Integreon

Outsourcing the Offshore Operations by Steve Hamm in Business Week (16 July 2008) suggests that third-party outsourcing providers are generally better at managing operations than captive centers. This thesis comports with conventional wisdom.

A recent research report by TPI, a leading sourcing consulting firm, however, concludes otherwise. Captive 2.0 – The Next Generation of Indian IT and BPO Captive Operations finds that the difference in performance between third-party delivery centers and captives (a corporation’s offshore, owned and operated center) may not be so cut-and-dry. The research looked at four segments:

• Average captives
• Average third-party providers
• Best-in-class captives
• Best-in-class third-party providers

The data showed that while average third-party outsourcing is “better” than the average captive on cost and value, best-in-class third-party still falls behind best-in-class captive.

For suppliers, the real competition for best-in-class third party outsourcing providers is less other third-party providers than it is best-in-class captives. Moreover, as outsourcing moves up the value chain into the middle-office and as global macro-economic volatility continues, outperforming captive sourcing become even more difficult, requiring highly adept management and a global delivery and customer service footprint.

For buyers, this means a flexible approach to outsourcing strategy: a mix of captive and third-party services may be necessary. Buyers (clients) may do better with a captive where proprietary technology and detailed domain expertise are critical and difficult for a third-party to master. Where processes and functions are generic or sub-scale, third-party providers often have the advantage.