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It is well documented that Global Service Delivery (GSD), or “offshoring,” is gaining momentum in terms of the types of services being offered, and the geographic locations in which the model is being deployed. According to recent reports, most organizations are incorporating GSD to reduce costs, expedite growth and gain access to qualified personnel. There are many reasons for this growth: operating and capital expenditures are often less expensive with GSD than “onshore,” skill levels and language proficiencies overseas are increasing, IT infrastructure is becoming more robust and cultural compatibility issues are dissipating, to name a few. But what types of companies will be expanding their GSD initiatives? What is their level of satisfaction with GSD? Are productivity expectations being met? And as global service delivery expands, what type of service providers will be selected?

In an effort to answer these questions and to explore the quantifiable trends and key findings that directly impact global strategy, operational excellence and attainment of real financial benefits, TPI, a global-sourcing advisory firm, conducted a comprehensive survey during 2005, and published its results in the State of Global Service Delivery (SGSD). The SGSD report is based on research compiled in mid-2005 from companies of all sizes, with strong representation in organizations with annual revenues of over $10 bn. TPI polled more than 200 executives around the world with experience using global-sourcing delivery models of all kinds and produced a study exploring the current state of the global IT offshore service delivery market. 

As the report was being created, and as the responses were being analyzed, clear and identifiable groupings began to emerge. Respondents, depending on their organizational experience with GSD, featured different and distinctive traits that directly affected their level of GSD success. Thus, TPI identified and established the Global Service Delivery Maturity Curve (GSDMC). In the study, the GSDMC serves two purposes: it acts as a yard-stick to assist organizations in defining where their organization fits into the continuum, and helps identify potential actions that can be taken to increase GSD effectiveness.  

State of GSD
According to the study, GSD will experience a period of accelerated growth during the coming 18 months, particularly among companies with three to five years of global service delivery already underway - Stage 4 or higher along the curve. This growth is largely driven by an overall broadening of the work activity being executed at global service delivery location(s). For example, in addition to Applications Development and Maintenance (ADM) activities - a typical first step in offshoring - GSD operations often expand significantly to include infrastructure and R&D, while simultaneously adding additional global resources in ADM. This expansion of work activities increases the size of the organizations' global sourcing operation, the number of offshore locations and the number of operational models used.

Based on the survey response, GSD satisfaction levels have room for improvement; however, they do not differ significantly from “onshore” satisfaction levels. GSD-satisfaction levels tend to be equal to satisfaction with their firms' onshore consultants and their internal staff, making the comparison statistically insignificant. And this general opinion is consistent across organizations at all stages of the GSD Maturity Curve with only slight differences. Stage 1 respondents tend to have slightly higher satisfaction levels with offshore resources. Organizations at Stage 5 indicated a higher overall-satisfaction level with offshore resources onsite than for their own internal staff.

The initial findings show that the promise of global service delivery productivity appears to remain somewhat elusive, as measuring the productivity gained or lost in offshoring endeavors continues to be a challenge for many organizations despite the rising adoption of GSD overall. Expectations for productivity seem to run the course from groundless optimism in the earliest years, to a modified, rationalized expectancy in later years. Among respondents with less than a year of offshore experience (Stage 2), only 17% reported their global productivity is “reaching expectations.” At the other extreme, among those with five or more years experience (Stage 4 & 5), 40% say they are reaching expectations, albeit at a lower, revised scale. This indicates that maturing organizations are adjusting their expectations accordingly, and productivity targets are being eased rather than tightened.

Respondents clearly articulated that as they move up the GSD Maturity Curve, their dynamics change significantly. And it appears that multinational company (MNC) service providers such as ACS, Accenture, CSC, EDS, HP or IBM are benefiting most from this GSD maturation. Increasing headcount, expanding across multiple global destinations, and a strengthening tendency to evaluate, and select an MNC service provider over a local or national pure-play provider were some of the activities cited by the more mature respondents.

A market that was once dominated by the offshore service providers such as TCS, Wipro and Infosys has now become a hotly contested battle with MNCs that in many cases are delivering scaled offshore operations at very competitive prices. TPI believes the surge toward multiple global locations and the broadening of activities such as infrastructure will bolster the MNCs' competitive position.

Maturity
“If I knew then what I know now, I would have done things differently?” People have said it millions of times. Once someone has time, experience and maturity under their belt, they do things differently. They learn from their mistakes, and the same applies with businesses.

As companies progressed up the GSD Maturity Curve, they experienced the benefits of GSD and expanded their initiatives, increased their satisfaction levels in their GSD program, and had more “realistic” expectations of what GSD could do for their company. They also learned from their mistakes with unproven providers, and are moving towards MNCs with a truly global scope. The first 36 of months of the global service delivery operation creates a foundation that builds significant traction, so a very important “take-away” is to stay committed to the initiative. Those who stick with offshoring do reap significant returns once they reach Stage 3, at which point they are likely to expand their efforts.

Paul Schmidt, Partner, Global Service Delivery, TPI and Jim Hussey, Senior Advisor, Global Service Delivery, TPI
Republished with permission from Global Services