Captive outsourcing is mature enough that you can begin moving over some core competitive development capabilities and some mission-critical development work to a captive facility. And I believe that in the long run it can and will be more cost-effective -- assuming you have the right critical mass. But there's a much longer horizon for payback. Captive facilities take longer to set up and generate more up-front costs over your traditional outsourcing companies, which are mature enough now that you can look at providers as though they were a vendor and manage them by their service-level agreements. Ira Lehrman is CTO for Global Investment Banking and Investor Client Technology at Merrill Lynch, where he oversees technology for global investment banking and global institutional sales across all debt and equity product lines.
Question: What are the risks and challenges of building and maintaining a captive application-development facility in the contemporary outsourcing environment?
More time, attention and commitment are required by the senior management and project managers who focus on building the captive facility, which removes them from current work and deliverables. Knowledge transfer is more time-consuming and more difficult because the whole concept of the captive workers is that they're an extension of your own employees -- no different than the employees in your London office, for example.
Another major issue is staff retention. Depending on where you're building the captive facility, you could be competing with some other highly successful and mature outsourcing companies. You're going to have to compete for talent, so you'll really need an effective HR machine on the ground at the captive facility. This is why many captives are now opening in geographies other than India, including China, Singapore, Russia and Eastern Europe.
Some keys to success within the current captive outsourcing environment are critical mass, offshore brand recognition, the supply and demand ration of the skills you require within your region, your perceived commitment to the country to which you're offshoring, and flexibility in compensation packages and perks.
Ultimately, it's imperative that you not underestimate the commitment required to succeed in establishing a captive outsourcing facility. --Ira LehrmanIra is presently a Senior Vice President at Athene USA, and head of technology for Athene Asset Management, L.P. His responsibilities include information technology, application development and delivery - systems integration and architecture across the asset management ... View Full Bio