I have written before about GDM - the Global Delivery Model - the knowledge capture, transition, continuous improvement offshore vendors have honed over the years. There has not been much written about the mirror side - the buyer POV - what I call the Global Consumption Model or GCM.
Wachovia hosted yesterday a conference call where TPI, a sourcing advisory firm, and Arcon, a benchmarking firm presented interesting survey results on the GCM based on interviews with over 200 buyer executives with varying levels of offshoring experience.
Very mixed messages from an offshore vendor perspective - while demand should accelerate, the economic, productivity and customer satisfaction feedback is cause for concern.
a) There is a 3 year "getting comfortable" period in an offshore relationship- while demand grows in the first 3 years it accelerates after that (average FTEs at 285 under year 3 compared to 862 after 5 years). Many customers in the survey are approaching the 3 year mark, so overall demand should accelerate, but the long transition time ends up diluting the offshoring savings considerably. A quarter surveyed said first year costs were actually higher - due to vendor transitioning and staff restructuring charges. Most offshore vendors have sophisticated knowledge capture/transition tools and techniques - but need to work even harder to get the transition time/costs down further.
b) The more sophisticated buyers are going beyond rate arbitrage and looking for productivity improvements but are struggling for metrics to measure productivity. I have asked a number of offshore vendors how their CMM and Six Sigma initiatives show up in actual productivity improvements and they have shown individual examples, but not broad enough results. In the meantime they keep chasing after newer certifications. Perhaps they should stop focusing on the alphabet soup of certifications and focus on helping their customers truly understand the productivity metrics and payback.
c) The third observation from the survey is bothersome. In terms of customer satisfaction, offshore firms are only marginally better than western resources (3.5 compared to 3.4 on a scale of 5 -and that because of their onsite resources, not their offshore contingents which make up over 70% of the staffing). 3 years ago, I did a somewhat less scientific study of 25 US and European users of offshoring and the feedback was overwhelming positive (if I had used the scale used by this survey, it would have averaged 4.5) . Either offshore firms are slipping (as they try to scale as fast as they have) or Western firms have improved. Either way, it is not good news for offshore vendors.
d) As buyers grow in sophistication they seek more complex offshoring arrangements. This includes spreading risk over multiple countries (where Western providers like IBM or HP actually offer more balanced choices compared to the Indian vendors), establishing captive offshore units etc. While 70% of business has gone to India, the diversification flow is headed to China, Brazil and E. Europe - Ireland, Israel, Philippines appear to be dropping off.
To listen to a replay of the conference call 1-706-645-9291 conf id 1121879 through 10/24.
