5 Common Myths of LocationSelectionApril 26, 2012
Introductions                                       Eric Simonson                                       Managing Partner, ...
Learning objectives  5 common myths       Become aware of common pitfalls  of location          Separate myths from real...
Perspectives are drawn from trends tracked inMarket Vista and our location selection work                Market Vista     ...
Presentation topics    5 common myths            Perspectives on    of location               global location             ...
Poll Question: What are the most common challengesthat you have faced in location selection?                  Establishing...
Commonly perceived myths on location selectionMyth                                                                Reality ...
Myth #1: Rankings are helpful to understand                                                         1relative attractivene...
Myth #1: Rankings are helpful to understand                                                                               ...
Myth #1: Rankings are helpful to understand                                                                               ...
Myth #2: Size = Scalability                                                            2                           “Size” ...
Myth #2: Size = Scalability                                                                                               ...
Myth #2: Size = Scalability                                                                                               ...
Myth #3: Wage increase directly corresponds to                                                                            ...
Myth #4: Locations experiencing tight labor                                                                               ...
Myth #4: Locations experiencing tight labor                                                                               ...
Myth #5: High-cost and low-cost locations are in                                                                          ...
Myth #5: High-cost and low-cost locations are in                                                                          ...
Presentation topics  5 common myths       Perspectives on  of location          global location                           ...
Poll Question: How many total cities are currently inyour global delivery portfolio?                2 or less             ...
Global locations portfolio: RelevanceKey advantages of locations                                    Differences compared t...
Mature buyers are increasingly beginning to viewlocations as a portfolio to support global delivery                       ...
Key considerations when thinking about a globallocation portfolioLocation portfolio needs to be heavily influenced with th...
Designing the location portfolio requires threemajor inputs                       1                                       ...
Presentation topics 5 common myths   Perspectives on of location      global location                                     ...
Best practices for helping your organization dealwith location questionsBe realistic about       Although centers can oper...
Q&ATo ask a question during the Q&A session   Click the question mark (Q&A) button located on right side of your screen –...
Related contentRelated Research   Market Vista: Q4 2011   Market Vista: 2011 in Review   Perspectives on Tier II/III Ci...
Everest GroupLeading clients from insight to actionEverest Group locations                                                ...
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5 Common Myths of Location Selection

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On April 26, 2012, Everest Group hosted a webinar in which the audience gained a holistic view of location evaluation, avoiding the common pitfalls, and making fact-based location decisions.

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5 Common Myths of Location Selection

  1. 1. 5 Common Myths of LocationSelectionApril 26, 2012
  2. 2. Introductions Eric Simonson Managing Partner, Research Everest Group eric.simonson@everestgrp.com Amneet Singh Vice President Everest Group amneet.singh@everestgrp.com H. Karthik Vice President Everest Group h.karthik@everestgrp.com Proprietary & Confidential. © 2012, Everest Global, Inc. 2
  3. 3. Learning objectives 5 common myths  Become aware of common pitfalls of location  Separate myths from reality selection  Appreciate best practices Perspectives on  Understand relevance of portfolio approach global location  Obtain overview of key design considerations portfolio Proprietary & Confidential. © 2012, Everest Global, Inc. 3
  4. 4. Perspectives are drawn from trends tracked inMarket Vista and our location selection work Market Vista Global services tracking across functions, sourcing models, locations, and service providers – industry tracking reports also availableSubscription Banking, financial Finance & Healthcare services – services, insurance accounting reports, Informationinquiry, data Procurement Cloud Vista technology cuts, etc. Recruitment Human resources Global sourcing process Service provider Transaction PricePoint Intelligence Intelligence Custom research capabilities  Benchmarking | Pricing, delivery model, skill portfolio  Peer analysis | Scope, sourcing models, locations  Locations | Cost, skills, sustainability, portfolio  Tracking services | Service providers, locations, risk  Other | Market intelligence, service provider capabilities, technologies Proprietary & Confidential. © 2012, Everest Global, Inc. 4
  5. 5. Presentation topics 5 common myths Perspectives on of location global location Wrap up and Q&A selection portfolio Become aware of common pitfalls Separate myths from reality Appreciate best practices Proprietary & Confidential. © 2012, Everest Global, Inc. 5
  6. 6. Poll Question: What are the most common challengesthat you have faced in location selection? Establishing clear objectives 13% Aligning stakeholders 18% Finding convincing data 29% Overcoming executive biases 18% All of the above 21%Source: Live polling conducted during the “5 Common Myths of Location Selection” webinar on April 26, 2012 Proprietary & Confidential. © 2012, Everest Global, Inc. 6
  7. 7. Commonly perceived myths on location selectionMyth Reality 1 Rankings often convey a partial view and can Rankings are helpful to understand mislead location decisions relative attractiveness of locations 2 Scalability does not always correlate with Size = Scalability size and is often driven by market, talent pool and operating model considerations 3 Overall people costs typically increase at a Wage increases directly correspond to lower rate due to multiple efficiency levers an increase in overall people cost 4 Alternative talent models can create Locations experiencing tight labor adequate room for growth even in tight labor conditions are always unattractive conditions 5 High-cost locations help optimize the overall High-cost and low-cost locations are in portfolio by fulfilling unique needs competition with each other Proprietary & Confidential. © 2012, Everest Global, Inc. 7
  8. 8. Myth #1: Rankings are helpful to understand 1relative attractiveness of locations Limitation of location rankings  Wide variation between agencies and years Which ranking to believe  Country vs. city rankings  Do not often correlate with the end outcome of Do not necessarily location decisions reflect market reality  Score differences between rankings sometimes not Can often disguise meaningful enough to decide relative attractiveness non-optimum results Location decisions are  Do not adequately reflect trade-offs between risks guided by company and costs as per company specific considerations specific considerations Reality: Rankings often convey a partial view and can mislead location decisions Proprietary & Confidential. © 2012, Everest Global, Inc. 8
  9. 9. Myth #1: Rankings are helpful to understand 1relative attractiveness of locationsRankings do not necessarily reflect market activity Number of players2 >100 Location rankings1 Change in ranking Market reality2 51-100 31-50Locations 2011 (2009-2011)1 2011 15-30 <15 India 1 China 2 Decreasing attractiveness Malaysia 3 Indonesia 5 Thailand 7 3 Vietnam 8 2 Philippines 9 2 Brazil 12 Hungary 31 61 Annual country location rankings released by a leading professional services firm2 Analysis based on number of Forbes 2000 captives and 20 leading service providers providing global services support Proprietary & Confidential. © 2012, Everest Global, Inc. 9
  10. 10. Myth #1: Rankings are helpful to understand 1relative attractiveness of locationsLocation decisions are guided by company specific trade-offs between risks and costsAssessment Business Risk-reward ILLUSTRATIVEdimensions considerations analysis 1. Talent pool and Attractive choice for player(s) W1% Peer presence Low willing to put in place risk mitigating measures 2. Real estate W2% trends Cost of operation Preferred optionsRisk 3. Infrastructure Higher cost W3% (e.g., telecom) Higher risk 4. Safety and W4% security Attractive choice for risk averse 5. Operating player(s) willing to trade-off cost W5% savings for lower risk profile environment1 HighReward 6. Salaries and High Low operating costs Relative risks Rankings do not adequately reflect trade-offs as per company specific considerations1 Operating environment includes legal and regulatory, labor laws, and government incentives and tax policies Proprietary & Confidential. © 2012, Everest Global, Inc. 10
  11. 11. Myth #2: Size = Scalability 2 “Size” of overall talent pool is often assumed to Size indicate scalability “Scalability” is driven by multiple factors like Scale quality of talent, competition, and companies’ unique requirements Reality: Scalability is driven by multiple factors besides size of talent pool Proprietary & Confidential. © 2012, Everest Global, Inc. 11
  12. 12. Myth #2: Size = Scalability 2Estimation for net annual supply of talent in a location ILLUSTRATIVEMigration Net drop-off Companies apply further pool filters on net available pool based on their unique talent models and skill needs (e.g., language skills) Resident Pool Annual talent Drop-off due Employable Drop-off due Net available pool to lack of pool to competition on sustained quality and basis to build propensity scale Net employable pool available can be much lower than overall talent pool Proprietary & Confidential. © 2012, Everest Global, Inc. 12
  13. 13. Myth #2: Size = Scalability 2 Employable pool2 Attractiveness OFFSHORE ITO EXAMPLE Annual IT pool from city1 as percentage of based on size of the 2012; Indexed to Shanghai graduate pool employable pool2Shanghai 1.00 10-12% 3  Overall graduate poolBangalore 0.89 28-32% 1 statistics can be often misleading Kuala  Attractiveness based 0.36 28-32% 2 Lumpur on employable pool often varies from Buenos graduate pool 0.35 20-25% 4 Aires Krakow 0.19 30-35% 51 Annual graduates from engineering and information technology disciplines from educational institutions within the city only2 Annual graduates from relevant educational background having requisite technical and appropriate English language skills for IT offshore services industry Proprietary & Confidential. © 2012, Everest Global, Inc. 13
  14. 14. Myth #3: Wage increase directly corresponds to 3an increase in overall people costsITO: INDIA EXAMPLE Typical Typical Typical delivery individual inflation in pyramid raises (%) salary band (%) Manager 3-5% 10-15% and above Team 15-20% 8-12% leader Senior 25-35% 10-12% 3-8% programmer “Headline” Actual inflation often increase in reported / salary bands Junior discussed over recent 50-55% 12-15% 3-8% programmer times Reality: Net impact on wage bills 4-6% much lower than perceived Actual inflation in salary bands is lower than individual changes given promotions / individual growth Attrition in junior roles also provides companies an opportunity to manage costs, especially in a growth environment Proprietary & Confidential. © 2012, Everest Global, Inc. 14
  15. 15. Myth #4: Locations experiencing tight labor 4conditions are always unattractiveSources of talent Comments Often assumed as the only talent pool available in the city  Employable tertiary graduates and “Primary” talent undergraduates from the city Main supply of talent pool from city  Experienced professionals employed in across locations peer companies  Employable high-school graduates and Often relevant in certain “Additional” talent part-time students locations (e.g., CEE, U.S.) pool  Experienced professionals with similar and functions (e.g., contact skills in other industries center)  Employable graduates and experienced Talent pool from professionals from adjoining areas adjoining areas Reality: Alternative pockets of availability can significantly augment primary talent pool Proprietary & Confidential. © 2012, Everest Global, Inc. 15
  16. 16. Myth #4: Locations experiencing tight labor 4conditions are always unattractiveAnnual demand and supply at entry level KRAKOW – VOICE BPONumber ~20 times 10,000-12,000 4,000-5,000 6-7 times 2,500-3,000 3,000-4,000 500-600 Industry demand at Supply of employable Supply of employable Employable pool from Total employable pool entry-level tertiary graduates undergraduates adjoining areas Exploring alternative talent pools (e.g., undergraduates, part-time students, influx from other industries) can create more room for growth This requires appropriate operating models (e.g., hiring, training) to implement and scale Proprietary & Confidential. © 2012, Everest Global, Inc. 16
  17. 17. Myth #5: High-cost and low-cost locations are in 5competition with each otherCompanies optimize across multiple dimensions in location decisions ILLUSTRATIVE Low-cost High-cost Description locations locations Comments  Labor arbitrage  Bangalore offers 60-70%Reward   Operating cost savings (e.g., facilities etc.) Taxes and incentives  operating cost savings compared to Toronto  Skills availability  A leading bank reportsDelivery risks   Stability & predictability Business continuity   similar C-SAT scores from the Philippines and U.S. centers  Access to niche skills  Canada offers significantOtherconsiderations   Customer proximity Time zone overlap  overlap with U.S. business hours and proximity to clients Reality: High-cost locations help optimize the overall portfolio by fulfilling unique needs Proprietary & Confidential. © 2012, Everest Global, Inc. 17
  18. 18. Myth #5: High-cost and low-cost locations are in 5competition with each otherLocation footprint of leading oil and gas majors OIL & GAS EXAMPLE High-cost locations  Research and development  Multilingual support in  Technical services for European languages, specific businesses F&A, HR UK U.S., Canada  Transactional F&A Eastern  IT support (Infrastructure, ADM) Europe  Customer care  Customer care and HR  Customer  Knowledge management India & acquisition  Engineering and R&D Asia Pacific  Customer care  Analytics services  R&D  Financial forecasting, capital  HR budgeting and cost analysis Australia High-cost locations and low-cost locations complement each other in achieving global sourcing objectives of companiesSource: Everest Group Proprietary & Confidential. © 2012, Everest Global, Inc. 18
  19. 19. Presentation topics 5 common myths Perspectives on of location global location Wrap up and Q&A selection portfolio  Understand relevance of portfolio approach  Obtain overview of key design considerations Proprietary & Confidential. © 2012, Everest Global, Inc. 19
  20. 20. Poll Question: How many total cities are currently inyour global delivery portfolio? 2 or less 2% 3-5 15% 6-10 28% 11-20 15% >20 40%Source: Live polling conducted during the “5 Common Myths of Location Selection” webinar on April 26, 2012 Proprietary & Confidential. © 2012, Everest Global, Inc. 20
  21. 21. Global locations portfolio: RelevanceKey advantages of locations Differences compared to footprint ofportfolio locations Maintain low cost of delivery to drive  Integrated approach to continued savings – Support current and future business requirements (scale, Ensure adequate headroom for scope of services, captive vs. growth of global services portfolio service provider mix) – Balance cost and risk Mitigate concentration risk concerns – Plan and manage investment Support regulatory and business unit  Continuous rebalancing and preferences optimization of portfolio Access niche talent pools Proprietary & Confidential. © 2012, Everest Global, Inc. 21
  22. 22. Mature buyers are increasingly beginning to viewlocations as a portfolio to support global delivery EXAMPLE: LEADING GLOBAL OFFSHORING ADOPTER2008: Footprint of locations 2012: Global locations portfolio North North Europe CEE Europe CEE America America Philippines India India Philippines Latin Latin America Africa America Africa Uni-directional flows Multi-directional optimization Proprietary & Confidential. © 2012, Everest Global, Inc. 22
  23. 23. Key considerations when thinking about a globallocation portfolioLocation portfolio needs to be heavily influenced with the organization’s  How many cities?sourcing strategy Demand model  Which geographies? 1. What to source  Functions  Processes  What scale in each  Technologies location?  Objectives  What roles do different  Skill availability locations play? (hub, spoke,  Nature of work 4. Managing global  Sustainability CoE)  Scale sourcing  Governance  How to balance sourcing capabilities model mix (i.e., captive vs.  Decision-rights/ service provider)? responsibilities 2. How to source  Metrics 3. Where to source  How to balance cost and  Offshore captive  Locations risk?  Near-shore captive  Global network  Third-party  Concentration  How to ensure adequate  Flexibility flexibility for future changes? Supply model Supply model Proprietary & Confidential. © 2012, Everest Global, Inc. 23
  24. 24. Designing the location portfolio requires threemajor inputs 1  Volumes, skills, languages, geographies Enterprise receiving services, etc. demand profile  Current and projected views 2  Languages, proximity,Inputs to Service DR/BCP, regulatory, etc.designing capability fit  Identifies majorlocation portfolio constraints 3  Initial view of what roles Roles locations a location could play for can play different skills  Hub, spoke, COE, etc. Using these inputs, alternative designs can be evaluated using scenario analysis Proprietary & Confidential. © 2012, Everest Global, Inc. 24
  25. 25. Presentation topics 5 common myths Perspectives on of location global location Wrap up and Q&A selection portfolio  Submit any remaining questions Proprietary & Confidential. © 2012, Everest Global, Inc. 25
  26. 26. Best practices for helping your organization dealwith location questionsBe realistic about Although centers can operate at small scale, they tend to be lessscale and ramp-up resilient. Additionally, ramp-up rates differ dramatically by locationrates and need to be understood accordingly Although you will have to make decisions without perfect data, doUse the right data focus on using data which is applicable to the services industry and relevant skill sets (e.g., languages, technologies, domain knowledge) Location selection considerations need to be resilient to macro-Design for the long environment changes and talent/cost sustainability challenges – newterm locations are an investmentPrecisely define Location concentration concerns can’t be meaningfully addressedconcentration without specifics – The city, the country, the region? Concern forconcerns catastrophic or temporarily disruptive events?Solve for “portfolio” View the location portfolio as a strategic lever to balance savingsinstead of “footprint” and mitigate risks in global sourcing programs Proprietary & Confidential. © 2012, Everest Global, Inc. 26
  27. 27. Q&ATo ask a question during the Q&A session Click the question mark (Q&A) button located on right side of your screen – this opens Q&A Be sure to keep the default set to “send to All Panelists” Type your question in the box at the bottom of the Q&A box and click the send button Attendees will receive an email with instructions for downloading today’s presentation For more information on global sourcing, please contact: – Eric Simonson, eric.simonson@everestgrp.com – Amneet Singh, amneet.singh@everestgrp.com – H. Karthik, h.karthik@everestgrp.comStay connectedWebsites Twitter Blogswww.everestgrp.com @EverestGroup www.sherpasinblueshirts.comresearch.everestgrp.com @Everest_Cloud www.gainingaltitudeinthecloud.com Proprietary & Confidential. © 2012, Everest Global, Inc. 27
  28. 28. Related contentRelated Research Market Vista: Q4 2011 Market Vista: 2011 in Review Perspectives on Tier II/III Cities of the United States as Locations for IT Services Delivery Cost Competitiveness of Global In-house Centers (GICs) Complimentary Achieving Next Generation Excellence in the Captive Model Global Locations Compass – Philippines Global Offshore Captive Landscape and Trends: Focus Geography – Philippines Global Locations Compass – China Global Offshore Captive Landscape and Trends: Focus Geography – ChinaUpcoming Webinar Market Vista Q1 2012 | Register – Tuesday, May 16, 2012 | 9 a.m. CDT Proprietary & Confidential. © 2012, Everest Global, Inc. 28
  29. 29. Everest GroupLeading clients from insight to actionEverest Group locations Dallas (Headquarters): info@everestgrp.com +1-214-451-3000 New York: info@everestgrp.com +1-646-805-4000 Toronto: canada@everestgrp.com +1-416-865-2033 London: unitedkingdom@everestgrp.com +44-207-887-1483 Delhi: india@everestgrp.com +91-124-496-1000 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2012, Everest Global, Inc. 29
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