The last blog post of this series on choosing the right post-COVID working model details the pros and cons of offshoring. True offshore operating models which relocate work to locations with high-quality talent pools but significantly lower labor rates such as India, the Philippines and China, are a well-established and proven business strategy. Government support programs and financial incentives, plus access to an educated workforce with good language skills mean many companies have been prepared to countenance potential cultural challenges, geographical distance and often major time-zone differences.
In the longer term, however, cost savings should not be the only consideration. There are multiple options open to firms looking to establish successful offshore models, ranging from a company-owned offshore service center staffed by in-house employees, through joint ventures with established offshore service providers, to complete business processes outsourcing via external vendors.
The potential to achieve significant savings through offshoring has been widely regarded as easy to calculate. Nevertheless, there are many examples of how moving operations offshore did not deliver all of the expected benefits – and sometimes even ended in a complete failure. Below are some typical obstacles to success.
- Not all processes and activities are suitable for offshoring. Thorough scoping of proposed offshoring activities is essential and should begin with a comprehensive analysis of potential benefits and limitations, including the identification of business-critical and non-business-critical processes, the need for face-to-face contact and/or physical presence on the job.1
- Underestimating the complexity of an offshore transition. This can be difficult to evaluate in advance but drawing upon the knowledge and experience of offshoring specialists and external consultants will help with planning and prioritization.
- Managing regulatory and legal risks. With offshore operations, it is key to fully understand all the regulatory and legal implications, and what specific obstacles or challenges may be involved.
- Data safety regulations and governance. The increased push for cross-border data protection over the past two decades (e.g. GDPR in the European Union, Cyberspace Administration of China) needs to be taken into account.
- Rising offshore costs. One of the biggest drivers behind offshoring has been price. In the past, it was enough to have offshore centres in one location, which was growing over time. Nowadays companies need to consider different geographic locations for increasing the size of offshore centers, or setting up smaller centers in multiple locations to mitigate dependency on the local market situation.
- Maintaining control; linking activities to objectives. While offshoring is mostly used to reduce costs, implementations are not always as efficient as they might be. Proper goal setting and a robust business case at the outset will ensure a focus on the correct priorities and avoid distractions that do not support the primary objectives.
- Managing cultural differences. Collaboration across different countries requires employees to respect and be trained on cultural differences. Delivery deadlines, for instance, need to be given careful consideration to ensure alignment with local holidays and working practices.
- Ensuring efficient communication. Communications can be impacted by time-zones, cultural biases or different interpretations, and so the target audience, key objectives and realistic timeframes should all be front of mind when they are being drawn up and distributed.
Offshoring has become for many financial institutions a vital part of their global operations strategy. Over and above costs savings, it enables additional team scalability. The ‘follow the sun’ principle (a global workflow where tasks are passed between offices in different time zones) can provide support options 24/7. In addition, the impact of geopolitical risks can be reduced and project teams can benefit from cultural diversity.
COVID-19 started in Asia without warning. Few could have predicted the subsequent global pandemic – initially it was viewed as a local problem, like SARS during the previous decade. However, as the situation worsened globally, companies drew upon the experiences from APAC and swiftly implemented measures across other locations, updating their business continuity runbooks accordingly. Maintaining a presence in different regions can not only help with managing and mitigating local risks, but also be a source of valuable experience in difficult times.
What if another global crisis threatened financial institutions? During the current pandemic we have witness businesses adapt at speed. The benefits of offshoring, however, have remained unchanged, offering a highly cost-effective workforce for supporting global operations.
As organizations look to reintegrate workforces post COVID-19, there is a clear recognition that alternative working models have both proved effective from a productivity perspective and offer the potential for cost savings. There are other benefits, such as improved job satisfaction, better work-life balance, enhanced task resourcing and the potential to attract previously untapped talent. Investing in a robust remote working infrastructure can also support new business opportunities by serving new clients and improving process efficiency. For example, transferring typical branch activities such as the client advisory for complex products (e.g. mortgages) to a remote operations center or home office will free up time for more sales.
So, what is the right approach? A hybrid operating model combining our four different options will in almost all cases prove the most effective approach. However, finding the right balance between the options is a challenge which depends on the individual operating models, technology infrastructures, the status of digitization programs, and organizational flexibility.
We propose defining a reshoring strategy with a vision and actionable mission statement. There should be clear guidelines for the whole organization, detailing where an onsite presence is required, how remote working can be used, and whether nearshoring or offshoring are possible options. Existing business continuity plans must be reassessed, with particular attention paid to potential future pandemics or other crises.
Clearly, not all benefits of shoring can be realized right from the outset. Investment decisions need to be made accordingly, based on an action plan and roadmap that outline preconditions for success alongside clear deadlines and responsibilities for their delivery. The whole initiative must be underpinned by a comprehensive change management plan, ensuring that the whole organization is being included and supported on this journey.
If you would like to redefine your shoring strategy or discover more about our experience in establishing nearshoring and offshoring models, please contact us. We have extensive expertise and track record of supporting our clients with identifying and implementing their optimal working models, from providing an assessment of the current setup to functional and technical preparations necessary for enhanced remote working.
Capco’s offering includes: Supporting cost management initiatives and enhancing organizational efficiency to define the best location setup; providing hybrid, nearshore and offshore services.
Oliver Geiseler, Partner Austria, Germany & Slovakia
M +49 172 131 8328