Risks in ESO
Though companies have been quick to spot the opportunity and are beginning to embrace ESO, there are a few key risks that need to be managed effectively:

• Highly collaborative processes mean that the challenges in developing and managing virtual global teams is even greater than in ITO and BPO operations
• Large number of deliverables, compliance requirements add to the complexity 
• Highly iterative and ‘what if’ oriented optimization makes standardizing processes and measuring productivity more difficult
• Very high domain knowledge requirement lowers the ‘employability’ and ‘trainability’ thresholds for vendors, making recruitment even more challenging
• High degree of knowledge transfer from client is essential. This implies greater transition times, higher transition costs, and longer lead time to savings
• Customer’s cost of exit is high, requiring a high level of commitment from the buyer.

As a result, careful planning, provider selection, transition management, and most importantly commitment from executive leadership is critical to the success of a strategic ESO initiative.

Conclusion
ESO provides a great opportunity to the organizations to develop strategies that significantly reduce the time to develop and market new products at a lower cost. In the current economic environment, this will definitely provide organizations with a new competitive edge. For this reason, the offshore ESO opportunity looks interesting and, we believe, is likely to grow very quickly over the span of next five  years.

But, while the opportunity to reduce time and cost is enticing, and from the supplier’s perspective the business metrics look good, buyers should enter a relationship with an abundance of caution, understanding that outsourcing core business processes will require significant investment by the buyers, and with the realization that while the overall numbers for the global resource pool appear high, recruiting a strong, skilled team will be hard, in an environment where competition for talent is perhaps even greater than the competition for customers.     
[Contact the authors at dsinha@bniservice.com or pkm@vsnl.com to leave feedback on this article]

Service providers in Varied landscapes

Company

TCS (Offshore IT provider with ESO capability

Infotech (Offshore pure-play ESO provider

Locations

Bangalore for Engineering Services

Hyderabad, Mumbai, Delhi, Bangalore

Employees

4,500 +

5,500

Verticals

Aerospace, Automotive, Manufacturing, Hi Tech, Consumer Electronics, Health Care, Mining/Metals, Chemicals, Oil and Gas, Power

Aerospace, Rail, Marine, Automotive, Oil and Gas, Energy, Telecommunications, Government, Other Utilities, Retail, Banking Services, Finance and Insurance

Key information

Partners - Flowmaster (world's leading supplier of 1D fluid simulation systems), Apriso Corporation (A provider of adaptive operations execution solutions for manufacturing)Key Customers include — Airbus, Boeing, Pratt & Whitney, GE Aircraft Engines,  TRW Automotive, Tata Motors, Nissan, Ferrari, GE Power Systems, MAN B&W, FMC, Caterpillar, John Deere , GE Oil & Gas, Ingersoll  Rand

Partners — IBM, HAL, UTC Geospatial analysis contributes to 40% of the company's revenue  Key customers include - Pratt & Whitney Tele Atlas North America, Bombardier transportation

Company

ABB (Captive arm of MNC)

Cadence Design Systems (Foreign pure-play setting offshore ESO operation)

Locations

Bangalore (R&D, Robotics and Plant Automation)

China, Europe, India, Israel, Japan, Korea North America, Taiwan

Employees

4,000 in India

5,200

Verticals

Automotive, Plant Automation, Oil & Gas, Life Sciences, Energy

Hi-tech

Key Information

Global leader in Power and Automation  ESO areas include - Compliance and Validation Services, Engineering Design Services, Process Optimization, Project Management, Safety Management, Reliability and Plant Improvement

Program Partners - Chartered Semiconductor Manufacturing, IBM, Jazz Semiconductor, Fujitsu, Tower Semiconductor, FAB, Z Foundry  ESO areas include - Logic design, Advanced Performance verification, Digital implementation, Custom design, PCB design, Advanced packaging/SiP

Source: BNI