Extracting Value from offshoring relationships

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    The cost of offshoring engagements is steadily increasing and many companies have started to realize that their net savings from the initiatives are lower than what they had initially planned. There are a number of factors that should be negotiated with the vendor to improve the cost savings such as stringent SLAs, penalty clauses, pricing discounts based on size of the team, limits on price increase, consolidation of infrastructure costs, reduction in travel costs etc.


    However, it is important to also review the vendor capabilities so that companies understand the strengths and weaknesses of the offshoring vendors and effectively leverage the strengths to improve the value from the relationship.


    Here are some examples:



    1. Access vendor’s existing lab facilities in a shared services model so that you are able to test and support a larger number of platforms without incurring a large cost.

    2. Access the vendor’s customer network to cross sell services and solutions.

    3. Move from resource-based pricing to project-based pricing. Provide bonus clauses if the field error rate and customer issues are within a certain boundary.

    4. Measure and encourage how the vendor teams are able to improve the user experience of the solutions they build and reward them accordingly.

    The strengths are the vendors’ differences and each vendor should be evaluated diligently to understand their strengths and weaknesses.

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