“Location, location, location” has been the cry of nearshoring advocates and advisors for many years now.
Choosing the optimal location for nearshored services based on factors such as language and labour capabilities, risks, rewards, macroeconomic stability and government incentives has resulted in a plethora of options for any US organisation looking to nearshore its processes and activities.
This has resulted in captives, shared services, outsourcing deals, joint ventures and other equity-based structures with both service providers and large corporates investing heavily in setting up new and expanding existing delivery centres. In short, the nearshoring supply side has exploded in scope and scale across the Western Hemisphere with competitive options across Canada and from the Rio Grande to the Southern Cone.
Driving Sustained Value
Yet, this is often the wrong way to think about how to drive sustainable value from a nearshoring operating model. Many supply-side options, while competitive, remain poorly differentiated from a demand-side perspective; significant fixed costs have been invested by customers that cannot be flexed in line with their changing business needs; many arrangements are designed around input-based (often headcount or FTE-based) metrics rather than driving business outcomes; nearshoring is often considered in isolation to a globalisation strategy or even an overall operating model strategy.
So how can greater and more sustainable customer value be created from nearshoring in the Americas?
The key to answering this question lies in setting the right vision and changing mindsets away from the supply-side to the demand-side, whether that lies with the end (or revenue-paying) customer or, for large corporates, the “business” (or internal) customer. In practice, intelligent customer organisations are seeking to transform their nearshoring mindsets by adopting a demand-driven strategy with four key elements:
Culture - building a strong culture of proactive customer awareness and location agnosticism so that change management barriers to the adoption and delivery of remote services are lowered or overcome. This often includes challenging the status quo of a service delivery model and driving to the heart of what truly has to be delivered locally vs. remotely based on competitive advantage and core competency
Commercials – creating a combination of comparable onshore, nearshore and offshore delivery centres, whether captive, outsourced or hybrid, with highly differentiated services and performance outcomes, so that commercial benefits can be maximised and risks hedged. Most organisations are moving towards a portfolio approach with multiple delivery centres although these are rarely fully substitutable in the services they provide
Competition – ensuring that there is viable and sustainable (“win-win”) internal and external competition with multiple service providers both bidding for and winning delivery work. This requires a small number of providers in a multi-sourced environment providing substitutable services.
Customer Intelligence – building an intelligent, and lean, customer-focused management organisation and capabilities to aggregate customer demand, set the business rules and policies for service delivery, manage performance and lead both operational and strategic decision-making by aligning customer and supply-side governance structures.
The Role of Providers
Many US-based multi-national corporations are at the vanguard of this mindset transformation and these elements are becoming adopted by firms nearshoring business processes specific to particular vertical industries as well as horizontal processes such as call centres, HR, F&A and IT. Yet many customers still believe that location factors are important, so there remain challenges in changing the customer mindset. It is not easy to build the trust, relationship and governance model between customers and their service providers for the customer to be confident that services will be delivered to the required performance level, irrespective of delivery location.
Nearshoring service providers have a key role to play in this mindset transformation by encouraging and supporting their customers in executing change. Although there are inherent challenges and risks involved in working more closely with other service providers with a shared customer, the business outcome and customer value created overall is higher and highly differentiated services will secure a greater proportion of value. Not only does the pie get larger overall, but a highly differentiated service provider’s proportion of the pie increases.
Instead of “location, location, location”, the advocacy cry needs to be modified. For customer organisations, the cry of “governance, intelligence, leadership” should be the new mantra. For service providers, “delivery, differentiation, innovation”.
Chris Nuttall is a member of PA Consulting’s Management Group with twenty years’ experience in planning, managing and leading strategic business-focused consulting and advisory assignments embracing market-enabled and technology-enabled change to enable business transformation. He is a recognised expert on providing pertinent and value-adding advice to management and leaders on outsourcing, shoring, shared services and service management and leads complex assignments at all stages of the project and sourcing lifecycle.
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