Everyone loves a good debate. And one of the in global services is whether the external (outsourced) or internal (shared service or captive) approach is the “best” strategy for a particular situation. While most large organizations are getting past the either/or mindset and focusing instead on how to best combine and complement the two as neither is clearly superior to the other, Latin America is the one service delivery destination in which I see North American organizations facing a quandary on this issue.
The answer initially seems pretty simple. Latin America and the United States and Canada are roughly in the same time zones. Further, travel times to Central America and Mexico are fairly short. And as a bonus, you get either Spanish or Portuguese language skills to wrap into a Latin America-based service delivery model. The region is close, easy, flexible, and seemingly a more comfortable alternative to other low cost countries.
If a company expects to operate at scale (say 300-500 or more FTEs), and is comfortable with running international operations in the Americas, the instinctive answer seems to be an internal solution – especially if it is focusing on growing the revenue side of its business in Latin America. If this is not the case, the answer appears to be leveraging third parties to complement delivery from Asia in order to get more convenient interactions (both phone and travel) and extra languages.
However, on deeper inspection, it’s nowhere near that straightforward.
I see two factors increasingly shaping enterprises’ selection of next generation sourcing models in Latin America: 1) whether the need is multi-functional in nature; and 2) the actual operating model for the portfolio of delivery centers.
Let’s take a look at what leading organizations are discovering from their experience leveraging Latin America for service delivery.
Multi-Function Center Influence
Running an internal delivery center on a sustained basis requires commitment and the ability to withstand change year-to-year. From my experience with clients with their own delivery centers in Latin America, those with tactical, single function centers naturally become less strategic after several years. Basically, they become isolated spokes with a single purpose.
If the business needs driving the rationale for this single center change, or the macro-economic conditions surrounding the center shift (e.g., labor availability or exchange rates), the role and value of the center quickly come into question and the ongoing commitment to the center can decrease.
By contrast, if the center is multi-function (some combination of voice, IT, transactions, etc.), the commitment level more naturally stays high. This is due to many factors including generally greater scale (which provides lots of soft benefits for tapping the labor market), and larger and broader investment in making the center successful across multiple processes, functions, and even business units. Further, if one dimension of the services demand is reduced or eliminated, the center’s remaining uses are often still relevant.
The challenge from a sourcing strategy perspective is that having a multi-function center typically requires cross-organizational buy-in that is both difficult to create and slippery to maintain. Net-net, multi-function centers require a more strategic decision, and therefore turn into a more strategic commitment.
Overall Operating Model – Portfolio or Individual Centers?
The second factor – the operating model – also poses a sourcing strategy quandary. If a given center operates without close integration to other centers, the chosen sourcing strategy doesn’t make much difference from a portfolio perspective.
On the other hand, if the center in question is expected to operate some processes and functions in close coordination with other centers (think redundancy for risk diversification, capacity optimization, and multi-geography team working models), the integration is most easily enabled by utilizing the other centers’ same operating model – same tools and processes, same measurement reporting, and on and on.
The impact on the operating model creates critical trade-offs when addressing applications development and maintenance. The nature of this work is more dynamic and fluid than transactions or normal contact center activities. As a result, the attractiveness of a same time zone center can be quite high.
However, this directly leads into the question of whether the Latin American center will operate in close/direct collaboration with other centers across Europe and Asia. Typically, delivery from Latin America drifts toward specific systems that most benefit from frequent interaction, and pairs with the IT resources in the US/Canada. As an unintended consequence, the center will generally not intimately work with centers in other regions (coordinating across three or more stakeholder groups becomes over-whelming), unless the role of the US/Canada is very minimal, and the systems are primarily owned by the offshore centers.
Net-net, Latin America is “close” in many ways to the US and Canada, but operating practicalities quickly call into question the role of all centers both collectively and individually.
Latin America is a comparatively easy region for enterprises in the US and Canada to access and in which to establish a center. But hiding behind this straightforward value proposition is an eventual desire to cluster functions into fewer centers if running internally, and to optimize delivery across multiple centers if running a portfolio delivery model.
In effect, the cross-function factor emphasizes the importance of cross-business unit/function strategy, and the operating model factor highlights the need for a cross-center operating strategy. As a result, the Latin America sourcing strategy decision quickly calls out the need for a larger, overarching sourcing strategy to ensure a smart decision with sustainable results.
Eric Simonson is Managing Partner of Research, Everest Group. Eric leads Everest Group’s research practice, which conducts original research on global services trends and issues.