 3: Typical cost savings as a func on of distance from the client India, being a primary offshore des na on, offers a compe ve rate of cost savings for an outsourcing engagement. Due to longevity in this space, India is also recognized as a thought leader in terms of driving more efficiencies and innova on from outsourcing r onships.

3. Bene�its and Challenges of Offshore Outsourcing to India Organiz ons have experienced significant benefits in outsourcing their IT and business process opera ons to India. The exact benefits in terms of cost reduc on vary, based on the nature of the work being outsourced. For commodity work items such as established business processes or well-defined so ware maintenance, typical cost savings are as per the following chart (courtesy McKinsey). For items that are not well defined and influenced by unfolding business reali es, the cost reduc ons will be less. In these cases, the addi onal costs incurred, related to communica on with an offshore team and governance, will be higher.

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Figure 4: Typical cost savings in offshoring to India Other significant benefits in outsourcing to India, besides enhancing company bo om line, are as follows: • Quality and produc vity of work output: Research has shown that work done by Indian

engineers and BPO analysts, meets, and o en exceeds, the requirements set by clients. • Access to a technology-savvy, educated work force: This can be leveraged for a flexible

alloca on of resources on demand. It also enables a sh of the client’s financial model from CAPEX spending to OPEX spending.

• Ability to u ize a ‘follow the sun’ model: India being typically 10 hours ahead of the US me zones and four to five hours ahead of the European me zones enables a con nuous workflow in which people are available round-the-clock to concentrate on business problems and solu ons.

• Ability to focus on core competencies while outsourcing the rest: The client can enhance business top line by alloc ng employees to focus on client-facing roles and emerging opportuni es. An effec ve outsourcing opera on in India handles other types of work.

• Enhancement in processes and opera onal efficiencies: This is an intangible benefit. Indian companies are extremely process-driven and they bring a rigorous discipline in engagement with clients. This influences a client’s behavior and leads to long-term improvements in the way the client conducts business.

Apart from the preceding benefits, outsourcing work to India poses certain challenges that need to be considered carefully prior to making it an outsourcing des n on. The typical challenges and the ways to address them are as follows:

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• : Outsourcing offshore has received bad publicity in

the media and the reasons cited are related to shi ing domes jobs overseas. This is a percep on that a company needs to understand and explain to its employees. In reality, outsourcing can help a company enhance its revenue and profits, leading to high-valued jobs being retained in-house.

• Lack of personal touch or face-to-face communica ons: Since the offshore teams are

located in different geographies and me zones, they don’t have a direct connec on with the client. This can lead to a feeling of lack of visibility and control over what is occurring at the offshore end. While technologies such as e-mail, chat, video conferencing, and on-line collabor on tools have addressed some of these social needs, the problems l persist. To sustain and build an offshore rela onship, it is advisable for both p s to plan trips and spend me at each other’s loca ons. Understanding differences in culture can also be achieved in this manner.

• Overheads in communica on (not typically encountered with employees): More me and

energy need to be invested in documenta on and commun on. The client needs to work more on documenta on and commun ng requirements, reviews and approvals of

acts and project plans, and addressing issues with the remote team. This can prove to be a major challenge when business p are sh ng. In such a scenario, discussing issues by walking into each other’s cabins or mee ng up near the water cooler is not possible with an offshore team. It is advisable that the client spends a reasonable amount of

me planning for this coordina on in the early stages of the rela onship. As the engagement matures and the offshore provider gains more direct and ‘tacit’ knowledge of the client’s business, the amount of me spent can be reduced.

• The need for offshore tasks to be well - defined and more formal training to be imparted:

This is also related to communica on. The offshore team has to define tasks appropriately (with mely updates as necessary). Along with this, the client has to provide training for domain and any specialized technology (as required) to enable the offshore team to deliver successful results. This me and effort spent by the client needs to be budgeted for in advance.

• Preserva on of informa on security and protec on of IP: Clients have concerns about

sending confiden al data and IP-related content to an offshore firm. The clients fear the , tampering of data, and its leakage to their compe tors. While these are genuine concerns, mature offshore providers use stringent, ISO-c d processes to ensure prote on of the clients’ valuable informa on. Offshore project teams and management are sworn to secrecy, offshore machines dedicated to projects for a specific client are protected by firewalls, and VPN access is given to client networks to ensure inform on security.

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A client needs upfront prep ons to address these challenges. Add onal outsourcing costs (as defined in Figure 4) tend to pile up if these issues are not addressed in advance, leading to what literature defines as ‘hidden costs’ or ‘intangible costs’ of outsourcing. Many offshore providers from India, who have experienced the last two decades of outsourcing, typically advise clients on these areas on a regular basis during the rela onship. Mature providers such as Cybage also engage in proac ve monitoring of problems before they disrupt any work by ensuring appropriate checks and balances are in place, including escala on mechanisms for the senior management.

4. Engagement Models for Offshore Outsourcing to India

The most popular engagement models for any outsourcing engagement (onsite, offsite, near-shore, or offshore) are Fixed Price (FP) and Time and Material (T&M). Substan inform on on the pros and cons of these engagement models is available. To summarize—the FP model works for an engagement with a tightly-defined scope and requirements, which are unlikely to change. In contrast, the T&M model works for an engagement which is flexible, adjusts to business reali es, and whose scope and requirements undergo changes over me. While the client makes the decision on which model is appropriate for a specific engagement, it usually involves a dialog with the offshore provider to flesh out mu ple scenarios with their a ending benefits and caveats. Recently, a majority of new development projects in the so ware world follow the Agile model, which is a radical departure from the previous Waterfall model of exe on. In the Agile model, since the requirements con nue to evolve with me—a T&M model over the product development life cycle—with a fixed number of offshore technical staff usually delivers the best results. When the product goes into maintenance and support mode, again a T&M model with a fixed number of staff delivers be er results since the work content cannot be defined in advance. Typically, a T&M model assumes that the client has an extended team offshore; this team works as ‘virtual employees’ of the client. The scope and work content for this team can be realigned as per business p and the team can be ramped up and down as required to achieve the objec ves. An FP model can work well in the context of a technology refresh in a ve in so ware development, where a stable and well-documented product needs to be migrated to a new technology pla orm. Another example of this model can be in the area of autom ng tes ng for a product with well-defined test cases. While an FP model reduces a client’s risks in outsourcing by freezing budgets in advance, any devia on from the specifica ons may trigger a change request and associated fees, which can increase the cost of the project significantly. An FP project also requires specific deliverables to be available at specific mes from the client (for example: specific ons, reviews and approvals, test results) to prevent offshore idle me and associated cost escala on. A recent phenomenon has emerged wherein many clients (usually small companies) work with freelance so ware developers and testers. This is done through a few web portals, which match the client’s requirements to a specific resource(s) in their subscrip on pool. This works for small

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projects, which typically do not require a team, and whose frequency is intermi ent and du on small. In this paper so far, we have not considered this scenario since these are one-off tasks and do not require strategic planning, internal prepa ons, or building long-term

onships between the client and the offshore provider.

5. Engagement Models at Cybage

Cybage offers two models of engagement, which are explained with the help of the following diagrams: (a) A pure offshore model (b) A hybrid model.

Figure 5: Pure offshore model

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Figure 6: A hybrid model.

In a pure offshore model, the re delivery team from Cybage is located offshore. The client interacts with the delivery team through well-defined interfaces, as depicted. Governance procedures are well-defined, and communica on protocols for regular status checks, reviews and approvals, and escala ons are put in place to ensure integrated opera ons between the client and Cybage. This model works well when the project requirements are vely stable and there or no connec ity required between Cybage and the client’s business or client-facing team, or when the size of the offshore team is re vely small. In the hybrid model, while a majority of the execu on occurs offshore, a smaller onsite staff is sta oned at the client’s loc on—either for a limited period (at different phases of an engagement) or throughout the engagement. This model works well for projects which do not have well-defined requirements or documenta on, thereby requiring Cybage engineers to visit a client to perform business analysis or system architecture, and the appropriate knowledge transfer. This ac vity usually lasts for a limited period. However, for larger engagements where mu ple streams of work are involved, the need to have an onsite Cybage team sta oned on a more permanent basis at the client loca on arises o en. This onsite team performs liaising and coordin on of work between the client’s in-house team and the offshore team to ensure effec ve integra on. This blended model also works well for some other engagements (not large) where the client does not have the bandwidth or capacity to manage an offshore team.

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6. Cybage Differentiation: ExcelShore® Model Cybage has developed an extensive Business Intelligence-driven IT system—‘ExcelShore®’—which is dashboard driven, guiding our senior managers to make intelligent decisions on offshore project execu on, using real data which has been mined for more than seven years. This system improves the efficiency at every level of offshore project execu on: from selec ng the right team (based on technology skill sets) to task-mapping to se ng up an appropriate team hierarchy to me management to consistency in exe on across projects, leading to delivery excellence throughout an outsourcing rela onship. The key parameters that a client looks at while selec ng an outsourcing vendor includes quality, speed, consistency, responsiveness, a ri on risk, scalability, and value add on. Whilst it is argued that cost is also one of the parameters, this is where our thought process is different. We believe that cost is the denominator of all the preceding parameters and the ability of an organiz on to op mize each of these parameters per unit cost provides the true value propos on to any client. This op miz on is realized by ExcelShore® through mathema nd st cal algorithms working on real data gathered from projects and performance appraisal systems. The ExcelShore® system scien lly leverages the en fact file of the organiz on in such a way that clients can benefit from every single capability that the organiz on possesses, while simultaneously minimizing the risks in the process and thereby delivering a measurable ROI to the client. This is the biggest factor that differen es Cybage from other outsourcing providers. The system has been the subject of a en on in the outsourcing world and has prompted Gartner to rate Cybage among cool applica on service providers in the so ware industry.

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About Cybage Software Pvt. Ltd. Founded in 1995, Cybage So ware is a leading offshore so ware services company offering solu ons that accelerate, simplify, and enrich business processes to give its clients an edge over compe on. We are an SEI CMMI Level 5 version 1.3 and ISO 27001 appraised company based in Pune, India. Our success is built on a pool of 4,500 so ware professionals. Based on a remarkable record of quality, consistency, and outstanding technological prowess, we have partnered with more than 200 global so ware houses of fine repute. Our array of services includes Product Engineering (OPD), Enterprise Business Solu ons, and Value Added Services. Cybage specializes in the implementa on of the Offshore Development model.

The Cybage domain exper se spans across several business ver such as Media and Entertainment, Travel and Hospitality, Healthcare and Life Sciences, Retail and Distribu on, and Hi-Tech. Cybage has eight technology-focused Centers of Excellence (CoEs) – E-commerce, Enterprise Mobility, Customer Rela onship Management, Business Intelligence, Enterprise Content Management, Cloud Compu ng, Educa on and Learning, and Supply Chain Management. Our unique model of opera onal efficiency, ExcelShore®, helps de-risk our approach and provides the best value per unit cost.

To know more about us, visit us at www.cybage.com or write to us at biz@cybage.com.

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