September 04, 2012 at 12:27 PM
Large organizations with significant internal delivery models face pressures including demands from the business for more value and an increased need for high-value skills. These pressures often lead organizations to open new service delivery locations in an effort to deliver more value and obtain access to desired skillsets.
But according to a recent webinar from The Everest Group, optimizing existing service delivery locations is often a better strategic choice. Selecting a new location does offer some advantages, including the quick acquisition of new skills (especially languages) and the diversification of risk.
However, as Everest Group pointed out, expanding an existing location can help find synergy across sites, maximize the value potential of existing resources, better manage and balance capacity and operationally mitigate risk. In addition, while expanding an existing location is hardly a cheap proposition, it eliminates the start-up costs associated with opening a new location, including site search, recruiting, hiring and training new employees, taking on new rental and operational expenses, etc.
Expanding Existing Locations – How It’s Done
Once an organization determines it wants to expand an existing service delivery location, it then needs to monitor the scalability and sustainability of access to key skills at that location. Everest Group says this process includes assessing both gross and net skill supply – including annual relevant graduate pool and subtracting the impact of local competition for the net supply – and analyzing potential implications such as the target size for a desired skill and local market collaboration.
In preparation to expand the scope of a delivery center to more functions, Everest Group advises organizations to calculate the amount of surplus talent produced from key roles and then create paths for high performers. Organizations should also consider the implications expanded scope at one location could have across all service delivery locations.
In addition, other implications that need to be studied include bridge training for new roles, cross-pollination of roles across different centers, how the mix of specific functions in a center will work, and the target scope and size of the center itself and any third-party roles that come into play.
Another option for organizations seeking to expand the scope of an existing delivery center is to expand operations in a city where one or more centers already operate. This allows organizations to leverage pre-existing investments in resources such as management and gain further access to a familiar labor pool, but does incur additional costs associated with opening a new location.
Location Optimization In the Mix
According to a survey of global services users conducted by Everest Group, location optimization is very much “in the mix” when it comes to delivery center location strategy. Only 6% of respondents primarily seek to use new locations, while 29% primarily optimize existing locations. The bulk of respondents (64%) use both of these approaches.
Location optimization is not always the best choice for an organization seeking to expand the scope of its service delivery center(s). Depending on factors such as available skills and resources both in a center and in its surrounding area, competition for resources in an existing location and the possible need for recruiting and training new employees, opening a new center in a new location may prove the most productive location strategy. But optimizing an existing location is a strategy that should always be considered as a first option when the time comes to expand the scope or volume of services delivery.