Tag: delivery models

A Win-Win-Win Model Attracts Attention in Global Services Market | Sherpas in Blue Shirts

Whether you are a service provider or a buyer of services, you can benefit significantly from a relatively new delivery model in the services ecosystem — outsourced in-home services.

Why is it attractive? The in-home model leverages the labor arbitrage idea but applies it in a different way for even greater benefits.

Over the last 10 years companies learned that if they moved work to the people rather than moving people to the work, they would get a much lower cost of labor. For instance, moving software programming work from New York City ($150,000/year job) to Bangalore ($25,000/year) produced a big labor arbitrage. The in-home model takes the work to people, but they work from their own homes instead of being concentrated in an office, factory or call center. This model gives providers access to a much larger talent pool at a more affordable rate.

The in-home model works in locations such as India or the Philippines, but providers are deploying this model primarily in the United States or in region. In the U.S. where people are politically sensitive about sending work offshore, this is a particularly attractive model to consider.

Three critically distinct advantages of the in-home model

The first benefit of deploying the in-home model is access to a wider, richer and more diverse talent pool at a cheaper labor rate. At the same time, this pool is willing to work at a substantially discounted rate compared to workers in a central office, factory or call center. They have strong reasons for preferring to work from home, which are a trade-off for the lower price of their labor. Typically these preferences arise from:

  • Family or lifestyle issues
  • Physical handicaps that make it difficult for the person to work at an office or other central location
  • Need for part-time income to supplement a full-time job
  • Desire to supplement retirement income

All of these preferences for working from home are very important choices in today’s world. They lead to two other major advantages of deploying an in-home model:

  • Lower attrition
  • Greater productivity

Because people in this talent pool prefer working from their houses instead of commuting to an office or factory, they tend to be more loyal to the employer that facilitates this need and more focused on ensuring they meet or exceed the employer’s expectations for productivity.

In a nutshell, the strong attraction for providers to the in-home model is access to a completely different talent pool that is cheaper and often more loyal and more productive. So it’s not surprising that the in-home delivery model is showing tremendous growth.

Impact of work-management tools

Management tools to allocate and manage work in a virtual environment are transforming this space. These tools now are inexpensive as many are SaaS apps that enable providers to pay for them on a consumption basis. The SaaS model often makes these tools the same or even a lower-cost investment than tools needed for remote management in locations such as India.

Prominent areas of adoption

The in-home services model is quickly growing in voice services, especially in the call center and customer spaces.

It also has great applicability in rare skills such as programming. One of the very significant dilemmas in today’s digital world is aged-out technology languages that still need to be supported. For instance, it is very difficult these days to find COBOL programmers as programmers see it as a dead-end career.

The in-home services model eliminates the turnover problem and increases motivation and productivity in COBOL work as the greatest number of qualified, highly productive COBOL programmers are retired. They are willing to work but not in a central office or factory and not full time. They can supplement their income while living a retired lifestyle, and the provider gets superior quality, highly productive, very reliable support at a discount.

Another skill area that is ideal for the in-home model is legal services. In fact, we use this model for Everest Group’s outsourced legal services. In today’s world the major law firms have raised their rates to an unconscionable level, making the cost of legal services very high. Many firms are starting to tap into the in-home model, outsourcing work to ex-partners who have opted out of the legal race because of lifestyle issues. Rather than giving the work to a less-experienced associate, they have access to seasoned, credentialed lawyers whose turnaround time is faster and quality of work is better. And the price point is half or a third of the price for utilizing a partner in a major law firm.

It’s a win-win-win

Clearly the in-home model for outsourced services is a win for those who want to keep jobs in America, a win for workers who want to allow for a culture of self-actualization or are handicapped, a win for the service providers and their customers that get better services at lower cost. You can’t beat it — it’s a win for everybody.

This outsourcing model is gathering a lot of consideration around the world. I’ll discuss it in more depth in my upcoming presentation on “A New Paradigm — Truths and Myths” at the CORE conference on November 5 in Toronto.

Photo credit: Matt Crawford

Pick or Pass on BPaaS? | Gaining Altitude in the Cloud

While buyers have typically approached, evaluated, and made third-party business process service delivery sourcing decisions at the operational level, and separated out decisions on the underlying software applications and/or technology infrastructure, they are increasingly realizing the value of looking at IT and BPO in an integrated manner.

Enter Business-Process-as-a-Service (BPaaS), a model in which buyers receive standardized business processes on a pay-as-you-go basis by accessing a shared set of resources – people, application, and infrastructure – from a single provider.

There are many potential upsides of BPaaS…but is it right for your organization? The answer lies in evaluating the model based on a holistic business case that looks at a range of factors including total cost of ownership (TCO), the nature of the process/functional area under consideration, business volume fluctuations, time-to-market, position on the technology curve, and internal culture and adaptability to change.

Let’s take a deeper look at the TCO factor, which must be analyzed in terms of both upfront and ongoing costs for all three layers of service delivery.

TCO cost elements to evaluate BPaaS versus traditional IT+BPO model

For our just released research report, Is BPaaS the Model for You?, we developed and used a holistic evaluation framework that compared TCO for BPaaS and the traditional IT+BPO model across three buyer sizes: small (~US$1 billion revenue/5,000 employees), medium (~US$5 billion revenue/20,000 employees), and large (~US$20 billion/100,000 employees.)

Our findings?

Small Companies

BPaaS brings big benefits. It is independent of deal duration, delivers 35-40 percent savings compared to traditional IT+BPO, enables leverage of the provider’s economies of scale, provides access to otherwise cost-prohibitive technology, and allows entry into BPO relationships that as stand-alone’s lack the necessary scale. Small buyers are also highly amenable to BPaaS’ process and technology standardization requirements.

Medium Organizations

BPaaS is pretty impressive. It delivers 25-30 percent savings over the traditional IT+BPO model, which while less than what small buyers reap is still significant in driving a successful business case. Medium buyers’ increased scale allows them to capture some of the economies of scale benefits even in the traditional IT+BPO model, thereby having a lower differential between the two models.

Large Enterprises

BPaaS is not too shoddy. While it only provides ~10 percent cost savings compared to traditional IT+BPO, the absolute differential in cumulative TCO can still be substantial given the high base. And, in certain buyer-specific situations such as technology enhancements, exploration of new BPO/IT infrastructure relationships, and expiration of legacy technology licenses, BPaaS can be a good model for large buyers to evaluate. But…their tendency to balk at following a tightly defined, standardized approach – unless significant configuration features offset a good portion of customization needs – reduces BPaaS’ appeal for them.

As you see, our evaluation framework shows an inverse relationship between buyer size and cost savings from BPaaS – i.e., the larger the buyer, the lower the percentage savings. In fact, as buyer size increases, the scale benefits of renting versus owning infrastructure and applications can dip into the negative column over ten years. Of course, the assumptions in our BPaaS to IT+BPO model analysis are ideal, and your organization’s individual reality may be quite different.

To learn more about how to evaluate BPaaS’ applicability to your company, select a BPaaS provider and solution, and implement the selected solution, please read our report, Is BPaaS the Model for You?

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