Organizations considering outsourcing business processes or IT must address a myriad of issues. These include what processes to consider for outsourcing; what benefits to seek (e.g., cost savings, process improvement or both); which service providers to add to the short-list; how to prepare a retained organizational model to govern the effort; how to undertake outsourcing and still support various regulatory compliance mandates, etc. While the high-level goals of outsourcing — saving money and increasingly improving process performance — are always clear, how to successfully achieve them is not.

The challenges are exacerbated for an organization considering outsourcing across multiple geographies. This holds true both for those outsourcing from multiple countries or geographies as well as for those outsourcing to multiple countries and geographies. For many Global 2000 organizations, both scenarios typically apply. For organizations operating out of Western/highly industrialized countries that are considering offshoring business and IT delivery services to lower cost and more remote locations, the situation becomes even more complex.

Organizations considering outsourcing to nontraditional/emerging/remote services markets — for example, India, China, the Philippines, Central/Eastern Europe, Central/South America and Russia — face challenges far above and beyond those faced by traditional outsourcing buyers, including: Language, culture, work ethics, infrastructure and legal-system maturity, economic openness and familiarity, geopolitical risk and services-sector immaturity. These are in addition to the practical issues of geographic distance and time-zone differences. While emerging and nontraditional services markets are typically a lower-cost alternative to local markets, they are not always the preferred alternative, at least for certain types of services and/or less sophisticated buyers.

Despite these challenges, there are great opportunities for organizations — both buyers and service providers — to leveraging the advantages of these growing services markets. The business and IT-services markets are globalizing, and western organizations that buy or sell services must recognize, respond to, and ideally exploit this fact. While the services industry is not as mature in some respects as other industries, it is rapidly evolving. For buyers, this means it is an imperative to understand how to successfully source and manage external services in the context of an inherently and quickly globalizing supplier base.

At the most basic level, organizations buying outsourcing services must develop — ideally before they undertake an outsourcing services sourcing effort — a strategy to address the following needs:

This collective strategy and set of processes is manifested in an organizations’ Service Delivery Model (SDM) (See Chart 1).

SERVICE DELIVERY MODEL	Chart 1

Key to an SDM in today’s globalized services market is the “Where” and how that impacts the “How.” All aspects of the how are impacted by the where, the characteristics of that market and the service providers operating in that market. This obviously becomes increasingly complicated as more and varied source markets for services are targeted.

The SDM is also impacted by the experience and sophistication of the buying organization. A buyer with limited global services experience is likely not suited to launch its first effort with a local service provider from an emerging services country. Similarly, moving from transactional to more collaborative outsourcing also has a learning curve relative to global service providers and locations that are involved.

From “Offshore” to Global Services

Certain types of offshoring or global outsourcing have been going on for years (e.g., manufacturing to China, application development to India). What is different today is the multicountry/region nature many organizations are undertaking. The scale and scope of what many organizations are considering today with business and IT- services outsourcing is also changing.

This expanded outsourcing agenda requires a re-thinking of traditional, previously used sourcing and management models. Services consumption, particularly by G2000 organizations, is becoming much more global and comprehensive. The Box titled Globalization of Services highlights some of the market changes as services globalization expands. Outsourcing buyers must develop an SDM that accounts for these changes, and clearly acknowledges that there are both generic and country/region specific conditions and attributes that require consideration when defining global sourcing models and assessing global services locations and providers.