| One of the main points while developing your | | | | the unit manager may change the rules and the |
| outsourcing strategy is choosing the right delivery | | | | processes as much and as often as needed. |
| model for your type of business. In this article we will | | | | 2. Offsite Onshore Shared Services (RS – |
| talk about outsourcing business models, their types and | | | | completely owned, GL - offsite) |
| advantages. | | | | Companies execute the shared services model by |
| Offshore outsourcing business models are defined by | | | | establishing a separate division or organization and |
| two dimensions: | | | | transferring selected supporting processes and |
| | | | activities to it. |
| 1. Ownership or relationship structure (RS) | | | | Advantage: This model helps to eliminate the duplicate |
| 2. Geographical location of the work (GL) | | | | processes, activities and staff that individual business |
| Types of Ownership structure | | | | units have. |
| 1. Pure Contract Offshore Outsourcing (buy or third | | | | 3. Offshore Captive Shared Services (RS – |
| party) | | | | completely owned, GL - offshore) |
| A company delegates control of a function to an | | | | In this model a company sets a completely owned |
| external service provider in a foreign country. The | | | | centre that is dedicated to serving the different |
| provider takes over the function and does much of the | | | | business units of the company. |
| work offshore using cheaper labour. | | | | Advantage: This model is very common in multinational |
| Main benefits: limited operational risk, the potential for | | | | companies that want to control their BPO operations, |
| cost savings, rapid speed at which it can be executed. | | | | quality and intellectual property. |
| 2.Joint Venture (JV) (partnership agreement) | | | | 4. Cosourcing (RS – joint venture, GL – offsite) |
| This is a product of two or more companies that | | | | Cosourcing is the term that describes companies that |
| combine their resources to produce a new entity to | | | | execute a shared services centre with an external |
| perform business project for a set period of time. Joint | | | | vendor in the same country. |
| venture has its own management and organizational | | | | Advantage: This model is an option when firms |
| freedom. | | | | don’t have skills or money to set up a shared |
| Main benefits: Both parent-companies save money | | | | services centre on their own. |
| because expenses, resources and workload are | | | | 5. Offshore Development Centre (ODC) (RS – joint |
| shared. | | | | venture, GL - offshore)ODC is a joint venture with |
| 3. Captive Offshore Subsidiary (build or insource) | | | | offshore vendors. This is a dedicated, customized and |
| Captive offshore subsidiary is set up by a parent | | | | secure development center established by a vendor |
| company in a foreign country. Subsidiary is completely | | | | for a customer who needs to outsource substantial |
| owned by the company. | | | | software development, maintenance or engineering |
| Main advantage: more control and flexibility, lower | | | | work. |
| prices on a long-term basis. | | | | Advantage: cost savings; direct control on hiring and |
| Geographical Location | | | | retention of offshore resources; less recruiting, more |
| 1. Onsite Outsourcing. | | | | focusing on core business issues. |
| It means that all processes are carried out at the | | | | 6. Staff Augmentation, Contracting, or Temporary |
| client’s premises. The third-party provider utilizes its | | | | Services (RS – 3rd-party vendor, GL - onsite)This is |
| own workforce to service clients on their premises. | | | | the oldest onsite outsourcing model in which |
| 2. Offsite Outsourcing. | | | | corporations leverage supplemental staff to contain |
| The project or work may be done offsite, but it’s | | | | costs and handle overflow work |
| still in the same country as the client. | | | | Advantage: Staff augmentation reduces the costs |
| 3. Offshore (Nearshore) Outsourcing. | | | | associated with hiring, benefits and termination, |
| The project-related activity is done at the vendor’s | | | | recruiting, training and retraining personnel. |
| premises nearshore or offshore. | | | | 7. Pure IT or Business Outsourcing (RS – 3rd-party |
| Experts define two generations of offshore business | | | | vendor, GL - offsite)In this model companies delegate |
| models: the second generation is characterized by | | | | one or more business processes to an external |
| greater complexity of the model structure, usually | | | | onshore provider that owns, administrates, and |
| blending or combining of first-generation business | | | | manages the processes based on predefined and |
| models. We will provide information on the second | | | | measurable service level metrics. |
| generation business models in our next article. Look | | | | Advantage: Eliminates two problems 1) lack of staff |
| forward to our updates. | | | | with appropriate skills and 2) not enough time to do the |
| | | | job right. |
| Let’s take a closer look at each of the | | | | 8. Offshore Outsourcing (RS – 3rd-party vendor, GL |
| first-generation business models: | | | | - offshore) |
| | | | In this model companies delegate projects to an |
| 1. Internal Delivery (Department-Based model) (RS – | | | | external offshore provider. These projects are then |
| completely owned, GL - onsite) | | | | executed completely offshore with local, low-cost |
| This is a delivery model where an internal department | | | | labour. |
| provides services to other business units of the same | | | | Advantages: cost reduction, access to highly qualified |
| organization. | | | | specialists. |
| Advantage: This is the most flexible model because | | | | |