Alternative Sourcing Strategies for Testing. Andy Redwood. Redwood Associates

Transcription

1 Alternative Sourcing Strategies for ing Andy Redwood Redwood Associates

2 Purpose of the presentation Provide some information on Offshoring What are the alternatives that can be considered What is the Value

3 Some Terms Bronze stage Captive Gold Stage Home Market Country Joint Venture Nearshore Offshore Onshore Onsite OTC Outsource Silver Stage Stepwise approach A stage within a Stepwise approach where all test effort is undertaken onshore with local staff and local contractors or consultants The OTC premises and subsidiary company is owed and staffed by Client employees A stage within a Stepwise approach following or in tandem with Silver where test effort is undertaken onshore with local staff, local contractors (or consultants) and some offshore sourced resources working locally onshore and some offshore sourced resources working offshore (or nearshore or farshore). For Client countries in which the Client does business Where two or more companies enter into a contractual partnership and jointly fund the venture and jointly share the risks (usually the parties create and jointly own a new company) Effort is undertaken outside of the home country in a country where the resource unit price is cheaper than the home country, where the travel time is not significant and the time zone is either the same or +/- 1 hour Effort is undertaken outside of the home country in a country where the resource unit price is cheaper than the home country, where travel time is significant and the time zone is no more than half a working day Effort is undertaken in the home country A term used (contractually) when offshore resources are located onshore Offshore Centre Where two or more companies enter into a contract to deliver solutions within a master service level agreement. This is usually a managed service where the effort is undertaken in any location at the discretion of the contracted supplier A stage within a Stepwise approach following or in tandem with Bronze where test effort is undertaken onshore with local staff, local contractors and some offshore sourced resources working locally onshore, and there is no offshore effort The act of progressing in a staged approach over time

4 History

5 India Offshore Market 1995 India offshore test centres complement established development centres 2003, all 5 of the level 5 PCMM (People Capability Maturity model) and 60 of the 80 CMM level 5 organisations where in India India resource costs rise an average of 18.7% pa 2006 India looks to growing Asia Market 2006 New Zealand top provider in Asia (US$ 5 billion) 2007 Global offshoring market at US$ 300 billion (India US$ 47.8 billion) 2008 India employs 1.2 million people in the outsourcing industry.

6 2008 Locations providing offshore centres Main Centres India, China European Time zone Centres Spain, Estonia, Ukraine, Russia, Egypt, Malta, Ireland Ghana, Uganda, South Africa, Morocco, Israel. US Timezone Centres Argentina, Brazil, Canada, Mexico. Asia Centres (excluding India and China) New Zealand, Bangkok, Singapore, Hong Kong, Manila, Russia

7 Trends Global Offshore Market by Industry Global demand for Offshore by region Industry Percentage Offshoring % Region Percentage Offshoring % Information Technology 43 USA 59 Financial Services 17 Europe 27 Telecoms 16 Asia 9 Services 15 Rest of the World 5 Others 9 Cost of Analyst Employee Resources by region Employee working in region Salary (US$ per Year) USA Europe Australia India 14000

8 China over India? (+).. score service provider availability a positive. There are some true diamonds with potential to grow, given the projects. The challenge is finding the company that s appropriate for you to work with. (~) score personnel talent and experience neither a negative nor a positive. The right managers -- strong in staff development and retention skills -- can work wonders. (-) Intellectual property rights gain a negative mark across the board. If your business is IP-sensitive, you d better be IP savvy too, to protect what s yours. (-) Regarding English language skills, we give a negative rating because the results of all that educational effort are uneven. Until students have an on-going opportunity to converse with native English speakers, they ll never achieve the proficiency in the language that most non-china companies need. (-) Cultural issues gain a negative too, at least until US and European managers have more experience in working within the bounds of the Chinese culture. (+) The Chinese government s support in taxation and other areas is a positive. -- though with the caveat that governmental support in China can be fickle. One day they re wooing your business; the next day, they re turning a blind eye to vigilante justice, as the Japanese recently experienced in multiple Chinese cities. Source Jacqueline Zhang - Article referenced December 2008

9 Why do it?

10 Drivers for change Cost efficiency Current resourcing model (local resourcing) is costly. Low cost resources are still not utilised as a 1 st choice High demand to save lights on costs Scalability Continued need to service rapid change in demand of test resources. New competencies Lack of skills for test automation or high level transformation projects Need to be optimal and flexible!

11 Replicate Offshoring Model for Shared Services Business Unit 1 Business Unit 2 Business Unit 3 Home Process Process Process Country Country Development and QA Support Development and QA Support Development and QA Support Shared Service Shared Service Shared Service Group IT Group wide Policies and Strategies Multi-skilled Resource Pool COE s Strategic Partners Certified Suppliers COEs Shared Services across global IT One Client for Technology Solutions

12 Challenge Don t replicate Staff Augmentation Offshore Business Unit 1 Business Unit 2 Business Unit 3 Home Country Country Local Local Local Group IT Local and Global Sourcing Vendor 1 Global Vendor Vendor 2 Centre Others Vendor 3 Vendor 4 Local Vendor Offshore Centre Multiple Sourcing options globally Local ing sourced by Business Area ing done by Centre Independent in country

13 How do you start?

14 Redwood Andy Redwood Source - Gartner

15 Alternative Options for Offshoring

16 Main Offshoring Alternatives 1 Deliver testing onshore 1A With fewer local suppliers than now 1B With a few local suppliers and one low cost resource supplier. 2 Deliver testing onshore and offshore 2A With one offshore supplier (and a few local suppliers). 2B Through a joint venture with a partner. 2C By an Client owned captive in a low cost country.

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22 What is the Benefit

23 Cost reduction by Alternative Fixed Headcount, Cost Reduction by sourcing Alternative % Saving over 1A 25% Saving over 1A US$ (millions) or Number of Resources Retain A 1B 2A 2B A1 A2 A3 A4 30% Saving over 1A Fixed Resources Cost (Millions) Allows for US$ 31M in 2009 OTC set up costs FTEs Alternatives

24 Business case for Partnership Running costs & Savings Annual Running Costs and Savings and Savings Annual Investment and Savings Today US$ (millions) 50 Saving Running cost US$ (millions) Saving Investment Resource changes Annual Changes to Resources Partnership ROI Return on Investment FTE FTC Onsite Of f shor e US$ (millions) Recoverable Investment Accumulated Saving Key assumptions: For modelling purposes 2009 is onsite only. Indicative onsite and offshore rate card from TCS. Centre headcount is fixed for modelling Centre budget is fixed for modelling Estimates based on other company experiences (Deutsche Bank , Credit Suisse 2005, Bupa 2006, Merrill Lynch )

25 What happens to Resources Cost Reduction Reduce Local FTCs Reduce Local Suppliers Skills Improvement Knowledge Transfer Career Opportunities Increase Partner Resources Onsite Retain Local FTEs Q Q Q Q Q4 2009

26 Some Advisory Notes Improved Quality/Cost-Effective/Faster Delivery/Centralised Team Good idea to to bring Offshore resource onshore for a minimum of of 3 months Cycle resources to to combat visa issues (and home sickness) It It is is advisible to to set up a model office (cost model adjustment will be required) to to test everything and gain confidence Not everything is is offshorable so define some measurable criteria for decison making Most companies optimise at at 70% offshore they do this on an application basis by risk profile, they usually offshore test execution (manual and automated) and some enhancement test prep Regression test should be continuous (retains up-to-date assets) assets, environments and tools will all need to to be available remotely There are set up costs associated with an Offshore Centre Leaselines with sufficient bandwidth Additional infrastructure test network New roles will be required strongly recommend an FTE Client liaison Offshore (full time) Vendor Manager More tools licenses will be required (convert the defect only QC s to to Full) You will need enhanced communications Video conferencing, conference calling, additional travel costs Client may need a minor restructure to to achieve this Once you start this there is is no going back! Focus on Quality and Efficiency

27 Alternative Sourcing Strategies for ing Andy Redwood Redwood Associates