Everyone knows that offshoring is viable. But there's no consensus on how best to take a business process out of country.

One of the questions my colleagues and I frequently encounter is: Are more companies offshoring to a company-controlled unit or outsourcing entirely to a third-party provider?

My colleague Alan Hanson, a leader in our financial services practice, reveals what he's learned from the past several years of research on this front: When all is said and done, companies these days seem to prefer operating their own captive centers offshore. (You can read Alan's analysis of Citigroup Inc.'s rumored sale of its Indian BPO center at: http://www.tpi.net/pdf/pointofview.)

Why?

The pat answer is that companies build captive operations to harvest the low-hanging fruit of easy cost savings, then later move to outsourcing once the new operations are stable.

My own discussions with clients make clear that things are a little more complex than the pat answer would have you believe. Several clients — including some that operate both captive and outsourced offshore operations — observe that many corporate managers don't get how to offshore effectively. Whether using captives or outsourcing, these managers focus entirely on how many people it takes to get the job done rather than on how well the services are being performed.

What this says — and I'm hearing this more and more — is that clients are part of the hold-up in getting the outsourcing industry to move beyond labor-oriented models. And it's not just a matter of the provider community "selling bodies" but also client managers who focus on headcount and up-front costs rather than outcomes.

If clients are looking to buy bodies, it really doesn't matter whether their path is through a captive operation or outsourcing. The challenges remain attracting, training, and retaining talent. If the client has the wherewithal to manage the human capital dimension itself — and the mettle to transition the work — captive approaches likely will remain prominent.

If the provider community wants to change the game, it'll need to do a better job of showing prospects how they can get better results from an outcome-oriented solution. — Peter Allen

Peter Allen is a partner and managing director for market development with the sourcing advisory firm Technology Partners International. You can reach him at peter.allen@tpi.net.

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