Monthly Archives: April 2010
Captive Center vs. Third-party Outsourcing: Which is Better?
There are a lot of issues that influence top management in deciding between captive center vs. third-party outsourcing. With the way technology advances over the years, and the number of jobs that needs to be done by companies at the shortest possible time, competition is very stiff. To get ahead, some companies resort to outsourcing as a solution to high product demands.
But which has the edge in the captive center vs. third-party outsourcing question? Lets discuss some of the pros and cons between the two methods.
When you go for third-party outsourcing, you free up more of your time and resources to focus on your core business activities. You can also get better results when you leave the hard-to-provide tasks to those who specialize on it. The only problem is that you lose total control of the production process. There are also cases where the third-party outsourcing company fails to deliver the expected results. This problem don’t exist with captive centers.
As a rule, hiring more people would mean more overhead costs. That’s why people find it more attractive to simply outsource the tasks and pay a lower fee. A captive center, on the other hand, has the advantage over third-party outsourcing when it comes to ensuring that the quality of work is high.
Captive centers usually are at the disadvantage when it comes to work output. This is because third-party outsourcing providers can produce more results with their specialized skills and equipment. The only snag is that you lose managerial control over the work values of the contractor.
The captive center is also at the disadvantage when there is a peak load of demand. That’s the reason why third-party outsourcing companies are the best options for tasks requiring phone-calls, billing inquiries and the likes that don’t have a steady range of demand. The only question here is whether you can trust the contractor with sensitive information from your customers and your operations.
As you can see, both sides in the captive center vs. third-party outsourcing debate have their reasons why they should be chosen. There are problems, of course, but these can be taken cared of with good management skills and by selecting the proper firms to outsource to.
On Establishing and Managing an Offshore Captive Center
Last 2009, a white paper was published by CIO.com about establishing and managing an offshore captive center. It was a very illuminating paper as it highlights important concepts when it comes to an offshore captive center.
The paper’s author, Mr. Renny I. John, outlined the steps that must be undertaken by business executives when establishing and managing an offshore captive center. According to him, there are three main phases that an interested organization must undergo to be successful in their offshore captive. These phases are appropriately named as follows: Strategize, Establish, and Operate.
In the Strategize phase, a company must consider some important factors before it can set up an offshore captive center. First, they must decide on the right country and city to establish in. Second, applications and processes to be offshored should be clearly outlined. Third, clearly define the business model the captive will assume. Fourth, knowing and dealing with cost and operating issues is a must. And lastly, executives must be able to create a detailed plan on products and set timelines for its delivery.
The next phase in establishing and managing an offshore captive center is Establish. The parent company should be able to set up a management structure with clearly defined roles that will oversee the entire operation of the captive. Next, regulatory systems should be established in the captive. Infrastructure is the next step, where the parent must prepare the necessary buildings, equipment, and materials needed. Once prepared, it is time to look for key leaders and support personnel to operate the business. After this, business processes should then be clearly defined. Once the processes have been established, the on-site administrators can begin transferring their knowledge with the offshore captive team. When it is ascertained that knowledge transfer is successful, the captive center can begin by performing a few small to medium tasks as a sort of test.
The only thing that remains to be done is the Operate phase. There are only two elements that need to be observed at this phase. First, quality management should be set up and maintained by the administration. And lastly, performance of employees should be systematically monitored and evaluated by quality control specialists.
Skipping on any of these steps would be very unwise. The story of failed captive centers in the past should serve as a lesson for those who still plan on establishing one. As long as these steps are observed, executives can be assured that they’re on the right track.
Captive BPO Outsourcing Center – Is This The Real Deal?
Today, various businesses in the Unites States and Europe see outsourcing as a good option when they want to save on costs and manpower. Not only is labor and talent cheap in countries such as India and Philippines, the quality of service and products developed is relatively high. But some of these companies are still willing to gamble on this. If they can save as much as 70% of their costs when they outsource to a third-party provider, how much more if the entire operation is managed by themselves. This has given rise to a captive BPO outsourcing center.
Aside from cost reductions, what are the other benefits of creating a captive BPO outsourcing center? First, and probably the most important for the parent company, there is total control over the captive BPO outsourcing center and its operations. This is perfect for companies who are concerned over maintaining the confidentiality of their information and reduces intellectual property and data security risks.
Not only that, a captive BPO outsourcing center can easily replicate the business processes being observed by the parent company. It can also retain the industry knowledge, practices, and strategies employed by the parent company despite the foreign settings. Communication could also be improved between the two. And if, at some point in the future, the company seeks to withdraw from the market, it can sell the captive BPO outsourcing center to interested parties.
But all these benefits can backfire if the parent company fails to plan properly. Like what happened to Citigroup before, a captive BPO outsourcing center can become a drain to the parent company’s resources. Even so, as the Exult has proven, it all comes down to careful planning and preparations. As long as interested companies do it right, then there’s nothing that can stop them from creating their own captive BPO outsourcing center.
And finally reap the benefits.
The Problems Of An Offshore Captive Center
With the boom of the offshore outsourcing industry many corporations are enticed by the lure of big saving and better services when they transfer many of their back room and customer service operations to business process outsourcing BPO companies.
With improved profitability experienced by these large firms some have been tempted by the possibility of eliminating the third party provider completely and set up an offshore captive center of their own.
Unfortunately the dream of greater profits bigger savings and even better services have all come to naught Except for a few exceptions companies who own offshore outsourcing captives these days are desperately getting rid of their subsidiaries.
Take Citi for example. Last 2007 the giant financial group sold their Indian BPO to Tata Consultancy Services TCS. Other companies have followed suit and a string of sales and transfers have occurred over the years. This makes one wonder what exactly happened. Why are potentially lucrative ventures not going anywhere at all? The answer according to Steve Mazek author of Software without Borders is the inherent characteristics of an offshore captive firm. If the parent company fails to take these into consideration then they will end up with a big drain to the resources. According to him captives tend to pay more for rent and furnishings than the locals. They lack institutional knowledge and they’ll need time to be efficient Captive centers also get a lesser share in IT outsourcing. Underutilized captive centers are more costly to maintain than their counterparts. Sending your own managers to begin set up is 60 percent more expensive than hiring a third-party provider.
Another thing is that small captives find it hard to get talent than do larger firms and third party companies.
And finally exiting the market is harder since it takes up to two years to shut down a captive Given these details it really comes as no surprise that parent companies are really in a bind Unless they are able to pull off a stunt that made companies like Exult a success then expect this trend on offshore captive centers to continue in the years to come.
