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Case Study: Outsourcing Toward "Insourcing"
Don St. John
A Massachusetts company attempts to turn the offshore outsourcing model on its head by training clients to take over their own overseas operations.
Almost everyone in information technology shops is familiar by now with the basic offshore outsourcing dance: Send your applications development or IT functions off to Bangalore or wherever, maybe cut some staff in the process, get used to 24/7 communcations, and start counting up the budget savings. For established enterprises-especially larger ones-that approach is well-established and, perhaps, entirely sensible. But Amit Maheshwari suspects that smaller businesses may do better by working backwards-starting off with IT out of house and eventually bringing it back into the company as an offshore division.
Maheshwari's company, i-Vantage, is betting that there's a market for startups and other SMBs that want to take advantage of the potential savings from offshore outsourcing, but would also like to eventually integrate their software development, other IT work, and even their back-office work back into their operations at some point. For such companies, i-Vantage stands ready to set up a shop in India (or, eventually, elsewhere) from scratch with trained personnel that can get operations up and running at overseas prices; after a couple of years, i-Vantage "insources" the operation back to the client and remains on the scene if needed as a consultant.
"Instead of IBM setting up shop for you and owning the processes, you're setting up shop with this approach," says Maheshwari. "The whole idea is that eventually, we're out of the picture and you have a fully enabled offshore division."
So far, the approach is working for i-Vantage, which says its business is split so far about 50/50 between IT-related functions and call-center work. The company has locations in Great Britain, Canada and two offices in India, as well as Stateside offices in suburban Boston and Chicago; it plans to open a China location in 2005 to take advantage of the burgeoning outsourcing market there.
Of course, large service providers such as IBM Global Services and Computer Sciences Corp. make a very good living solving exactly these problems for businesses, not to mention the rampantly successful Indian service providers such as Wipro, Tata Consultancy Services, and Infosys. Where i-Vantage differs from classic service providers is in its orientation towards handing the outsourced operations back over to its clients.
"A couple of years out, we should be ready to transition those operations out for the client," Maheshwari says. "We're still available as a management support service, of course, but basically at that point we let them take the ball."
One nascent company taking advantage of the i-Vantage model is NetLocus, a Wisconsin-based startup working on an online services delivery model that's based on custom software rather than Web-based services. NetLocus chief architect Jim Carnicelli says that using i-Vantage's services lets his company pursue its main goal without distractions.
"We use i-Vantage as an incubator. It's important for us to be able to focus on our key ideas," Carnicelli says. "Short-term, we need people, computers, space, and human resources personnel for hiring [in India]. But over time, it's important for us to have control of our own resources. This model allows that."
As with most offshore outsourcing, the main focus right now is on operations in India, says Maheshwari. One thing that most companies in the SMB market can't do is get on the ground in India to find people, set up a physical location, and establish operations even as they're working endless hours to do the same thing in their home location. "Unless customers have Indian experience already, they don't know what the reality is on the ground there," Maheshwari says.
i-Vantage's model also fills another need for SMBs, particularly startups. Most businesses that rely on venture capital nowadays have to meet VC requirements that they shave costs by outsourcing some operations, including core functions, from the get-go. "We're increasingly seeing that VC will not fund startups unless a good chunk of their product development and other operations go offshore," says Marc Hebert, executive vice-president at services provider Sierra Atlantic. "It's not 1999 anymore, and outsourcing is definitely part of today's business plan."
With SMBs representing a ripe target for outsourcing revenue in a market where larger enterprises have already made their outsourcing choices, Maheshwari is optimistic about i-Vantage's "insourcing" model. "With all of the [media] coverage, we definitely see that customers are being more careful about outsourcing," he says. "But when they find that they can have control over the process, they can look at the other positives."
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