OUTSOURCING
A Cybage perspective
Abstract
India is a successful outsourcing destination 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 destination for
offshoring. This paper also touches upon
various engagement models used in offshoring
and shares a unique perspective on how Cybage
determines which model is best suited for the
needs of a particular project and client needs.
This document and all its contents contain information from Cybage Software Private Limited which may be privileged, confidential,
or otherwise protected from disclosure. The information is intended to be for the addressee(s) only. Any unauthorized disclosure,
copy, distribution, or use of the contents of this message is strictly prohibited.
© Cybage Software Pvt. Ltd
Table of Contents
1.
Introduction .......................................................................................................................................... 3
2.
India as Preferred Offshore Outsourcing Destination .......................................................................... 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 Differentiation: ExcelShore® Model ....................................................................................... 11
© Cybage Software Pvt. Ltd
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1. Introduction
The term ‘outsourcing’ refers to the practice of contracting out a company’s internal business
processes and IT operations to a third-party organization, primarily to enhance internal focus on
core competencies and reduce operational costs. This practice 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 relocating parts of a business function to another country. Today, a
majority of Fortune 100 companies and a multitude of SMEs of various sizes offshore parts of their
IT operations and business processes. Following is a diagram from the industry’s leading outsourcing
analysts firm Horses for Sources. The pie chart provides an estimate of the size of the outsourcing
market for the year 2013, which is expected to grow at 5 percent per annum till 2017.
Figure 1: Global Outsourcing Market
Source: http://www.horsesforsources.com/wp-content/uploads/2013/06/Webcast-deckoutsourcing-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 continues to maintain its dominance in
the world outsourcing space has been spoken about quite
eloquently
© Cybage Software Pvt. Ltd
Indians account
for 43 percent of
the world’s IT
services.
offshoring market
Page 3 of 12
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:
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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 generations of outsourcing. Hence, stronger project
management and governance processes are in place here to mitigate the risks of offshore
outsourcing.
The Indian government provides significant incentives to software exporters through its
Software 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 software industry.
Businesses in multiple 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 population). This domain expertise can be harnessed by foreign clients
for driving business efficiency and developing new generation products and services for their
markets.
Cost of doing business in India continues to be significantly lesser compared to many other
countries.
Figure 2, from leading outsourcing consultant Tholons, gives a ranking of cities in various
countries for outsourcing, using the aforementioned criteria and other associated factors such
as climate, environmental stability, ease of travel, and technological maturity. Indian cities
occupy six top slots.
Figure 2: Top Outsourcing Destination Rankings
© Cybage Software Pvt. Ltd
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Source:http://www.tholons.com/TholonsTop100/pdf/Tholons%20Top%20100%202013_Ranking
s%20and%20Report%20Overview.pdf
In outsourcing literature, it is common to encounter terms such as the following:
(a) Onsite: Working from the client’s location
(b) Offsite: Working from a location (not client location) away from the same city or country
(c) Nearshore: Working from a nearby country (typically in the same time zone)
(d) Offshore
Each strategy, which varies from client to client and situation to situation, has its pros and cons
from a cost-benefit perspective. 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 function of distance from the client
India, being a primary offshore destination, offers a competitive 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 innovation from outsourcing relationships.
3. Benefits and Challenges of Offshore Outsourcing to India
Organizations have experienced significant benefits in outsourcing their IT and business process
operations to India. The exact benefits in terms of cost reduction vary, based on the nature of the
work being outsourced. For commodity work items such as established business processes or welldefined software maintenance, typical cost savings are as per the following chart (courtesy
McKinsey). For items that are not well defined and influenced by unfolding business realities, the
cost reductions will be less. In these cases, the additional costs incurred, related to communication
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 bottom line, are
as follows:
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Quality and productivity of work output: Research has shown that work done by Indian
engineers and BPO analysts, meets, and often exceeds, the requirements set by clients.
Access to a technology-savvy, educated work force: This can be leveraged for a flexible
allocation of resources on demand. It also enables a shift of the client’s financial model from
CAPEX spending to OPEX spending.
Ability to utilize a ‘follow the sun’ model: India being typically 10 hours ahead of the US time
zones and four to five hours ahead of the European time zones enables a continuous
workflow in which people are available round-the-clock to concentrate on business
problems and solutions.
Ability to focus on core competencies while outsourcing the rest: The client can enhance
business top line by allocating employees to focus on client-facing roles and emerging
opportunities. An effective outsourcing operation in India handles other types of work.
Enhancement in processes and operational 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 destination. The typical challenges
and the ways to address them are as follows:
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Possible reduction in employee morale: Outsourcing offshore has received bad publicity in
the media and the reasons cited are related to shifting domestic jobs overseas. This is a
perception 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.
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Lack of personal touch or face-to-face communications: Since the offshore teams are
located in different geographies and time zones, they don’t have a direct connection 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
collaboration tools have addressed some of these social needs, the problems still persist. To
sustain and build an offshore relationship, it is advisable for both parties to plan trips and
spend time at each other’s locations. Understanding differences in culture can also be
achieved in this manner.
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Overheads in communication (not typically encountered with employees): More time and
energy need to be invested in documentation and communication. The client needs to work
more on documentation and communicating requirements, reviews and approvals of
artifacts and project plans, and addressing issues with the remote team. This can prove to
be a major challenge when business priorities are shifting. In such a scenario, discussing
issues by walking into each other’s cabins or meeting up near the water cooler is not
possible with an offshore team. It is advisable that the client spends a reasonable amount of
time planning for this coordination in the early stages of the relationship. As the
engagement matures and the offshore provider gains more direct and ‘tacit’ knowledge of
the client’s business, the amount of time spent can be reduced.
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The need for offshore tasks to be well-defined and more formal training to be imparted:
This is also related to communication. The offshore team has to define tasks appropriately
(with timely 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 time and effort spent by the client needs to be budgeted for in
advance.
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Preservation of information security and protection of IP: Clients have concerns about
sending confidential data and IP-related content to an offshore firm. The clients fear theft,
tampering of data, and its leakage to their competitors. While these are genuine concerns,
mature offshore providers use stringent, ISO-certified processes to ensure protection of the
clients’ valuable information. 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 information security.
© Cybage Software Pvt. Ltd
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A client needs upfront preparations to address these challenges. Additional 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 relationship. Mature providers such as
Cybage also engage in proactive monitoring of problems before they disrupt any work by
ensuring appropriate checks and balances are in place, including escalation mechanisms for the
senior management.
4. Engagement Models for Offshore Outsourcing to India
The most popular engagement models for any outsourcing engagement (onsite, offsite, nearshore, or offshore) are Fixed Price (FP) and Time and Material (T&M). Substantial information
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 realities, and whose scope and requirements undergo changes over time. 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 multiple scenarios with their attending
benefits and caveats.
Recently, a majority of new development projects in the software world follow the Agile model,
which is a radical departure from the previous Waterfall model of execution. In the Agile model,
since the requirements continue to evolve with time—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 better 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 priorities, and the team can be ramped up and down as required to
achieve the objectives.
An FP model can work well in the context of a technology refresh initiative in software
development, where a stable and well-documented product needs to be migrated to a new
technology platform. Another example of this model can be in the area of automating testing 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 deviation from the specifications 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 times from the client (for
example: specifications, reviews and approvals, test results) to prevent offshore idle time and
associated cost escalation.
A recent phenomenon has emerged wherein many clients (usually small companies) work with
freelance software developers and testers. This is done through a few web portals, which match
the client’s requirements to a specific resource(s) in their subscription pool. This works for small
© Cybage Software Pvt. Ltd
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projects, which typically do not require a team, and whose frequency is intermittent and
duration 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 preparations, or building long-term
relationships 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
© Cybage Software Pvt. Ltd
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Figure 6: A hybrid model.
In a pure offshore model, the entire 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 communication protocols for regular status checks, reviews
and approvals, and escalations are put in place to ensure integrated operations between the
client and Cybage. This model works well when the project requirements are relatively stable
and there is little or no connectivity required between Cybage and the client’s business or clientfacing team, or when the size of the offshore team is relatively small.
In the hybrid model, while a majority of the execution still occurs offshore, a smaller onsite staff
is stationed at the client’s location—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 documentation, thereby requiring Cybage engineers to visit a
client to perform business analysis or system architecture, and the appropriate knowledge
transfer. This activity usually lasts for a limited period. However, for larger engagements where
multiple streams of work are involved, the need to have an onsite Cybage team stationed on a
more permanent basis at the client location arises often. This onsite team performs liaising and
coordination of work between the client’s in-house team and the offshore team to ensure
effective integration. 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.
© Cybage Software Pvt. Ltd
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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
execution, using real data which has been mined for more than seven years. This system improves
the efficiency at every level of offshore project execution: from selecting the right team (based on
technology skill sets) to task-mapping to setting up an appropriate team hierarchy to time
management to consistency in execution across projects, leading to delivery excellence throughout
an outsourcing relationship.
The key parameters that a client looks at while selecting an outsourcing vendor includes quality,
speed, consistency, responsiveness, attrition risk, scalability, and value addition. 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 organization to
optimize each of these parameters per unit cost provides the true value proposition to any client.
This optimization is realized by ExcelShore® through mathematical and statistical algorithms working
on real data gathered from projects and performance appraisal systems.
The ExcelShore® system scientifically leverages the entire fact file of the organization in such a way
that clients can benefit from every single capability that the organization possesses, while
simultaneously minimizing the risks in the process and thereby delivering a measurable ROI to the
client. This is the biggest factor that differentiates Cybage from other outsourcing providers. The
system has been the subject of attention in the outsourcing world and has prompted Gartner to rate
Cybage among cool application service providers in the software industry.
© Cybage Software Pvt. Ltd
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About Cybage Software Pvt. Ltd.
Founded in 1995, Cybage Software is a leading
offshore software services company offering
solutions that accelerate, simplify, and enrich
business processes to give its clients an edge
over competition. 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 software professionals. Based on
a remarkable record of quality, consistency, and
outstanding technological prowess, we have
partnered with more than 200 global software
houses of fine repute. Our array of services
includes Product Engineering (OPD), Enterprise
Business Solutions, and Value Added Services.
Cybage specializes in the implementation of the
Offshore Development model.
The Cybage domain expertise spans across
several business verticals such as Media and
Entertainment, Travel and Hospitality,
Healthcare and Life Sciences, Retail and
Distribution, and Hi-Tech. Cybage has eight
technology-focused Centers of Excellence
(CoEs) – E-commerce, Enterprise Mobility,
Customer Relationship Management, Business
Intelligence, Enterprise Content Management,
Cloud Computing, Education and Learning, and
Supply Chain Management.
Our unique model of operational 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 [email protected].
© Cybage Software Pvt. Ltd
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