Category Archives: Outsourcing

3 Reasons to Stay Connected With Your IT Service Provider Teams

Partnership

There are several examples of torn and tarnished relationships between enterprises and service providers in the world of outsourcing. While the best relationships are often touted in shiny case studies and presented in customer forums, there are lessons to be learnt from those that are not showcased but bring as much if not more value in sharing what works best and what does not, in service provider relationship management.

Many enterprises assume that once a service provider has been chosen and entrusted the task of running parts of their IT department, they can leave the provider to deliver the expected outcomes and not worry about being continuously engaged with them. However, in most cases this can result in some disastrous results with the fact being known too late in the game. It is important for enterprises to stay engaged with their service providers and in fact possibly more than they would with their own in-house IT teams to ensure the expected results are delivered for business. Here are the top three reasons from my  conversations with CIOs and service leaders with provider firms:

  1. Business context is prime : Whatever be the nature of work that you have outsourced to a provider, it cannot be stressed enough that it needs to be aware of the business context of your organization and to provide the IT services wrapper around it. Not having the right business context can lead service providers to make costly assumptions which would be difficult to correct at later stages. By being in touch with your service provider teams in regular conversations and performance reviews, you share the insights and business dynamics that may seem commonplace to you but may in fact not be known to the providers at all.
  2. Out of sight, is out of mind : Not being in touch often leads to the out of sight, out of mind syndrome. That change in policy, that new architecture plan and so much more come the way of a CIO and her team and if they are in touch with the service providers’ teams, they will remember to share them or understand when these are required in due course of their interactions. I remember an incident where an offshore service provider team worked over weeks and months to analyze and correct Top 10 “noisy servers” in their client’s environment, only to be informed later that those Top 10 servers that were noisy and often behaving erratically were in fact test servers being put through erratic load for test purposes!! If only the client team was aware of this initiative in advance and had provided their inputs, the teams would have been better placed to leverage their efforts in the  right direction.
  3. Expectations and Requirements Continuously Evolve : In contracts that run over months and years, the initial set of requirement often evolves as business and IT teams address changing market scenarios and company priorities. A continuous dialog helps ensure that these changes and mid-course corrections are effectively communicated and understood by the service provider teams.

The above issues are further magnified with offshore service provider teams where they are few thousands of miles further away from the client locations, across a cultural barrier.

Catacient’s Outsourcing Delivery Assurance service enables enterprises to actively engage with their IT service providers. With its local presence in India, enterprises can have their own on-demand vendor management office in India which can work closely with offshore based provider teams as well. Catacient’s governance framework and focus on delivery management helps ensure service provider teams keep the enterprises high on their priority list too.

Reach out to us (ashutosh@catacient.com) to know more on how this could work for your company (or clients if you are an advisory firm). We could also work out an initial one week no-obligation engagement for you to see the value this service brings.

Increasing Automation and Impact on IT Service Providers

While there is a lot of buzz around automating some of the services at the bottom of the IT services pyramid, on the ground these are visible at varying levels across service providers. However, clearly this is a way offshore based service providers are working to bring greater cost efficiencies (to reduce the impact of declining labor arbitrage), improve revenue per employee and breakout of the linear but unsustainable growth model which requires adding more people to increase revenue. The examples here may be exaggerated but are signs of the times to come for the nature of employment opportunities at offshore based IT service providers.

Read this related article here.

A Case Study: Lessons from a F1000, First Generation Offshorer

If you look at some of the statistics reported across studies, of corporations which outsource IT services with an offshore play (either through captives or through outsourced service providers), only about 50% report meeting some of their business objectives. Why does this happen? By now everyone has heard of the cultural gaps, rising wages, high attrition and communication challenges among some of the top issues with offshore teams. Why then has this not improved the collective knowledge of the industry to help improve the success rates of offshoring IT services?
Few reasons:
1. Different Experiences: The experiences are not the same for every company and hence the standardization requires a larger collection of experiences which takes time and results in different slices of wisdom drawn. The issues themselves are almost always drawn from a given set of challenges but each enterprise sees a different permutation of these with varied degree of impact to business due to the nature of their contract, business spread, scale etc. Some issues are real but are muted in impact in each instance and hence talking to a small set does not help build a solid base of “known issues”.
2. Time to Mature: The risk profiling for offshored services are converging but will take some time before being consistent enough to reckon and be available to increase the success rates for offshoring substantially.
3.   Moving Target: The socio-economic structure at offshore locations like India are changing so rapidly with several forces and counter-forces which makes it truly a moving target and hence difficult to sum up.
In the last few years I have closely seen over 100 clients in various stages of engagement with different service providers leveraging offshore and discussed several more through peer conversations and industry connects. I will pick one example, which provides deep insights into some key operational issues that are most often missed by enterprises who are early offshorers.
Context: This client was a F1000 global enterprise, a first time offshorer and had brought in two new offshore based service providers (one for app services and the other for infra services) through concurrent RFPs. Early from the transition stage they starting doubting the wisdom to go with providers who had come on-board promising at least 50% cost reduction along with 30% more service scope than the outgoing onshore based provider. They came close to cancelling the contract with the infrastructure services provider but realized that these decisions cannot be changed so fast without imminent impact to business. After a very turbulent three quarter period when the dust settled, a joint team sat down to list the following key lessons:
1. Retained Org Structure: The retained organization structure and composition needs a very close review when you bring on any new provider (not just offshore based providers). In this case, this was not done and the retained organization was trying to engage with the new offshore provider (who also had an onshore team but a lean one) in the same way as they worked with the earlier onshore based provider. The retained team was not sensitized to expect and adjust to the new model. Also since this was the first time they had moved offshore they had not properly planned the transition of folks whose roles had moved to offshore. Result was an avoidable ambient noise which was addressed in due course.
2. Governance and Engagement:  Most offshore based teams are happy to be led than lead. First time offshorer clients are not used to provider teams which are willing to be directed thus. It happened in this case too. Hence the client thought it was a great opportunity to set up the governance and engagement process, much in line with what they had earlier. They kept the same governance process and meeting logistics as they did with the previous onshore based service provider. This was devastating as the offshore teams were new, remote and culturally different in their business communication. The governance process which was used with the previous onshore provider was one which had stabilized after 15 years of partnership and this was not factored and resulted several frustrating meetings including few at the exec level.
3. Take Business into Confidence Early: In this case, business was not prepared for a longer and bumpier transition and hence very soon the CIO found that while his shop was amidst a very difficult transition, the effects on business had been grossly underestimated in terms of depth, of impact and duration. Business teams were expecting a small blip due to the transition before services were fully restored. This led to the IT teams being under pressure.
4. Go beyond believing slide-ware and reference calls: In hindsight, for the enterprise, they had not done enough due diligence in validating the competence and experience of the service provider. During the RFP process, the responses and the presentations can be shiny but some of the realities like past experience were not fully mapped. They did go through a detailed RFP process and reference calls but the latter were done with clients who had experience with the provider on a different scope which was largely T&M and this was missed in their assessment. Most offshore based providers are keen to be on negotiation tables that were off bounds not too long back. In their eagerness to pick new business their approach is often to pick the business and then figure out how to deliver the commitments. This happened in this case too.
5. Key Personnel: A large part of the issues were due to the incompetence of some of the delivery leaders who were initially brought on.  Many had not worked on such scale of infrastructure earlier and others were new to the service provider’s company and hence not so well connected internally be able to able to get the required help during crisis. The team that initially came worked hard to the point of being burnt out but did not match to the requirements of the program. An initial assessment of the key personnel before finalizing the contract (including a chat with the key folks) would have saved much of the grief and agony that followed.

Service Provider Dynamics in Executing Offshore Leveraged IT Outsourcing Contracts

With some of the recent trends in contracting models, most service providers (and many reluctantly) have moved towards fixed price contracts. For several years most offshore based outsourcing IT service providers worked on time and material (T&M) contracts. This was lucrative and did not require too much of maths — the key was to tap into the huge labor arbitrage opportunity. However with time and increasing competition the contracts have now moved to largely fixed price contracts where the service provider signs up to manage some of the operational risks which otherwise expose the enterprises in a traditional T&M model.

With all this, what are the key operational issues and dynamics that the leadership team at offshore based IT service organizations looking at when executing contracts (excludes business acquisition)?

1. People, People, People! : Having the right skilled people at the right time.  Most providers have a large staff base pyramid but find that each engagement needs to have some rock stars to manage the clutter and run the operations with low skilled staff base. These rock stars are in short supply and are rapidly thrown at the next big engagement that comes in. The new or the squeakier wheels/clients get these rock stars. These are people who understand technology but more important are articulate and “get it” when talking to clients or their onshore colleagues which happens more often.

The other challenge is to handle sudden exit of key staff which can affect quality of service in the absence of good knowledge management practices.

2.  Managing Staff Aspirations: Linked to the people problem is the associated focus of retaining existing staff. Most individuals would like to rapidly move on to ‘management’ cadre in an organization. This means staying technical and finding a future as a senior technical resource is not on the list of most folks. Part of this has been due to the way these organizations used management roles as carrots and part of it is to do with the colonial hangover where having more people reporting to a person is seen as a sign of authority and growth.

3. Onsite- offshore Dynamics : In all offshore leveraged teams, there is a big internal thing that always goes on between the onsite and offshore staff servicing a client. There are several factors at play but in summary the onshore colleagues always have the upper hand in most discussions since they can use the ultimate trump card of “client has asked for this” or “this is important to keep the client happy”. The offshore leadership team is always embattled in managing the team members, staffing issues, pushing back on what cannot be done in the given time/cost etc. In companies which are offshore headquartered in India ( India based IT service providers) the core leadership is out of India though and so the offshore leaders in an account are often closer to the business leaders and more aligned to them. This can be frustrating for the onsite team in such cases especially if they have not previously worked at offshore locations and hence do not have connects with top management at offshore.

The case of service providers which are headquartered in the US or Europe but have large offshore/India presence is queer though. The dynamics there plays out similarly but here the onshore client facing teams almost always call the shots as they are with the client and the company leadership is also based out of their home location.

Other major point of contention is that face/voice time with clients is mostly with and guarded by the onshore teams. Hence the clients are mostly seeing and hearing the onshore staff who then come back and relay the client’s expectations to their offshore colleagues.  The offshore colleagues most often feel that the client could be handled differently but are not left too many choices. Geographic advantage is always with the onshore staff and the client is often oblivious to the underlying dynamics where there are really two organizations at play.

4. Cost Reduction : In both cases, the offshore based teams are tasked with managing cost and reducing it year-on-year. This comes often at the cost of bloated estimates for earlier years of the contract in a multi-year contract, staff reduction causing service quality issues or some truly innovative work in service improvements or development efforts as the case may be. This really is where clients look at fixed price contract to drive such cost efficiency. Knowing this and engaging with the service provider can help enterprises reap benefits of not just reduced cost but better service quality.

5. Recurring Issues: Ask any offshore based manager and they will tell you that they are spending at least 40% of their time firefighting and responding to escalations,  causes of which are 95% of the times the same. There is so much of thematic recurrence but surprisingly these just don’t stop. And the reason : there is not much done in any of these companies to address recurring issues. Of course when there are big fiascoes with huge penalties paid ( like a Unix admin bought  the SAP environment of a F500 client down when testing some script!!!) there is a lot of work done to how this does not happen again but over time the next big issue takes over and the rules/processes made are no longer enforced and checked to maintain compliance. Also due to staff movement laterally, upwardly or externally there is constant churn of people at all levels and so the new set of people would have not lived the big fiasco to understand the gravity of the changes that were brought on. And so life continues as there are so many clients and so much work that eventually many people get thick skinned to some of these.

6. Service Differentiators : Structurally most offshore service organizations were built around the labor arbitrage which scuttled any focus on innovation and differentiators. Money was cheap and opportunities in bundles. Now as service providers seek competitive differentiators in execution they find that this has not been part of their DNA and the going is challenging from having the right people to think on these to having the teams embrace such changes. There are some very serious attempts in the space of automation and improvement in operating models but the hangover of a labor arbitrage regime continues to slow the progress.

7. Delivery Models : Really looking at what would be the best delivery model in terms of quality of service if the cost and long term strategy is not compromised or better still is baked into it. Most companies can play between onshore (more expensive) to a multitude of offshore based locations. Even within India there are several centers to decide from. Aside of locations, the model of delivery — largely dedicated vs largely shared is a key element that all service providers work through. These may not always be clearly mentioned as both sides may make assumptions but this is one big element which affects service pricing, quality, sustenance and really overall alignment of service teams to client’s business.

 

Europe Opening to Offshoring of IT Services

There is an increasing buzz about outsourcing in Europe picking up in the recent months. For several years most of the offshore based service providers have focused on the North American continent for business. Over the years many also found themselves too dependent on the economy in the US and limited geo-politically. Some companies drove a mandate to spread their eggs across new baskets in Europe.

Europe is outsourcing and offshoring like never before. And increasingly, the beneficiaries are India based IT companies, unlike earlier when the preference was for Europe-based ones. Competitive pressures and cost pressures look to be forcing a change in the continent, which often in the past has been referred to as Fortress Europe for its inward looking policies. 

Many service providers were not looking at Europe as a target market with the same zeal as the US because:

1. With the exception of UK, the policies in most countries in mainland Europe and the general business preference was to be outsource to local players

2, In general outsourcing was not big and so offshoring as a next step was even further away from the agenda. Businesses still preferred local support staff even if it cost more money.

3. It has traditionally been difficult to run outsourcing mandates within European companies (like those in the US) due to their different labor laws which required much more business planning when work is displaced from existing European workers to other countries. The obligations on part of enterprises is much more than that in the US and this continues to be a key obligation for businesses.

4. The region is split (unlike US) into multiple operating units for many businesses and so it has never been a single entity as compared to US which is mostly a single business/country entity for most companies. This was an issue esp with companies with European headquarters

5. For some of the touch services and service desk services, the multiplicty of language that was to be supported outside of English made it difficult to have a set up with the same critical mass as was done with the English across the North American continent.

6. Data Protection Laws being different and in some cases more stringent in Europe/EU with restrictions on nature of work that could be done outside of the continent.

7. Strong local players from the continent and other global players stepped in the recent years with a near-shore centric model which was like a good middle path for most of the challenges. The cost efficiency was not as much as that from an offshore location in India but it provided cost reductions with good skills and language support from locations in East Europe.

Times have changed and with the new focus and in many cases with the leadership for many service providers in Europe coming in form of more aggressive leaders, they are gradually getting to decipher the local nuances and identifying regions and verticals to establish base and spread. Also since cost of operations are generally higher in Europe than in the US, the offshoring business case for the CFO is more alluring and they are looking at finding ways to enable these.

Interesting times ahead for both enterprises and service providers as Europe lowers its fortress walls.

 

Managing Remotely Delivered IT Services

As outsourcing has grown, so have the models of engagement and service delivery. In their attempts to be more competitive, cost effective and with the advent of new players, most mid/large IT services contract have some remote IT services play. The “remoteness” has also morphed from being ‘somewhere in the country’ to being few thousands of miles across the globe. Most service providers today have offshore service delivery factories which provide cheaper labor and in some cases more skilled ones. While enterprise clients are glad to see the same work being contracted for less (or more work being done for the same cost), reality strikes soon as the full implications of an offshored service model plays out.

This is not to underestimate their preparedness of most CIOs and IT Directors. Of course they knew that they need to expect differently but reality dawns on the first and second generation offshorers pretty sharply. Collaborating with teams which have a different cultural background is a totally different experience beyond the language and accent issues. In most cases there is a local onsite team which works with the client but in the first few months it becomes clear that there is an internal divide that exists between the teams at onsite and offshore within the service providers’ organizations. Further, when connecting with the offshore based teams, the whole approach to work seems different if not alien. Also, there are fewer opportunities to work with the leadership team at offshore as most of them do not work post local business hours, which is really prime business hours for most clients in the US. European clients do find some overlaps in time zone but the model at offshore is largely built on a pyramid of low cost labor almost like a factory against the boutique experiences of a dedicated balanced team.

Business colleagues of CIOs are not getting any lenient in their ever growing expectations from IT. This makes the job of CIOs, IT Directors and their team challenging in managing the fine balance of high expectations and a different service model. Frustrations early or during a contract cannot always be met with a plan to change the service provider. In making it work, need for specialized skills and deeper understanding of the local nuances of the offshore teams are key for a stronger partnership with IT service providers.