Companies seeking to reduce time to market while improving application quality, today usually choose between assigning application development projects to either in-house teams or outsourced system integrators (SI). However, the cost arbitrage of Global In-House Centers (GIC), better known in the industry as “Captives,” continues to provide advantages in cost competitiveness that cannot be overlooked.
In a recent study conducted by the Everett Group on the cost competitiveness of GICs, the consulting firm found that, “Savings typically vary between 30 to 70 percent, across most locations and functions.” The study also showed that while India has historically been seen as providing the most sustainable total cost of ownership (TCO) for captives, several other locations – Philippines, China, Mexico and Poland – offer similar TCO sustainability.
But there is more to consider with captives than TCO. The decision of whether to invest in captives as strategic partners also depends upon the assurance of captives performing and delivering software on par with an outsourced SI – on budget and on time. Just as organizations employ SLAs (service level agreements) to set expectations and manage their relationships with SIs, so too should companies manage their relationships with captives in a similar fashion.
Below are five tips to best manage the “Parent-Captive” relationship and ensure that captives perform on a similar level as SIs and optimize their cost-effectiveness:
- Communication: Lines of communication must be well established between the Parent and the Captive team; all goals, deadlines and expectations must be spelled out succinctly and reporting methods should be tailored to meet the company’s requirements at all stages of the process. The enhanced communication serves also serves as ongoing education and should include reviews of the industry’s best and worse practices per technology, framework and project type, as well as knowledge-sharing on how to capitalize on those best practices in line with industrialization.
- Establish Metrics and Measure Performance: While a primary driver for shifting development work to Captives is to drive down maintenance costs and improve time to market, it’s equally important to focus on reducing the risk of business disruption. A governance process that includes software risk measures is the key to reducing business disruption risk. Organizations should employ the same metrics with Captives as they would with a Systems Integrator (SI). Supplementing traditional process measures with non-functional and structural quality metrics then creates a root cause understanding of technical risks, system complexity, how they impact the ability to service customers, the potential impact to the Captive team’s agility and its ability to deliver new features on time.
- Process Transparency: Visibility will serve as a risk-based map for the Captives to adjust their management and resourcing as they on-board systems. An effective assessment should analyze the health, structural quality, complexity, maintainability and technical and functional size of the system, while also exposing areas of concern, including areas of excessive complexity, high risk and lack of adherence to architectural, coding, security and documentation standards. Creating this kind of visibility can be as simple as employing a software quality assessment platform, such as CAST Application Intelligence Platform, that details the systems attributes and hotspots.
- Drive Improvements: Increased visibility into application quality vulnerabilities can be parlayed into drastic improvements, while creating a technical baseline to be used for comparison in future projects delivered by the Captive team and drive continuous improvements. Recently, a global financial service institution deployed CAST’s software quality analysis and measurement platform as part of an ADM initiative across 20 teams with the aim of reducing system outages, costs and production incidents due to change requests. The client established that the visibility created by software analysis improved overall quality of output over time and identified 30% of application quality issues that lead to production issues. This visibility into ADM output led to a reduction in cost to remediate defects in QA and production of over $500,000 annually.
- Optimize Use: The appeal of owning Captives/GICs continues to be strong due to organizations’ persistent worries about controlling intellectual property and security concerns over outsourcing IT to third parties. These coupled with the desire to build and foster domain knowledge globally and the potential value of standardized ADM ups the stakes in finding ways to establish and optimize Captives.
When managed properly, Captives provide organizations with effective, cost-efficient and secure assets for global ADM, and enable them to reap the benefits of outsourcing projects to the best talent, while keeping the costs at an “in-house” level.
Erik Oltmans, an Associate Partner from EY, Netherlands, spoke at the Software Intelligence Forum on how the consulting behemoth uses Software Intelligence in its Transaction Advisory services.
Erik describes the changing landscape of M & A. Besides the financial and commercial aspects, PE firms now equally value technical assessments, especially for targets with significant software assets. He goes on to detail how CAST Highlight makes these assessments possible with limited access to the targetâ€™s systems, customized quality metrics, and liability implications of open source components - all three that are critical for an M&A due diligence.