There has been continuing debate, increasing of late, about where the IT Services industry is headed, and more importantly, what is the future of offshoring and global sourcing? An esteemed ex-colleague and a good friend of mine recently posted his views on the subject.
Because most of the IT Global Sourcing is concentrated in India, developments affecting Indian economy do end up playing a significant role in the evolution of the IT Services industry. In my opinion, there are broader, in fact even structural factors at play that the industry is marching to the tune of and will ultimately decide the fate of what we call as IT Services today. Some of these will support increased global sourcing, and some may dampen it overall. I will touch upon a few of them here in this post:
1. Structural changes within major IT Services providers
EDS recently announced that it is paring down its US workforce by as much as 12,000 employees within the next quarter to rebalance its global footprint and in all probability increase its presence in India primarily. IBM’s Indian workforce has more than doubled in two years, to 53,000 – about 15% of its worldwide total. Accenture’s India story is well-known too.
What is happening in IT Services space is not new – the script is almost unchanged, except for names and locations, from what transpired in the Automotive manufacturing and then in the Consumer Electronics industries. Most of the production and parts manufacture is now done in locations that are considered remote from the end-market or even where the Auto companies are headquartered. What is new of course is that the IT Services market is now maturing and beginning to take on the modular characteristics of some of its predecessors. EDS, IBM and Accenture are beginning to adopt strategies and structures to fend off the ‘emerging’ competitors like Infosys, Wipro and TCS, just like GM, Ford and Chrysler tried to, in a different era, against the Toyotas and the Hondas!
Strike One in favor of IT Global Sourcing!
2. Educational requirements for performing IT Services jobs
How many of IT jobs in the US, esp those being done in-house by companies, and even many of those being performed by the traditional IT majors, are done by engineering graduates? Empirical and anecdotal evidence based on what I come across in outsourcing deals tells me the percentage is much lower than 50%, maybe even closer to 25% (will appreciate if someone can point me to some authoritative source about this)! And now guess the answer to how many of these same jobs, once globally outsourced to locations like India, are performed by those whose primary graduate degree is engineering? Close to 100% won’t be off the mark!
This points to an asymmetry, which when confronted with the job market realities in India (supply-side challenges in terms of number of engineering graduates, rising salaries etc), should slowly resolve itself in a manner that allows for many more non-engineering graduates to become part of the IT services and outsourcing bandwagon in India as well. Most of today’s graduates, even if not engineers, have been exposed to IT and have the basic smarts to learn the techie concepts; further, with the increasing prevalence of IT and technology in our lives, some of the aspects in terms of service delivery are getting demystified enough that a well-structured training course can plug the gaps and create qualified human capital for the future.
I know of companies that are already exploring this route to build scalability and long-term growth for this industry in India.
Strike Two in favor of IT Global Sourcing!
3. Increasing Automation in IT Services Delivery
I mentioned modularization of IT services as a factor in the increasing globalization of its delivery in the first point above. That very same modularization is also leading to increased automation around IT services delivery – whether it be SaaS (Software-as-a-Service) or Platform-based BPO (where the entire vertical stack consisting of Infrastructure, Applications and Business Processes is delivered using a Proprietary or Shared Technology Platform), to name a couple of impressive-sounding buzzwords in the industry today.
Higher automation will surely lead to an increase in productivity; it is also likely to lead to lesser need for the labor component of IT services, something that has fueled the global sourcing wave (although the motivations have changed as the industry has matured, moving beyond costs to quality and risks). Why outsource in a conventional manner when you can automate? – that will be a thought that will start popping up more frequently in the years to come.
Ball One against IT Global Sourcing!
With the game thus interestingly poised at 2-1, I will take a break here and await your comments before continuing the dialog on this topic.
Sunday, September 23, 2007
IT Outsourcing: Quo Vadis?
Saturday, September 8, 2007
What is your Underwear?! And other Sourcing related questions
Global Sourcing and Underwear? You must be wondering what the connection is and if by chance I have lost it and forgotten that I am supposed to write about sourcing, however cheeky it is!
Well, there is a connection and I do hope I haven’t lost it…here is a true story of what happened at a client’s technology workshop the day before. Without revealing the client’s identity or other confidential details, suffice it to say this is one of world’s best known brands. Let us call them company Brand X. So, Brand X has decided to embark on an Applications Outsourcing journey and have released an RFP recently (after going through an RFI stage and a customary India visit). They have short-listed 5 Global Sourcing Service Providers and my company happens to be one of them.
So far, so good. Now, they decided to do something highly unusual as part of the first set of interactions on the RFP – they invited all five providers for a detailed 4-day Technology Workshop during which they went through their high-level business and product strategy, technology roadmap and their entire applications portfolio. So, over the 4 days, in a room full of competitors, they picked different business areas and gradually drilled down into arcane details around tickets, support requirements, interfaces, coding languages, processes…you get the drift.
I say highly unusual, because in the 150+ outsourcing deals I have been exposed to, this is the FIRST time I have come across a client who is investing such time and effort at this stage of a deal to provide first hand information, make SMEs available, and address all questions service providers typically have at the RFP stage (most of them just make do with a written Q&A dialog, some call for either a bidders’ conference or one on one meetings that are usually less than half a day long, and very rarely does anyone get all vendors together for sessions that go beyond one day). This obviously shows the kind of commitment and seriousness Brand X is showing towards this Outsourcing initiative. It may not directly translate to a higher level of Sourcing Maturity: they are still talking about choosing a panel even for a relatively small piece of scope, doing things in waves, asking for a very simplistic pricing, etc.; but they will learn and all power to them!
To come back to the main topic, one of our esteemed competitors that also has an Indian pedigree, ran into the sort of situation during one of these Q&A sessions that can bring a campaign down! One of the presentations had just concluded by three women from Brand X and now they had thrown the floor open for questions. So, this guy from Competitor Y walks up to the mike in the front of the room (everyone was sitting at round tables, two for each service provider) and asks, “What is your Underwear?” Suddenly the entire room went into like an electric shock, and the three women managers froze with an incredulous look on their faces…had they heard correctly?! Sensing that he had clearly made a faux pas, the questioner tried to recover lamely and asked what he had really wanted to in the first place, “Sorry, I meant, what is your Middleware?” Some nervous laughter from the panel, a few titters from the back, a general sigh of relief around the room, and the moment passed. Or had it?
Without going into a Freudian analysis of the questioner’s state of mind or his background that could have led to this slip (pun, while unintended, fits perfectly), it doesn’t take long to conclude that Competitor Y will have some serious image and hence credibility issues to overcome going forward in this RFP process.
Going against a strong internal urge to now close this post with a list of like 5 or 7 key principles to keep in mind while going into these sessions and to seize the day, I will just offer up some final observations:
Sessions like this are a double-edged sword for the Service Providers. With the right team in place, asking some smart questions, and getting the right answers, it can help in the solutioning exercise and may also differentiate the provider from the get-go. On the other hand, risks abound too: your questions or team composition can tip the competitors, someone in the team can make some stupid mistakes (like above) or could come across in a way that brands the company negatively. And the client may now expect you to know everything to work out the final solutions, when in reality the information processing could take too long, the right team members may not be around to digest it, or the right kind of data may still need to be unearthed. In one of my future posts, I do plan to touch upon the right and wrong kind of questions and styles that providers need to keep an ear out for during these sessions.
Before i close, a piece of serious advice to the guy from Competitor Y - Get a Life! And, thanks for making life easier for us.
Well, there is a connection and I do hope I haven’t lost it…here is a true story of what happened at a client’s technology workshop the day before. Without revealing the client’s identity or other confidential details, suffice it to say this is one of world’s best known brands. Let us call them company Brand X. So, Brand X has decided to embark on an Applications Outsourcing journey and have released an RFP recently (after going through an RFI stage and a customary India visit). They have short-listed 5 Global Sourcing Service Providers and my company happens to be one of them.
So far, so good. Now, they decided to do something highly unusual as part of the first set of interactions on the RFP – they invited all five providers for a detailed 4-day Technology Workshop during which they went through their high-level business and product strategy, technology roadmap and their entire applications portfolio. So, over the 4 days, in a room full of competitors, they picked different business areas and gradually drilled down into arcane details around tickets, support requirements, interfaces, coding languages, processes…you get the drift.
I say highly unusual, because in the 150+ outsourcing deals I have been exposed to, this is the FIRST time I have come across a client who is investing such time and effort at this stage of a deal to provide first hand information, make SMEs available, and address all questions service providers typically have at the RFP stage (most of them just make do with a written Q&A dialog, some call for either a bidders’ conference or one on one meetings that are usually less than half a day long, and very rarely does anyone get all vendors together for sessions that go beyond one day). This obviously shows the kind of commitment and seriousness Brand X is showing towards this Outsourcing initiative. It may not directly translate to a higher level of Sourcing Maturity: they are still talking about choosing a panel even for a relatively small piece of scope, doing things in waves, asking for a very simplistic pricing, etc.; but they will learn and all power to them!
To come back to the main topic, one of our esteemed competitors that also has an Indian pedigree, ran into the sort of situation during one of these Q&A sessions that can bring a campaign down! One of the presentations had just concluded by three women from Brand X and now they had thrown the floor open for questions. So, this guy from Competitor Y walks up to the mike in the front of the room (everyone was sitting at round tables, two for each service provider) and asks, “What is your Underwear?” Suddenly the entire room went into like an electric shock, and the three women managers froze with an incredulous look on their faces…had they heard correctly?! Sensing that he had clearly made a faux pas, the questioner tried to recover lamely and asked what he had really wanted to in the first place, “Sorry, I meant, what is your Middleware?” Some nervous laughter from the panel, a few titters from the back, a general sigh of relief around the room, and the moment passed. Or had it?
Without going into a Freudian analysis of the questioner’s state of mind or his background that could have led to this slip (pun, while unintended, fits perfectly), it doesn’t take long to conclude that Competitor Y will have some serious image and hence credibility issues to overcome going forward in this RFP process.
Going against a strong internal urge to now close this post with a list of like 5 or 7 key principles to keep in mind while going into these sessions and to seize the day, I will just offer up some final observations:
Sessions like this are a double-edged sword for the Service Providers. With the right team in place, asking some smart questions, and getting the right answers, it can help in the solutioning exercise and may also differentiate the provider from the get-go. On the other hand, risks abound too: your questions or team composition can tip the competitors, someone in the team can make some stupid mistakes (like above) or could come across in a way that brands the company negatively. And the client may now expect you to know everything to work out the final solutions, when in reality the information processing could take too long, the right team members may not be around to digest it, or the right kind of data may still need to be unearthed. In one of my future posts, I do plan to touch upon the right and wrong kind of questions and styles that providers need to keep an ear out for during these sessions.
Before i close, a piece of serious advice to the guy from Competitor Y - Get a Life! And, thanks for making life easier for us.
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