Within the financial-services industry, offshoring isn’t new – support organizations are typically co-located with revenue centers in major cities. But wringing costs out of overseas service centers has become increasingly important. Four years ago, Lehman Brothers set a target of 40% savings through outsourcing, but “hit a wall” after achieving 20%, said Charlie Cortese, recently retired MD, Lehman Brothers. To get the remaining 20% savings, it was necessary for Lehman to build its own captive facility in Mumbai, India. “By establishing a captive operation, Lehman was able to exert more control and manage turnover better,” he said.
Cost savings are the most visible benefits to off-shoring, yet there are others that are equally valuable, and may be less tangible. Companies have opportunities to re-engineer business processes, improve individual performance, focus on previously redundant operations and to document business processes. A project management office (PMO) is key to making the outsourcing process succeed, said Cortese. The upshot is that a well-executed business-process outsourcing plan can lead to previously unheard of possibilities, such as performing fixed-income research in India, he said.
At the conference, a Procter & Gamble executive revealed that the multinational company has saved $500 million in IT infrastructure and business-process expenses by building global service centers. “The value of global business development is flexibility, quality and innovation,” said Bill Metz, Relationship Manager, IT External Business. “Cost is not the only factor.”
General Motors, which on Feb, 2nd revealed a massive IT outsourcing plan spanning five service providers, is in its third generation of outsourcing. The first generation took place in the 1980s, when it acquired EDS. The second generation took place ten years ago, when it spun off EDS and created an internal IT organization led by CIO Ralph Szygenda. The third generation, which officially began on Feb. 2nd, involves the use of “strategic suppliers,” said Debbie Yedlin, Global Director, Verification and Validation of Systems, GM.
Yedlin spoke at a conference session on how GM is leveraging the Capability Maturity Model (CMM) of the software-engineering institute to create a model for the acquisition of outside services. The acquisition model covers all phases of the supplier-acquirer relationship, from project planning through contract, on through transition management.
At the heart of the model is metrics: supplier-project plans, requirements, executable code, test plans, training plans, etc. All of the metrics from all suppliers are folded into a “supplier database” of common measures, she says, which enable GM’s management to perform operational analyses and view operating-unit performance. In deciding what to outsource and what to keep in house, GM focused on its core competencies. “From GM’s perspective,” Yedlin said, “the functions we decided to retain are, project planning and definition, systems architecture and engineering and project management.”
