nesma autumn conference - deep dive into the true cost of offshoring - darja smite - rini van...

AUTUMN CONFERENCE 2016 What has outsourcing ever brought to us?KEYNOTE AT

A deep dive into the true cost of offshoringDARJA ŠMITE and RINI VAN SOLINGEN | 2016-11-10 | UTRECHT, THE NETHERLANDS

DARJA SMITE AND RINI VAN SOLINGEN

DARJA ŠMITE

Associate professor

CLAES WOHLINProfessor

RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

Darja ŠmiteProfessor

Blekinge Instituteof Technology

Rini van SolingenProfessorDelft University of Technology

Who are we?


What has outsourcing ever brought to us?

Access to large labor pool

Significant cost-

savings

Better quality

Reduced overheads

Faster time-to-market

Freed-up resources

Innovation and shared

best practice


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

Two extreme views

Offshore outsourcing does

not lead to any cost savings

Offshoring pessimist Offshoring optimist

Offshore outsourcing leads

to significant cost savings


7 companies, including

report cost savings in different ranges, i.e. 10-15%, 35-40%, 3x and 10x savings.

8 companies, including

report that cost savings were not achieved. One reports significant decrease in profit.

Cost-savings in research

Cost savings achievedCost savings not achieved

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

What do we know about cost savings?

But were are the doubts?

Do we portray the real picture?

Offshoring pessimist

Offshoring optimist


The DutchCo and InVend study

› DutchCo was founded in mid 90s › Product-focused software-related

service supplier for enterprise customers› Competitiveness through ability to innovate› Growing number of customers › New customer market› Outsourcing to InVend in Bangalore since 2009› For cost reduction and “adventure of doing business globally”› In 2014 there were 1 “Dutch team” and 1 “Indian team”


Our approach

Interviews Two focus groups Further data collection

Data analysis

Feedback session

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

Direct costs as a bottom line

Yes, but we must avoid unfair comparisons


Offshoring optimist

Let’s look at the bottom line differences


Direct cost calculation

–Cost

savingsIn-house costs

Contract-based costs

Extra costs–=

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


Direct cost calculationDARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


Direct cost calculation

DutchCo InVend› Salary-based hourly costs 38 € 26 €› Hourly costs with overhead 49 € 29 €


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

How to measure

effectiveness?

But what is the value for

money?


Offshoring optimist

Direct + indirect costs


THE bottom line cost


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

Time perspective

What about the whole collaboration

year period?


Offshoring optimist

This looks successful!!!


Total costs for the 5 year period


DutchCo InVend› 2009 55 € 706 €› 2010 55 € 168 €› 2011 64 € 66 €› 2012 63 € 56 €› 2013 65 € 47 €› Average 61 € 68 €

Total costs for the 5 year periodDARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

Comparing teams with different experience

It depends!


Offshoring optimist

But this is an unfair

comparison


Staff turnover or attrition

DutchCo InVend

2009 2011

Empl

oyed

Lost

2010 2012 2013 2009 2010 2011 2012 2013

Empl

oyed

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


Ab

ility

to s

olv

e t

he g

iven t

ask

s

Years of experience0 0.5 1 1.5 2 2.5 3

100%

75%

50%

25%

Years of experience0 0.5 1 1.5 2

Indian team Dutch team

Learning curves Associated efficiency

Impact of the learning curves

0 0,5 1 1,5 2 2,5 3Years of experience

DutchCoInVend

0 0,5 1 1,5 2Years of experience

DutchCo

InVend


Lesson #1

Agile approach

Long learning curves

Highattrition

Deadly combination

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


Lesson #2

Not our business

Doing our best

Onshore customer Offshore vendor


Lesson #2

Our shared responsibility

Onshore partner Offshore partner


Lesson #3

› Cost calculation shall take into account the learning curves and the turnover of the employees› Performance measurements–Perception based measurements – easy to gather, but simplified–Actual performance measurements – difficult to measure

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student


Thank you for your attention…

Darja ŠmiteBlekinge Instituteof Technology, [email protected]

Rini van SolingenDelft University of Technology, [email protected]

DARJA ŠMITE

Associate professor


RICARDOBRITTO

PhD Student

NILS BREDEMOE

Senior Researcher

AIVARSŠĀBLIS

MSc Student

nesma autumn conference - deep dive into the true cost of offshoring - darja smite - rini van...

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