A hybrid approach to outsourcing: the role of close-proximity development centers

Offshoring and outsourcing service models are continuously evolving as service providers and clients mature.

The inclusion of development centers that are in close proximity to client locations as part of the service model is becoming increasingly attractive as service providers adapt to the need to improve their collaboration with client stakeholders, while remaining cost-competitive through a target onsite/offshore ratio. Having resources at close proximity is a win-win for both clients as well as service providers:

  • Clients get the benefit of lower cost when compared to on-site resources, increased face time with resources when compared to offshore resources and the ability to collaborate closely during key project phases as needed to ensure success.
  • Service providers get the benefit of having a collocated pool of resources that are deployable across multiple clients and are able to learn from each other, are able to tap into college hiring to keep cost structures in control, and are able to reduce their dependence on visa-based resources to fulfill their onsite needs.

This model can be very effective in specific scenarios. For example, application support and maintenance engagements are well suited to this model as on-site presence can be planned and scheduled in advance around key deployment or change milestones. Day-to-day tickets can be delivered by resources based in centers that are in close proximity to the client location in combination with offshore centers. Similarly, most projects with predictable milestones and mature processes can be executed effectively from such centers, with as-needed on-site presence to ensure effective collaboration.

When compared to a pure on-site model, resources that are based at these development centers are able to learn from each other, training and mentoring becomes more cost-effective given the resource aggregation, and typical issues such as vacation, resource attrition and rotations are easier to manage. It is also easier to build a better trust-based relationship with client stakeholders because of the increased face time and collaboration, and such teams can be seen as an extension of their own local resources.

These considerations are driving us towards increasing adoption of a hybrid outsourcing model which includes a few key high-contact resource roles on-site, some resources based out of development centers that are geographically close to the client location and some resources at offshore centers.

3 Comments

  • Victor Millqvist November 21, 2013

    You definitely have a case here. I have spent some time working with off-shore solutions in Sweden, but it has been cumbersome due to different interpretations of how things should be developed. Very often specifications are not so precise, which is OK if the parties know each other and have regular contact. And even if the original specs are OK there are often changes made under way, when there is pressure to meet time limits. Then the risks for misunderstandings are imminent.

    Perhaps we could find some areas of cooperation.

    Regards,
    Victor Millqvist
    Balticon

  • Harsha Kumar November 29, 2013

    Victor:

    Thanks for your comments – I agree that one of the biggest pit-falls in software development projects is the lack of clarity and alignment on requirements, and disconnects can be further exacerbated in the case of rapidly evolving client environments and requirements. In my experience, the most important thing is to get the process right in terms of implementing agile best practices. Now, these are a lot harder to accomplish with distributed or offshore teams, but can be done. At Virtusa, we’ve been regularly winning best agile partner awards at multiple clients, leveraging daily collaboration calls, requirements workshops (called ASDs) and engineering rigor tools. In this context, we believe adding a “close proximity center” as the 3rd leg of the stool can make a big difference in a couple of areas: a) agile projects where a combination of onsite, close-proximity center, and offshore resources can provide the optimal resource mix; and b) level 1 application support where same time-zone and local presence offer some obvious advantages, again best leveraged in conjunction with offshore resources to get the right price point and “follow the sun” global coverage.

    In terms of partnering, we’d be open to discussing options with you. Please reach out to me at hkumar@virtusa.com

  • Steve M January 2, 2014

    3 Global Trends are Changing IT Services
    ————————————————-

    1) Rural US Sourcing (notice Apple and the alignment with suppliers in the US) – Cost to ship goods is decreasing the margins – In India, the country economy and NASSCOM are adjusting given country trends in the economy – Not your father’s outsourcing, anymore – Source: Gartner, Public Reports

    2) Accelerators and ‘freelance’ management consulting – The skills are the key – McKinsey has been introducing recurring services revenue models to complement their management consulting – Work will further be enabled by the ACA Law that allows employees to ‘roam’ with the skills and remote collaboration and teaming.

    3) SMAC focus with Analytics providing the monetization models. In others words, social, mobile, and cloud (the S, M, and C) by themselves DO NOT generate revenue given the rapid communization of the enablers. They are distribution and technology channel enablers. Analytics or the old ‘service bureau’ models are winning and will win more – Think Bloomberg Terminal or Big Data visualization modeling of transactional and holistic activities.

    So…Assuming points 1, 2, and 3 are valid for the sake of discussion – Virtusa appears aligned with the global trending going into 2014 and beyond……

    The Journey is the Reward to quote another Steve….

Comments are closed.