Feed The Pig!

There is an interesting, refreshing irony that I have noticed amidst all the recent economic doom-and-gloom news cascading around us, especially here in the US.
President Bush and the US Congress are all set to pass a $140-150 bn stimulus package wherein most legal residents would get a tax rebate check ranging from $600-$1200 sometime by the middle of this year, depending on their status etc. The stimulus part of the package depends on the recipients of this rebate check deciding to spend most of that money rather than bank it, thus providing a boost to the overall economy. Consumer spending is seen as a bulwark supporting the American GDP and has so far prevented a major recession from happening, so the explanation goes.
While this is going on, and merits of the package are being debated, i have recently noticed some well-meaning, tongue-in-cheek ads on the broadcast and cable tv networks sponsored by The American Institute of Certified Public Accountants basically running on the theme of Feed The Pig, that call on consumers to rein in their spending and instead delay their purchases and literally save their dollars in a piggy bank. Historically, the personal savings rate in the US has been low, much lower compared to some of the emerging Asian countries, and US consumers have been that much more dependent on credit to finance their purchases. Part of the current economic malaise, with symptoms showing up in the subprime crisis and mortgage foreclosures, is due to the inability of consumers to have a financial safety cushion as they have been overextended on almost everything related to credit card debt, mortgage loans, living expenses etc. So, the advice on Feed The Pig is, in my opinion, timely and sincere.

Now, if people do heed that advice and feed their piggy banks, Bush's economic stimulus package will surely fall flat. Not that too many people are confident it will work in any case!

IT Outsourcing: Quo Vadis?

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.

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.

Five Disparate Global Sourcing Objectives: A Conundrum?

We have heard these before and will hear them again in sourcing deal after deal, as the list of Objectives from the Global Sourcing initiatives that an organization is embarking on. And in deal after deal, there will be those sighs and groans as the solution team tries to figure out how to reconcile these seemingly disparate objectives into one elegant package:

1. Efficiency with Innovation

Sourcing initiatives typically begin as a means to get the house in order, eliminate inefficiencies, control and lower costs etc. However the benefits desired do not stop once those are achieved and extend to creation of new value through innovation and transformation. Innovation is expected to follow its humble cousin, Operational Efficiencies, as a natural progression and that too in quick succession!

Now, only if the scope coverage, contractual mechanisms and pricing formats were to support this…On the deals I have worked on, I have mostly come across one or two sheet, unformatted response templates when it comes to proposing Innovation, as compared to scores of defined forms for the Operational Efficiency aspects!

2. Quick Transitions with Minimum Disruptions

Companies want to complete transition quickly but do not want transition to impact business. Obviously a quick transition helps in avoiding the dreaded ‘bubble’ and also reduces risks due to attrition (quick transition = less time for people to react). But it could be potentially disruptive to business if it requires more intense effort from key personnel. Traditional outsourcing used to take care of this using a 100% people and asset transfer model (Your Mess for Less)! In case of Global Sourcing (as opposed to just Outsourcing), more creative models are required to reconcile these two disparate objectives.

3. Low Risk with Maximum Savings

Sourcing initiatives are not just driven by a need to save costs, but also by a desire to minimize risks (the latter part is not usually verbalized, but is key in terms of decision criteria). So, while the price point is being watched carefully, enough attention needs to be paid to the service provider’s capabilities to deliver and for both parties to achieve their objectives, esp in a global sourcing scenario. This trade-off between price and risk is not captured in either a typical T&M pricing or a regular Fixed-Price model. New pricing models and deal structures are being discussed and talked about, but are yet to become the norm.

4. Accelerated Results without a Learning Curve

As the business needs become more critical and the urgency increases, there is intense pressure to achieve accelerated results, while avoiding the pitfalls and mistakes made by past adopters of different kinds of sourcing. Companies do not have the time to go through the learning curve, and they pass this pressure through the sourcing eco-system. Additional players, other than just the service provider(s), whether internal or external, are required to take on pivotal roles, both before and after the contract is signed.

5. Capability with Reassurance

Companies want world-class capabilities, and they want ownership and control to the extent possible. Ideally they want both at the same time. No wonder, several of them are still struggling to come to grips with whether to Outsource or set up a Captive as part of their Sourcing Strategy. If only the choice could be made easier for them?

How does one handle the above set of disparate objectives without tying oneself up in knots? Now, that will be like giving the store away, right…..:-)

The GSS principle: It is Global Sourcing, Stupid!

Words are like people - some lose their distinctive flavor over time and some get confusing to those who come across them. And some start sounding the same as another: there is even a popular theory that several years after marriage, a couple starts looking and talking very similar to each other.

The words i am referring to in this post are 'Outsourcing' and 'Offshoring'! They had distinct identities several years ago, when the world was still a little round. They reflected the Cold War mindset - there was a First World (US and other western developed countries), a Second World (USSR and its communist allies), and a Third World (underdeveloped, probably hopeless, countries in the eyes of the beholder). Outsourcing was associated with getting work done by a vendor who belonged to the First World; Offshoring was linked to sending some bits and bytes to an emerging Third World country (usually India) that would do it, like, ten times cheaper. No one cared about what was happening in the Second World when it came to business processes and IT services...

This was the world in which the IBMs and the EDSs of the world prospered, and in which some of the top C-level decision makers in F1000 companies grew up in. And it shaped their thinking and worldview.

Suddenly the World became Flat. It didn't happen overnight, of course, and Thomas Friedman just happened to write about it sooner than others could, but the boundaries started disappearing ever since the Berlin Wall fell, and one day it was like ....poof! Flat as far as a technology eye could see...

Words which made sense then, no longer do so now. But some people still hold on to those without realizing that those labels do not fit what they are trying to describe and ask for.

I met a top level decision maker at a leading telco in the US two weeks ago and there it was,

'...we are going to consolidate our outsourcing services providers', and 'we
consider you more as an Offshore services provider'

And in a quarterly presentation from a leading sourcing deal advisory firm...'the offshore players are..., but the outsourcing players are...etc.'

One of the first influential organizations to get this nuance was Gartner - 3 years ago, they stopped having two separate events around Outsourcing and Offshoring, and instead rolled them into one per year, called Gartner Sourcing Summit. The nuance they got was simple - it is no longer about 'Outsourcing' and 'Offshoring'; it is all about Global Sourcing. If Bill Clinton were to describe it, he would say, 'It is Global Sourcing, stupid!'

Why is it so? Well, firstly the traditional outsourcing model (your mess for less) and the traditional offshore model (your work for less) are both being replaced by the Global Sourcing model that places an emphasis on doing the work where it makes most sense, sourcing resources from where they are the cheapest and the best quality, and delivering where there is the best client interface. So, even the First World outsourcing companies are being forced to do service delivery from globally distributed locations - IBM and Accenture have added more people in India in the last 2-3 years than anywhere else in the world combined. And companies like Infosys have shown strong propensity to bid for and win large outsourcing deals that they were traditionally not even invited to.

Secondly, technology has made it possible to move most of the services work to global locations and manage/deliver them from remote centers. Technology has also digitized the scope of services so they can be easily disaggregated and then re-aggregated.

Thirdly, offshoring became mainstream and came of age. Thanks to the Y2K crisis and the dot com boom - the quality aspects of the so called Third World service providers came across very strongly. Sourcing to offshore locations and taking advantage of the talent available at a cost basis that was several times lower became a topic of discussion in the corporate boardrooms.

They key difference now is that one of basic aspects that goes with Outsourcing - stepping up to take ownership of deliverables, portfolios and service levels in a fixed price model- is being provided by leading global service providers like Infosys as well. And they are going futher by incorporating transformational solutions as part of a Sourcing relationship, so that the client continues to derive value even into the future.
Going offshore doesn't just mean sending projects or discrete tasks. There are just two kinds of firms now - those that can take on ownership and deliver work from anywhere in the world and those that cann't.

And i fail to understand why someone would want to limit their sourcing strategy to the traditional models and providers or outsource to a service provider which cannot or does not practice a Global Delivery Model.

Next time you meet a client or give an internal pitch to your colleagues, look them right in the eyes and tell them the truth: Outsourcing and Offshoring as passe terms, they are actually sub-sets of what we should be discussing and talking about, which is Strategic Global Sourcing.

Tell them the GSS Principle: It is Global Sourcing, Stupid!

Detroit - where it all began!

Last week I made a day trip to Detroit for a client meeting. Although Detroit is the quintessential Auto town, it was not an Auto or Auto parts company that I met with, but a Telco…still the visit and the events of the day conspired to provide me an almost perfect launching pad for my reflections around Sourcing in general and Outsourcing in particular that I plan to post in my new blog on outsourcing (www.advisource.blogspot.com) .

Detroit is the home of the erstwhile Big Three in the Automotive industry – GM, Ford and Chrysler. I say ‘erstwhile’ because Toyota recently pipped GM as the largest car manufacturer in the world. And therein lies a story, just one story out of several hundreds I am sure, but something that will be of relevance to readers of this post…the story of how over the last 3 decades, Outsourcing, specifically Modular Global Sourcing, changed the rules of the game in this industry, upended established conventions, and created a new breed of winners. Outsourcing in the way most of us understand in today’s world was first seen as being practiced in this industry. So, in a sense, Detroit is also the place where it all began…In one of my subsequent posts, I will explore the evolution of outsourcing in the automotive manufacturing industry and draw parallels to the growth curve of the outsourcing of IT and Business Process services.

One of the local newspapers had a screaming headline, ‘GM posts surprise profits in second quarter 07…’ Surely news to gladden many hearts in a town that has been starved of good news on the business and jobs front for months, if not years, now. Later that day I also found out that Detroit actually has many casinos (MGM Grand has a big casino cum hotel here!) and they had all reasons to expect booming business that night due to the GM turnaround. It was not just GM that has injected optimism in Detroit – Ford has posted record profits and Chrysler too seems poised for a turnaround after being bought over by Cerberus, their new Private Equity buyer, and the appointment of Bob Nardelli, the former embattled CEO of Home Depot and the never-became CEO of GE. The private equity angle is an interesting one in terms of impact on Outsourcing…within my team we have started discussing and formulating our plans to leverage private equity players in terms of outsourcing deals generation and closure. One of my future blogs will be dedicated to this topic.

During the meeting with a senior decision maker at the client, someone who has worked with my company for several years, I heard a couple of interesting observations that cut through to the heart of the issue in a flash. This company has grown through acquisitions and is now a leading national service provider in all the various segments – landline, wireless, mobile, residential, corporate, you name it… Along with the acquisitions have come multiple platforms and systems, duplicate functions and processes, and a myriad legacy outsourcing service providers. We have been providing IT services to the parent company for several years now, and have a substantial and growing book of business, so it was one of those a-ha moments when she mentioned that their new CIO is now looking at consolidating the ‘Outsourcing’ vendors list and did not want to add us to that list right now – because my company is an ‘Offshoring’ service provider!

This was the second time in two weeks that I was hearing that distinction being made – the first time when I was at dinner with partners of a leading deal advisory firm and they had not only spoken about Outsourcing and Offshoring in a similar fashion but also published it in their quarter-end index. Three years ago, when I had analyzed and researched this topic to come up with our point of view, one of the key trends we had concluded was that ‘Outsourcing’ and ‘Offshoring’ are no longer seen as distinct buckets, as most of the so-called legacy outsourcing firms are delivering from offshore and the mostly India-based providers are bidding for and delivering same or similar scope as a legacy player. So, when very senior and influential people in the industry still fall back on a distinction that probably made sense half a decade ago, what gives? How does one explain it is just ‘Global Sourcing’ now, that it is a brave new world out there? I will attempt to tackle this subject next week.

Something else that was equally interesting, and worrying, happened in that meeting. We were talking about potential re-badging of client personnel and she said that since they are seen as an American icon, they wouldn’t want to re-badge in large numbers to a company like ours that is not seen as a local provider! They of course wouldn’t mind re-badging to a legacy outsourcer that is seen as an ‘American’ company…this at a time when my company is planning to hire several thousands in onsite, local country operations, whereas companies like IBM and Accenture are shifting their resource mix to hire aggressively in countries like India and are actually, in some cases, retrenching people in the US. Across the college campuses in the US (and elsewhere as well), my company is fast acquiring a cachet of a cool place to work in, a flat world company that is acknowledged as a pioneer and leader in the industry, and one that hires hundreds of Interns and fresh recruits from around the top b-schools to create the global workforce of the future. Maybe we are not emphasizing our brand and corporate image loud enough – otherwise why would a top decision-maker in an existing client of ours not feel comfortable enough in our ability to absorb and provide rewarding careers to her critical employees? Or will she always buy a Ford or a GM over a Toyota or a Honda?! I will come back to this topic about re-badging and our local presence in one of my later posts.

There are so many myths and realities in the enchanted world of outsourcing – These Reflections on Sources of Advice on Sourcing (www.advisource.blogspot.com) will hopefully shine the blogspot-light on the hidden nooks and crannies of what has become the defining trend of our times – Outsourcing!

Happy Reading and Posting…
Rak