Response from: Centrix    (01/17/08 12:56am)

Centrix have predict two emerging offshoring trends for 2008:

Intellectual arbitrage - this is where the offshoring model focuses on the value that can be captured from offshoring (rather than just the immediate labour cost savings). Centrix worked with one company which ended up offshoring a completely different part of its value chain when it realised that it could apply greater intellect to the development of its product. Intellectual arbitrage focuses more on the productivity levers involved in offshoring which are often overlooked when looking at immediate cost savings alone (as in labour arbitrage).

Subscription based sourcing - Centrix also sees a growing need for different models to support offshoring. To guarantee return on investment, flexibility and greater manageability it sees a real value in subscription based strategies. One project that the company worked on with Scottish Widows incorporated this. The financial services company wanted to support an offshore location with IT services - Centrix helped it develop a subscription based IT service that was costed per user - that could be ramped up when needed and in line with budgets.



Focus offshoring on value and not just cost

The narrow view that offshoring can deliver short-term cost can lead to operational problems and in many cases threaten the long-term viability of a company. Organisations that view offshoring this way are missing the real potential. Lisa Hammond, CEO of Centrix, examines ‘intellectual arbitrage’ and why it will allow companies to gain more value from offshoring.

Labour arbitrage, profiting by buying labour in one market at a low price and selling in another market at a higher price, has been the principal driver for offshoring a business process or capability. While this cost rationale is very appealing, companies who have chosen offshoring as a sourcing strategy have experienced significant productivity challenges. No matter how big the cost savings are it never makes sense to move to an offshore location unless the operational performance levels are at least equal to the existing facilities.

New offshoring hot spots
China and India are leading the market transformation in service industrialisation, with China focused on manufacturing and India on services. However countries such as Poland, Czech Republic, Brazil, Hungary and Slovakia are hot on their heels providing specialist expertise and competitive skill pools.

How will offshoring affect business and IT skills?
To prosper in a customer-centric climate, companies will need agility, aggregation and adaptability qualities, the success of which will rely on flexible, competitive strategies and the ability to publish or subscribe to IT services anywhere in the world.
Today’s sourcing strategies must be built around sourcing practices that encourage change even though people are rewarded for stability.
As more and more companies jump on the outsourcing bandwagon, businesses need to find ways to gain a competitive advantage. Business and IT leaders require a new set of skills, such as being able to identify the most suitable and productive offshoring partners or negotiating favourable contract models such as subscription based pricing.
Smart CEOs will look at the entire spectrum of sourcing options from a strategic standpoint, reinventing their companies by drawing together the right capabilities from the right sources at the right time using a subscription based model to eliminate risks and increase flexibility. This will result in greater productivity and flexibility, creating a strategy, which can be changed quickly by companies to respond to changing market demands.

Maintaining our competitiveness
For UK companies, prudent offshoring to other countries can reduce costs, increase productivity and enhance flexibility. It can provide companies with the ability to innovate and introduce new products and services, while pre-empting and sidestepping recruitment crises resulting from a shortage of labour. In this customer-centric age, companies must focus on customer preference, quality and value, not just price, and look for ways to find value from existing and unfamiliar sources. UK companies will need to push higher up the value chain, adding more creativity and sophistication to their products and services. Offshoring could play a critical part in achieving this, if approached in the right way.

Response from: Centrix    (01/17/08 12:58am)

Centrix have predicted two emerging offshoring trends for 2008:

Intellectual arbitrage - this is where the offshoring model focuses on the value that can be captured from offshoring (rather than just the immediate labour cost savings). Centrix worked with one company which ended up offshoring a completely different part of its value chain when it realised that it could apply greater intellect to the development of its product. Intellectual arbitrage focuses more on the productivity levers involved in offshoring which are often overlooked when looking at immediate cost savings alone (as in labour arbitrage).

Subscription based sourcing - Centrix also sees a growing need for different models to support offshoring. To guarantee return on investment, flexibility and greater manageability it sees a real value in subscription based strategies. One project that the company worked on with Scottish Widows incorporated this. The financial services company wanted to support an offshore location with IT services - Centrix helped it develop a subscription based IT service that was costed per user - that could be ramped up when needed and in line with budgets.



Focus offshoring on value and not just cost

The narrow view that offshoring can deliver short-term cost can lead to operational problems and in many cases threaten the long-term viability of a company. Organisations that view offshoring this way are missing the real potential. Lisa Hammond, CEO of Centrix, examines ‘intellectual arbitrage’ and why it will allow companies to gain more value from offshoring.

Labour arbitrage, profiting by buying labour in one market at a low price and selling in another market at a higher price, has been the principal driver for offshoring a business process or capability. While this cost rationale is very appealing, companies who have chosen offshoring as a sourcing strategy have experienced significant productivity challenges. No matter how big the cost savings are it never makes sense to move to an offshore location unless the operational performance levels are at least equal to the existing facilities.

New offshoring hot spots
China and India are leading the market transformation in service industrialisation, with China focused on manufacturing and India on services. However countries such as Poland, Czech Republic, Brazil, Hungary and Slovakia are hot on their heels providing specialist expertise and competitive skill pools.

How will offshoring affect business and IT skills?
To prosper in a customer-centric climate, companies will need agility, aggregation and adaptability qualities, the success of which will rely on flexible, competitive strategies and the ability to publish or subscribe to IT services anywhere in the world.
Today’s sourcing strategies must be built around sourcing practices that encourage change even though people are rewarded for stability.
As more and more companies jump on the outsourcing bandwagon, businesses need to find ways to gain a competitive advantage. Business and IT leaders require a new set of skills, such as being able to identify the most suitable and productive offshoring partners or negotiating favourable contract models such as subscription based pricing.
Smart CEOs will look at the entire spectrum of sourcing options from a strategic standpoint, reinventing their companies by drawing together the right capabilities from the right sources at the right time using a subscription based model to eliminate risks and increase flexibility. This will result in greater productivity and flexibility, creating a strategy, which can be changed quickly by companies to respond to changing market demands.

Maintaining our competitiveness
For UK companies, prudent offshoring to other countries can reduce costs, increase productivity and enhance flexibility. It can provide companies with the ability to innovate and introduce new products and services, while pre-empting and sidestepping recruitment crises resulting from a shortage of labour. In this customer-centric age, companies must focus on customer preference, quality and value, not just price, and look for ways to find value from existing and unfamiliar sources. UK companies will need to push higher up the value chain, adding more creativity and sophistication to their products and services. Offshoring could play a critical part in achieving this, if approached in the right way.