| A Leading Technology Firm |
Fortune 2000 Technology Industry
Suppliers: Two Tier 1 Indian service providers
Scope of service: Our client's Global Partner Engineering (GPE) group had already established a contract agreement with the two service providers to service the company's 3 business units. While pilot projects had commenced, GPE wanted to validate their current activities and generate a sound plan for future offshore activities in relation to their overall objectives. Our client asked Neo Advisory to assess their IT products/services portfolio, create a transition plan, develop a financial business case, and highlight key risk factors. |
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Background
Our client delivers critical infrastructure services that make the Internet and telecommunications networks more intelligent, reliable, and secure. Every day, they helps thousands of businesses and millions of consumers to find each other, and to connect, communicate, and transact with confidence.
Business Challenge
When Neo Advisory became involved, our client's Global Program Engineering Group (GPE) had already made the decision that offshore outsourcing was a smart business decision. In fact, they had already signed contracts with the two tier 1 Indian service providers for pilot projects across three divisions. They had performed some level of upfront due diligence, but realized a more in-depth analysis was required to establish a solid framework for the initiative. They had not developed a business case and had only a general understanding of how offshore operations should work. In short, they were reluctant to rely on supplier consultation to drive their offshore activities and were uncertain about how to move forward. They may have been able to continue forward with some success, but the risk of failure was high.
Our client was looking to Neo Advisory for validation of some of their initial steps in their offshore initiative. They wanted to confirm that the work they contracted for in the pilot stage was the right work to be done and determine what other activities were suitable for offshore suppliers to provide. The client team also needed to develop a business case with hard data to justify the move offshore to the CEO and CFO. They needed to answer three key questions:
What should go offshore and at what speed?
What will we be able to achieve?
What is the financial reward?
Solution
Neo Advisory and the GPE team worked together to achieve success in three main areas:
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Portfolio Assessment
Process: Neo Advisory first provided a standard set of criteria that the client should use in the assessment, comprised of financial impact criteria and offshorability impact criteria. After the general set was presented the client/Neo Advisory team formed a discussion forum to collaboratively develop the final customized assessment criteria. The goal was to develop a final set of criteria that was very reflective of the business and the surrounding industry environment. For the client, the financial impact criteria were not as important as evaluating the offshorability of the products.
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Financial impact: criteria about the product that relates directly to a financial value (ex.Resource numbers) |
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Offshorability impact: criteria that affects the ability to offshore (ex. specialization) |
Value: Together we were able to highlight the best categories in terms of offshoreability and also exclude some categories where offshoring would not be successful. |
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Transition Roadmap
Process: With the client team, Neo Advisory developed a 9-month transition plan that would in 10 months reach steady state. During the process the teams applied two factors within the roadmap that greatly impacted the results:
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Supplier productivity factor: For every offshore initiative, a supplier resource is not as productive as a client resource in doing the same work (in the beginning). It sometimes takes up to a year to optimize performance in a given supplier. |
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Client normalization factor: FTE number was increased in order to calculate all of the work that needed to be completed during a given year/quarter/etc. This was applied because there was work that needed to be done that had no available resources. Our client wanted to leverage offshore to perform this additional work above and beyond the current workload. |
Value: The team developed a 9-month transition plan that would in 10 months reach steady state. And because of the understanding gained by the transition plan, they were then able to better plan for product development over the next year. |
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Business Case
Process: A breakdown of the major employment costs associated with an employee was collected. Also included was contract information related to costs of the pilot service providers in terms of resource rates, communication costs, hardware and infrastructure costs, PMO costs, travel costs, etc. Using the transition road map as input, the financial results were calculated month by month as resources were transitioned from a client-only cost structure to a hybrid global cost model. Net savings were computed and the financials were taken out to year 3 based on the client's request. The Net Present Value (NPV) was calculated based on a discount rate provided by our client.
Value: The analysis provided financial foundation for offshoring by demonstrating monthly financial results during transition and steady state. The client was also able to understand the investment or savings necessary in today's dollars through a calculated NPV over 3 years.
As an extra assurance to alleviate some of the internal concerns, Neo Advisory put together a risk questionnaire that was then developed into a risk profile. The questionnaire asked questions related to the client's risk tolerance, perceived risk and actual risk. The Vice Presidents in each division provided detailed information for each of the questions. In the end, it was determined that the business, as well as the executive leadership, was capable and willing to bear the risk of this offshoring initiative. While one of the smaller deliverables produced, Neo Advisory helped to position the sponsor and the initiative for success. The GPE group was able to move forward because of the sign off, approval and buy-in from each of the divisions - a critical step in any offshore initiative. |
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Results
As a result of Neo Advisory's involvement in with our client's offshore initiative, they were able to convince the CEO and CFO of the value of offshore. Since deploying their offshore initiatives they have been able to reduce their costs by 5%, increase productivity by 25%, decrease time to market by 10% and produce repeatable and predictable processes. They were able to accomplish all of these goals without layoffs. With Neo Advisory's help they have instituted a program to deploy local resources to more critical projects. |
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