Moving IT offshore from rate card to managed service

I had an interesting conversation with the CIO at Ceva Logistics yesterday. Peter Dew was telling me all about the companies move to the offshore IT delivery model. More specifically how it has outsourced to Indian services firm HCL.

The journey shows how good strong offshore relationships can be built even if the prime reason for going offshore was for low cost labour.

When Dew joined Ceva in 2008 it did not have an existing outsourcing supplier so had to start from scratch. Because it had never gone to the market for an outsourcing supplier it did not have the experience and processes in place to select one.

Dew said companies that have existing IT service providers in place would put together what they want and run a RFP. With Ceva Dew decided to take a different approach.

He knew the primary goal was to lower the wage bill. Ceva had 1500 It staff in high cost regions (US and Europe). So he selected a group of Indian suppliers and outlined 17 job roles. He went to the suppliers to see how much they would charge for each role. Within 10 weeks of deciding to offshore IT he had people in India up and running.

So he basically got a rate card from the supplier and outsourced work to them. Ceva managed these offshore workers in a pure time and materials model.

The interesting part is how this has evolved into a strong relationship over the years. As the relationship has developed Ceva has passed more responsibility to HCL, meanwhile Ceva carries out benchmarking to ensure it continues to get the best deal it can.

Today Ceva has managed switched, from time and materials, to full managed services for Infrastructure and application management and development with HCL. It has 600 HCL staff in India working for it and is also embarking on a BPO outsourcing contract with HCL, which will see billing, invoicing and customer services offshored to HCL and another 500 staff added in India.

So time and materials is a good place to start for an offshoring journey if that is what a business has chosen to do.

Indian IT services firms are themselves moving away from a dependency on time and materials models with services that offer linear charging models, so they will be willing to go on this type of journey with a customer.