Offshoring Wave: Riding on Technology
Figure 5: Hiring Focus for Low Value Processes
 This difference in strategy
has an
impact on the cost per FTE. At the junior management level that accounts for more than 70% of the population; the
cost per FTE
for high value services has increased on an average by 10% as compared to 3% for the low value services. This has
had a
significant impact on the cost of running technology operations in India. With the global focus on cost
optimization extending
to India, the engagement with vendor partners has become critical
How do Vendor Partners Deliver?
The vendor partners have a very different operating model
as compared
to the GICs. They have industrialized the process by utilizing specialization and standardization techniques to
break up the
work into simpler parts, which has enabled them to have a differentiated talent strategy to deliver the same
services and the
required levels of quality at a competitive cost. This has also enabled them to maintain the optimal cost structure
year-on-
year.The cost per FTE analysis between the vendor partners and GICs indicate that the vendor partners enjoy on an
average a
clear 14-18% cost arbitrage as compared to the GICs. Also, their singular focus on building efficiencies by
standardization and
cross leveraging resources has enabled them to maintain their cost structure effectively.
The roadblocks to outsourcing
One innate factor is that outsourcing almost inevitably results in changes in the
financial
institution’s business practices and processes, which contributes to operational risk. These changes may be
required to capture
economies of scale and operational efficiencies, or simply reflect a different way of doing business by the service
provider.
The unique concerns that arise from giving third parties access to confidential data, strategic technology
applications, or the
books and records of the institution is the potential for violations of confidentiality by service provider
employees which
contributes to operational, legal and reputational risks.These factors reflect in the loss of control of the
technology GICs,
which might potentially lead to drop in service quality are proving to be a large roadblock. Also, most of the
technology GICs
use the proprietary technologies to deliver services, which during outsourcing are shared with the vendor partners
which lead
to leakage of intellectual property. The vendor partners though are up for the challenges. The engagement model
with the
customers has seen a distinct change. From pure play outsourcing engagement, vendor partners are now engaging in a
hybrid
model, which is akin to the staff augmentation model with the customers. This not only enables the customers to
retain control
over the systems of operations and service quality but also helps them assuage any fears with regards to data
privacy. These
engagements are multi-year contracts and are equally beneficial to the vendor partners.The hybrid model has been in
place for
the past few years and has enabled organizations to significantly ramp up their understanding of the domain and the
operating
procedures. The vendor partners now have built capabilities across the value chain and are pitching aggressively
for more high
value work, as they understand that higher value work would enable them to grow their margins aggressively. They
are stepping
up their plans to acquire GIC units of their multinational customers as they shape up to take advantage of a broad
pick up in
their biggest markets. Though there would be a few challenges and roadblocks to these deals, which are in nascent
stages as
yet, this is an emerging trend which could potentially pave a path for the next wave of change in the technology
industry in
India.The emergence of the vendor partners as a strong and capable force in conjunction with the changing talent
dynamics in
the GICs, by virtue of the changing business strategy, has ensured that the HR professionals have their tasks cut
out for them.
They are facing the tough challenge of managing two diverse talent pools with very different expectations and world
views.
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