Panchatantra - 5 keys to Offshoring success

20 years and thousands of outsourcing engagements into it, one would think that Cos would have lesser struggles when starting a new outsourcing engagement. It surprises that even today many Cos that are embarking on new outsourcing programs still struggle with some of the basics in those critical first 6-12 months. It's certainly not due to lack of experience but a certain sense of resignation/complacency or bravado that prevents someone from learning and drawing from the experience of the many that have tread the same path before. It's easy for people to get carried away or distracted by the fanciness of the outsourcing terms, but one cannot ignore the moorings. Get the basics right and then you can shoot for glory. This article aims to shear through the complexities and keep it to a set of simple and succinct keys to the success of an outsourcing engagement from a CIO's perspective.

Here are 5 keys to success in outsourcing/offshoring - proven tips that are universally applicable to most outsourcing engagements:

1. Accountability - Be willing to relinquish control , trust and delegate responsibility to vendor but know that you're as accountable for the final quality of services as the vendor.
- Clients should be willing to 'let go' and put the onus on the vendor to deliver.
- Know that the IT leads are finally accountable for the services to the IT customers puts emphasis on trusting and delegating but staying engaged enough to stay on top of the situation.
- Don't micro-manage. You don't want to pay the premium for a top-tier vendor and treat them like a tier-3 staffing group. Not good for your goals, not good for the motivation of your suppliers. Motivate them to take ownership and be a solution provider than a transactional service provider

How does one achieve this level of alignment between customer and vendor? How can a client lead effectively manage the quality without getting into the trenches? How does one strike the balance? All these are questions that will translate into the other following best practices.

2. Process over People

The key is for the customer to be managing their partners to the input and output
- Robust processes provide the ability to independently verify and monitor
-There is a propensity to attribute all issues and success to 'people'. People come and go but processes live and deliver.
- When people leave, you lose tribal knowledge and special capabilities. That's where processes come in. They give you predictability and repeatability and make the operations people independent (to the extent possible)
- The strength of the processes is a true measure of the risk management in the engagement.

3. Tool based process and reporting

Having a good process is one thing. Having reliable data and reporting is another. The reliability and verifiability of reporting is a common problem clients encounter. How many times have you spent a status meeting debating about the status of the project or the accuracy of the service levels.

- Reporting needs to be objective. Have a single source of data- traceable, centralized, and transparent
- The reports need to be generated from 'actual data' that flows through processes and tools that ensure the accuracy of the data . Anytime anyone needs to monitor the health of a process or system, one needs to be able to access an objective and transparent report from a reliable tool that manages that process
- If there are contentions with the data, one should be able to audit and trace the data easily

Data and metrics should aid conflict resolution not become a bone of contention. The best way to achieve this is through strong processes and integrated tools.

4. Knowledge Management

In a market where loyalty lasts as long as a hotdog on the Pink's stands, prepare for unplanned people movement. The best time to prepare for rainy days is when the sun is out, but it's never too late to patch the roof.
- Having a centralized engagement portal with a knowledge repository is a worthy investment
- Make it a way of life for people to keep documentation up-to-date and save it centrally
- Host forums for cross-functional knowledge sharing between different groups

Something about the human brain relishes SILOes. Let's break it shall we...

5. Partner not Vendor
Finally, we expect the vendors to take accountability, invest in the relationship, go the extra mile when we need them to and basically act as partners. The question is do we treat them as one?
It's very common to see the us vs them attitude on both sides at the start of the engagement. It's the prerogative of the leadership to nip it in the bud and set a culture by which both the customer and vendor are aligned to the same goals and one cannot be successful at the expense of the other.

Each of these topics can and has spawned off many books dedicated to them, so there's no dearth of recommendations and best practices there. As I mentioned at the beginning of this article, it just boils down to reminding and re-assessing ourselves on the basics and keep it simple.

IT Outsourcing - The Changing Landscape

'A new generation of outsourcing..., a new wave of aspirants, challengers and leaders..., a new slew of fancy arbitrage terms...., a new set of pins in the map of the supercomputing world..., a new swarm of hamsters at the wheel ...and the old cynics clutching onto the straws of faded myths'.
Outsourcing is no longer a trend - it's a way of life, never to turn back. 3 years and a few million copies since Thomas Friedman immortalized the words of a pioneering Indian IT stalwart, the lightbulb moments continue to shine impressively in boardrooms around the world. Three years are eons in the IT timescale!!!

This series of blogs will focus on the changing landscape in IT Outsourcing, what it means to the established and emerging players in the Buy and Sell side and set the stage for a discussion on what’s the next frontier in IT Outsourcing. This article has been focused on the top trends that have been under the radar in the public dialogue on IT Outsourcing but are going to have a definitive and profound impact in shaping the discussion on what’s the next frontier in IT Outsourcing.

Without more ado, let’s look at the winds of change that are sweeping through the IT Outsourcing landscape:

1. “Less is more” - Shrinking deal sizes and higher number of deals
Overall the Total TCV of Outsourcing deals is increasing but Average TCV/deal is decreasing. ie. more number of deals and decreasing deal sizes. The biggest impact is in the $25-50Mn range of deal sizes and the deal durations are also becoming significantly shorter

- What does it do the Big 5 (Global and Offshore)?
The Big 5 (Global and Offshore) providers are now primarily focused on the mega deals (average TCV >$150-300Mn) to sustain their aggressive growth rates. They’re still adjusting to the new reality but their current reaction is to focus on the mega deals, penetrate new markets, go up the value chain and make forays into new/expanded/value-added service models

- What does it do the clients and emerging players?
Clients planning a new deal under $50Mn TCV are faced with the prospect of choosing between settling for a Tier A provider as a Class B client or going for an emerging Tier B vendor as a Class A client. This has certainly thrown the market wide open for the emerging service providers (predominantly offshore and local EMEA providers) but are they going to be able to move fast enough to fill in the gap left by the Big 5? Is it happening? Let’s see…

2. “Big Fish in a Small Pond or Small Fish in a Big Pond” dilemma -

The marketplace is opening up in the $25-50Mn TCV range but the emerging service providers aren’t scaling fast enough. The number of service providers who have won deal sizes >$25Mn TCV is increasing but at a much lesser rate than at which the Big 5 are moving into the mega deal space. The biggest gainers are the emerging offshore service providers but they also constitute the segment with most under-utilized opportunity. This leaves a state of flux where new/renewing clients in this space have to grapple with the “big fish in a small pond or small fish in a big pond” dilemma

The landscape is more promising in the mega deal space where the clients have the luxury of expanded menu and riches to choose from. While the Big 5 Global IT Services firms still rule the mega deals space, the monopoly has been broken by the Tier 1 Offshore Services firms. TCS, Wipro and Infosys have certainly and Cognizant to a smaller extent entered this space and started to make their mark. As the line blurs and competition intensifies in this space, the biggest winners are guess who..the clients!!!

3. “Europe is the new America”!!!
The growth of the EMEA outsourcing market has been nothing but spectacular!!! For the first time the EMEA market is set to beat the American market in the total TCV of outsourcing deals and the number of deals > $25Mn. This is great news for the Big 5 global firms who have established presence in Europe and a new promised land that the Big 5 Offshore firms are already focusing their energies that will help offset the effects of the fragmented US market. Expect to see a rapid consolidation and acquisitions– the writing is on the wall starting with Cognizant’s acquisition of T-Systems

This is starting as a sidenote but don’t be surprised if you see the Indian Outsourcing market explode within the next 3 years. The signs are already there – Outsourcing TCVs registered the biggest YoY growth last year and the trend continues in 2008. As the economic pressures in the US continue with a furthering sense of foreboding, all of a sudden the Indian market isn’t too bad a prospect for the local giants who have upto now been pre-occupied on their “off-shore clients” :)

4. “A la Carte”!!!
Gone are the days of single vendor, full-service deals. Companies are increasingly and consciously moving towards multi-vendor, separated ITO and ADM deals. This has been another contributing factor to the reduction of deal size and increase in number of deals. Specialization is the catch phrase. With the ADM market getting saturated, the Offshore firms are making a concerted charge at the ITO market. With HP’s acquisition of EDS, prepare to the see clash of the titans (IBM and HP). All eyes on ITO. The battle in this space will define the next 2 years and deserving of a place in the pay-per-view of IT Outsourcing
While all this is going on in ADM and ITO, BPO has seen a silent resurgence in the last year and has moved further towards vertically aligned BPO services. As for F&A Outsourcing, Accenture and Infosys continue to duke it out. Overall, the maturity of the outsourcing space is in full bloom.

5. “Gooooooaaaaalll”!!! – Welcome Latin America
India still rules the roost and has established itself as the premier IT Outsourcing destination. The war on talent, pressures on the infrastructure and just the pure economics have forced the Indian Offshore giants to actively consider alternate offshore destinations. China, Phillipines, Argentina, Mexico and Czech Republic round up the top 5 in the shortlist. While Phillipines and Czech Republic are still attractive for the cultural fit and local talent pool respectively, they’d struggle to meet the demands on scale. China will continue to grow as an outsourcing player but nowhere close to its true potential. Right now, the spotlight’s on Latin America

Consider this – near shore to US, near India rates, untapped talent pool - all of which makes it an easy and less daunting transition for new entrants in the offshoring space. Overall the stars seem to be aligned perfectly for Latin America to emerge as a leading outsourcing destination
Buenos Aires and Mexico City have already cornered attention and investments from the leading India based Offshore players who have perfected the practice of seeding new centers with proven talent from India and fostering the local talent to leverage scale the operations. Early days yet, but pregnant with promise. Can the soccer friendly continent deliver??

We might have touched the tip of the iceberg on Outsourcing but you can look out for the above 5 factors to play a dominant role in shaping the future of IT Outsourcing.

-Ram Ramanathan
On the Ram-page