Evolution of Outsourcing and Captive

Outsourcing

Outsourcing has been around for a long time now since the early seventies. Many companies back then realized of outsourcing most if their functions which were not their business needs. Payroll was one of the first functions being outsourced. One of the major company British Petroleum (BP) known to be a BPO giant started outsourcing their back office support services to the then Andersen Consulting (now known as Accenture). Outsourcing yielded many benefits if not all. This enabled you to leverage the experience of the service provider and improving the productivity and efficiency of your business processes. Outsourcing can be done onshore or to a remote location i.e. offshore. This was you can utilize some of your in-house resources to coordinate with the service provider remotely. Also some of the other advantages of outsourcing are – highly skilled labor available at low costs, improves productivity, saves your time from hiring new talent and the risks involved while running remote service centers.

Many service providers these days also offer hybrid solutions to your business which builds the synergy between your business needs and the overall IT alignment of your organization. Over time the outsourcing providers have matured and gradually started building generic operating models which can be used by any companies looking to improve their business. The operating model once established can also be helpful in captive engagements as well.

Captive

Captive maybe better known as Managed Captive since it gives control to the client to manage it. This is one of the sole reasons why many client organizations are switching from an outsourcing to a captive model. This makes them believe that they can build a low cost captive model when compared to their earlier outsourcing engagement. Since captive models offer greater amount of control over the operations, they can also be sure of any risks involved with offshoring their services. Captive is mostly setup at an offshore location where you setup a model the latest technology and infrastructure at a considerably lower cost. This is like owing a company offshore from where you have access broader geographies, for example Singapore, Poland, India. Captive allows complete control over these main functions – Finance, Resource, Operations and Governance. Captive ensure the following –

  1. Attract local talent for industry-specific skills
  2. IP protection
  3. Improves productivity & efficiency with 24/7 support
  4. Complete control over process management and operations
  5. Enhancing governance and service delivery

Some key drivers while building an operating model for both outsourcing and captive models –

  1. Resource requisition
      1. Check company size – is the company big enough to leverage resources
      2. Scouting – do you access to local universities for recruitment of graduates?
      3. Retention – does your company provide sufficient career growth opportunities in an outsourcing or captive model?
      4. Advantage – Outsourcing service provider for offshore location. Captive can hold the same in onshore markets
  1. Control Business processes
      1. Not everyone service provider gives you the entire control of your processes and operations
      2. Flexibility – check to see if the service provider is giving flexible enough to deliver or providing 24/7 support
      3. Documentation – check if you have access to the service provider’s documentation which can useful while transitioning the service delivery
      4. Advantage – Captive allows complete control and access while outsourcing engagement may not necessarily have it
  1. Business best practices
      1. Here the service provider can leverage his experience from multiple clients to adopt best practices into your business delivery
      2. Improve resource skills and certifications like Lean/Six Sigma. Also make sure the service provider is an ISO 9000 certified professional
      3. Organization environment and work culture
      4. Advantage – The outsourcing provider usually has the advantage here
  1. Technology and Infrastructure Setup
      1. This is an ongoing demand by the outsourcing provider to drive its productivity
      2. Latest technology systems or latest technology workflow tools integrated into the existing system
      3. Contingency planning and back up
      4. Advantage – Outsourcing provider
  1. Outsourcing core
      1. Decide what are the services that you want to outsource whether they are the core business activities or the less business critical services like Payroll
      2. If the outsources business services are not core then it can most likely fall under a captive model
      3. Advantage – Depends on what you outsource
  1. Governance and SLA’s
      1. Define service level agreements at the beginning of the engagement
      2. How will you track those – internal (service provider) or external (client)
      3. Benchmarking, monitoring and controlling the operations on a frequent basis
      4. Performance gauging – check if the service provider is doing its job according to the signed contract
      5. Governance activities to keep check on the current process and recommend any improvements in delivery model
      6. Advantage – Outsourcing provider

Conclusions

Outsourcing and captive are both effective business models when it comes to increasing efficiencies and reducing costs. Outsourcing helps you to outsource some of your non-core business functions while a captive model can act as a support function delivery model which is core to the business. A captive model can be at an onshore location or at remote geography depending upon the IT infrastructure potentially displaced employees. So these are some of the factors which you need to consider along with the company goals and vision, service delivery improvement in productivity and efficiency while choosing your appropriate operating model – outsource or captive.