September 28, 2015
When you’ve made the decision to implement a virtual captive, the set-up requires far more involvement than with a traditional outsourcing partner. In outsourcing, the CIO or VP of Engineering is expected to define the requirements, but after that, the accountability falls fully on the shoulders of the provider. This is not the case in a virtual captive, where there are shared risks and shared accountability for outcomes.

Here are four key pieces of the puzzle when setting up a virtual captive offshore organization.

Key Client Parties During Set-up

  1. Senior Management: This group may include a member of the executive team and representatives from legal, finance and compliance, who oversee the overall strategy, cost management, contracts and operating procedures.
  2. Engineering: Typically the head of development and head of quality assurance are responsible for defining the product roadmap, conveying market positioning and deciding upon key features as the project evolves.
  3. IT: One or two individuals who oversee security and infrastructure decisions.
  4. Human Resources: A senior manager helps with establishing standards and procedures for hiring and training.

Communications

Once roles are defined, the customer organization should engage in in-depth planning sessions with the virtual captive provider. These sessions cover processes, rules and expectations. It’s not uncommon for senior leadership from the customer organization to visit the new offshore office twice annually, with quarterly visits from mid-level management. It’s important to communicate to the rest of the client organization that the virtual captive is an extension of operations in a global location—it’s not a typical “project” outsourcing.

Since transfer of ownership is a typical outcome of virtual captive, viewing and treating the new operation as an owned asset from the start is to the customer’s advantage. Therefore, when ownership transfer occurs, the process will be seamless and with minimal disruptions to productivity and product delivery.

Risk Sharing

The level of control assigned to the customer depends entirely on the organization’s goals and preferences. At a minimum, however, the customer should control the product roadmap and program management. Most companies also will want some level of human resources involvement in hiring and training. Occasionally, the client will request maximum control—having key decision-making responsibility in every level of operations including management, performance reviews and discrete infrastructure decisions.

It’s important to consider carefully the benefits of exerting maximum control over the virtual captive organization.

  • The more control exercised by the customer, the more time, resources and responsibility the client organization must give and undertake.
  • A company with highly defined processes and knowledge in product engineering and operations is looking for the primary benefit of scale from the virtual captive—more control is beneficial.
  • Another organization may have a well-defined roadmap and a strong product management function but lacks key technical skills and experience for the project. In that case, the company would give up more control around day-to-day operations and technical decisions to the provider.
  • Regardless of the structure, the company and its virtual captive partner should be on the same page from day one concerning roles and responsibilities.

Human Resources

People are the success or failure of any virtual captive, which is why companies often rely upon the expertise of the virtual captive in navigating the local hiring market. Often, a company will participate in some interviewing, particularly for the core group of product managers and engineering leads. When possible, it can be optimal to reallocate a senior-level member of the home-office engineering team to the new offshore operation. Regardless of the level of involvement in HR decisions, it’s critical to instill the same career path opportunities and incentives at the virtual captive as are in place of the customer organization.

It’s also imperative to ensure engagement from the corporate office with the virtual captive staff, particularly in the area of onboarding the new offshore team to corporate processes and providing ongoing support. Ensure a shared understanding of operational practices and goals from the beginning, otherwise, you may end up with issues around compliance, product quality and attrition.

Read more about on this topic in our white paper on the virtual captive offshoring model.

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