By Ben Trowbridge
Dell, Lehman Brothers and British Airways are each top-notch companies at the peak of their games in their respective industries. Each has thrived over the years and endured the recent, lean economic times by developing and implementing an offshore sourcing strategy that enables them to establish a truly global cost structure while providing access to new capabilities that effect both top and bottom-line competitiveness.
An in-depth outsourcing industry study conducted throughout 2004 by research firm, Ventoro, indicates, “95% of firms considered to be Fortune 1000 firms are using an offshore strategy.” Further, the study revealed that 68% of all executives managing existing offshore strategies are planning on increasing their offshore presence.
Each of the companies profiled below has taken a different approach to offshoring, but one universal lesson can be learned from each: the key to offshore success lies in employing innovative deal structures to complement a deliberate, well-developed global sourcing strategy…and thereby remain or become a leading player in your industry.
Hi Tech: Dell
As of January 2004, approximately 52% of Dell’s 46,000 employees were located outside the US, and that percentage is increasing. Of the roughly 7,000 jobs Dell added in 2003, only 1,000 were in the U.S; and since January 2004, they have added approximately 4,000 employees in India alone.
Dell International Services, the support and services division of the company, is now present in India, Panama, China, Morocco, Ireland, Denmark, Slovakia and the Czech Republic.
In India, Dell has captive centers in Bangalore, Hyderabad, and Chandigarh providing global customer support as well as back office functions. Together, these three captive centers employ a conservatively estimated 8,000 persons; and since February 2004, Dell has been recruiting in India at the reported rate of about 350 persons per month. In December 2004, Dell also announced their plans to open a campus in Hyderabad, which will be completed by March 2005 and employ 300 staff at the outset.
In China, Dell currently has a call center in Dalian staffed with approximately 450 employees serving customers in Japan and South Korea. The Dalian center is expected to grow to 2,000 people by mid-2006. On September 9, 2004, they revealed the opening of their first Enterprise Command Center in Xiamen, China, from which staffers can monitor local conditions such as traffic and weather and coordinate logistics accordingly.
Additional offshore expansion for Dell includes the July 2004 announcement of their plans to hire 750 employees for a new call center in Edmonton, Canada. Dell describes their “all-shoring” strategy as an intention to “provide jobs in every country in which they move.”
Financial Services: Lehman Brothers
Lehman Brothers took an open-minded approach to the offshore outsourcing process. In mid 2002, they began a “pilot, prove, and move” program that featured nearly 80 offshoring projects being performed by roughly 20 vendors.
Armed with the results of the pilot program, Lehman began forging relationships with providers based in China, India, Ireland and the Philippines, eventually deciding upon India as their offshore location-of-choice. In early 2003, Lehman entered into a three-year contract with two of the larger Indian providers - Wipro and TCS.
Jon Beyman, Lehman’s CIO and a member of its outsourcing steering committee, estimates that about 20 percent of the firm's aggregate IT staff currently comes through Indian providers. Although their offshore outsourcing initially entailed some large layoffs at Lehman Brothers, Beyman stresses that the firm now employs more people in IT today than it did before outsourcing to India, due to investments in other businesses.
Now the firm plans on turning its efforts toward offshore BPO, and announced in December 2004 its plans to set up a captive service center in Mumbai with the intent to engage a staff numbering in the hundreds.
The results of Lehman Brothers’ offshoring effort have been nothing short of dramatic according to Peter Nag, the New York-based vice president at Lehman Brothers. The company originally expected to save 50 cents on the dollar from its offshoring venture and it now expects to see a steady increase in those savings to a projected 70% savings by the end of the three-year project.
Airline: British Airways
According to the Airline IT Trends Survey 2004 by industry body SITA and Airline Business magazine, the number of airlines outsourcing the majority of their IT systems will double by 2006 to more than 20 percent.
British Airways has been at the forefront of the trend with a fully matured offshoring strategy that continues to expand and refine their business operations. Referencing the recent overall drop in IT spending in the industry, Paul Colby, British Airways’ CIO, states that “it's not how much you spend, it's what you do with IT that matters.”
In 1996, BA began offshoring customer relations functions and revenue accounting to a captive center in Mumbai, India. The offshoring effort initially yielded nearly $23 million per year in savings (a 40-60% reduction in cost) and an overall improvement in the quality of work. Further, the center soon became so efficient that it began to produce an additional revenue stream for BA by providing revenue accounting to as many as nine other airlines.
Not focused solely on India, in 2000, British Airways began offshoring work to a data center in Germany owned by Amadeus, a Spanish IT services provider. BA has secured annual savings of over 20% on its IT operating and support costs, and replaced high fixed costs with a variable cost based on the number of transactions processed.
British Airways recognized that, with the advent of low cost airlines, their business model must undergo radical change. BA met this challenge in dramatic fashion and is now reaping the financial rewards. Since beginning its offshoring efforts eight years ago, British Airways is currently seeing improved service levels coupled with overall cost reductions in the range of 70-75%.
In Closing
Top companies in a variety of industries are embracing offshoring as a means to focus on their core business while receiving services faster, cheaper, and better than before. Sourcing strategies are not “one size fits all.” Nevertheless, whether it’s Lehman Brothers’ “pilot, prove and move” strategy, British Airways’ “redefine the business model” approach, or Dell’s pursuit of “all-shoring”, each of these organizations is using offshoring to lead the way in its respective industry.
Published: March 7, 2005
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