According to TABB Groupâs new report, "Balancing Act: Getting the Offshore Model Right," released today, which examines how financial-markets firms search the globe for the optimal source and cost bases from which to operate and explore the delicate balance required to make global sourcing work, sourcing decisions have become critical, strategic issues in the corporate boardroom.
"No longer based on simple cost equations," explains Larry Tabb, CEO at TABB Group, the financial markets technology strategy and planning consultancy, "smart sourcing has become an important decision about not only a firmâs core business and how it can leverage its human capital, but also how it can gain competitive advantages by optimizing global resources.
Based on interviews with senior-level executives holding direct responsibility for selecting and managing outsourcing relationships and strategy at 14 top-tier financial firms, key findings include:
Â· Cost savings and quality levels were not as high as anticipated but other benefits accrued such as flexible labor pools and the ability to focus internal resources on business solutions.
Â· Indian labor pools are tightening as increased local demand makes programmers a valuable commodity. To maintain quality levels in the midst of increased turnover, US firms now negotiate upfront for the right to interview and have final say over assigned labor resources.
Â· Firms now diversify geopolitical risks by working with vendors in different countries, setting up "captive" workforce companies abroad or investing in foreign companies to capitalize on the advantages of global workforces.
Â· Addressing security issues, internal teams now conduct extensive due diligence to evaluate physical security and data privacy issues. "The initial cost of securing communications between offshore vendor and financial firm," says TABB Group report writer Barbara Edington, "caught many by surprise. As third-party regulators get more involved, you will see costs continuing to rise with each new inquiry or audit that will be required."
Â· With technology staff relieved of commodity tasks, interest in aligning IT and business departments is being renewed, a dramatic cultural shift internally enabling technology professionals to expand skill sets to include business process awareness, management techniques and business analyst responsibilities.
The report also covers outsourcing decision drivers, breakdown of functions best outsourced, ownership structure of outsourced relationships, satisfaction levels, five lessons and hidden benefits learned by managing projects offshore, the role of risk mitigation, outsourcingâs impact on the way firms manage projects maintained in-house and the spread to other countries beyond Indiaâs CMM level-5 shops.