Offshoring as a Service

There is a need for “make-or-buy analysis” on a strategic level. Found a good document about “Process for Conducting a Make/Buy Analysis“. Have modified it to include CORE and NON-CORE concept.

How should the strategic value and core competencies be assessed? Many a times there is no common agreement due to subjective evaluation. Specially in an IT company, it is difficult to assess core.

Gartner provides some high level guidance as to the selection and assessment approach for a selective outsourcing.

This can then be used to provide a graded view to facilitate selective sourcing.

I am hung up on VMO just now and have been looking for articles to understand the concept. Found this great white papper from Alsbridge Inc. at Outsourcing Leadership.

VMO should include following components:

• Relationship Management
• Performance Management
• Financial Management
• Contract Management
• IT Service Management

For the whole article check out Alsbridge-WP-Blueprinting-Your-VMO-1

Have been recently working, as my previous articles in this blog give an indication, with managed services and often on-demand. Found an interesting article by Owen McCall ”Insource, Outsource, Everything As a Service“ which explains everything my project is going through.

The article mentions some key areas:
- Is the process or functionality being discussed strategic and/or a source of competitive advantage for my organisation? (If NO then)
- Can the provider meet the service levels that I need?
- Are your services cheaper than what I can provide myself for the required level of service?
- Is the provider prepared to share my risk?

I would like to add, ‘If you only need milk , would you buy a cow ?’ . Found this interesting analogy related to cloud computing. My apologies if I have offended anyone.
- Would I like to manage the provider’s resources? 
- Would I like to own the hardware and infrastructure?
- Would I like to own the software? (If for e.g. CRM?)
- How would I like the commercial part of the agreement to be met? If I do not want to own then I need to buy it as a service.

Owen McCall ends his article with: So, how do you decide? What will you have to pay in order to meet the required level of service?

I would like to add, “How would you like to pay in order to meet the required level of service?”. Are providers and customers mature for a partnership from owning (HW, infrastructure etc.) to where everything is bought as a service?

Firms establish a governance body across 3 layers: organisational, functional & operational.
- Organisational governance: ensures that the firm’s business case for globalisation is being established, monitored & achieved.
- Functional governance: enable coordination, communication and control between the various process owners and provides a mechanism for knowledge management and transfer.
- Operational governance: is the actual management of the individual outsourcing contract or internal service levels.

The focus here is on organisational & functional governance. “The Feeny and Willcocks Framework” identifies core IS capabilities  for successful IT sourcing such as leadership, informed buying, relationship building, making technology work, contract facilitation, contract monitoring, vendor development, business systems thinking, and architecture planning. 

The framework highlights leadership, informed buying and strategic management of risks and controls as core IS  capabilities that are necessary for outsourcing governance. Forrester reseach has published “Four stages of going offshore“ 
- Bystanders
- Experimenters
- Committeds
- Full exploiters

Risk connected to leadership are
- Loss of organizational capabilities/ competencies and
- Risk of business failure/uncertainties.

Risks connected to informed buying are
- Low awareness of offshore location/vendor capabilities and
- Wrong type of service outsourced/ offshored.

The  Offshore governance changes dramatically, as companies migrate through the four stages of the offshore journey. What starts as an administrative function evolves over three or more years into a program management and development discipline.
- Phase one: establishment. The strategic focus in this period is on developing and articulating the overall offshore strategy.
- Phase two: encouragement. Governance evolves to drive use.
- Phase three: upgrading IT processes and methodologies. The scope of vendor management also shifts from providing the supplier with a to-do list to pushing the vendor to deploy precious domain expertise and proactively offer up shared risk/reward-based projects.

It is an interesting journey and the ultimate goal ought to be sourcing governance with sourcing as main focus rather than just offshoring.

As firms bring more discipline and maturity to their IT organization one of their key focus areas is vendor management. What is a vendor management organisation? Broad marketing term used to describe the process or a specific term used to refer to a dedicated group of staff who oversee and manage suppliers.

Why do we need a VMO? With a vendor management office, your goal should not be to create a firewall between IT and the vendor, using a procurement group as a proxy, but to be smart and consistent within the enterprise about managing multiple aspects of any vendor relationship.

Forrester has identified some key best practices – Building An Effective Vendor Management Office. Some more best practice for Vendor Management System can be found here.

Where should this organisation belong? In-Line VMO? VMO Governance Teams? Centralized Corporate VMO? Read Outsourcing Vendor Management Organizations for more input. It is a complex organisation because it has to be placed correctly, a governance that is aligned to global sourcing, a decision ability that is in alignment with organisations strategy (short- and long) but at the same time draft contracts that are applicable for the given duration, also be responsible for overall delivery but not directly, etc.

What skills should VMO posses? Wanted: Vendor Management Superstar. A technology guru with thorough knowledge of hardware, software and systems, plus awareness of business unit needs. Must be a creative negotiator with stellar communication skills and experience in finance, contract law and relationship management. Ideal candidate is willing to confront vendors, call their bluffs, shake trees and keep vendors honest. Ability to create win-win solutions a must.

Should all vendors be governed by VMO? No, I believe that only the preferred supplier or strategic partners should VMO focus upon. Further more CIO.com says, “Some vendors whose business volume is very large get a senior vendor relationship manager, such as Plotkin or one of his deputies, assigned to them as well. A CIO or CTO can work directly with a vendor’s CEO or CTO in a way that, say, a network operations manager can’t, so having multiple relationship levels is important, Plotkin says.”.

How to Measure Your IT Vendor Management Office: Forrester’s research has found that the VMO does not necessarily own the pre-contract steps but is a driving force behind promoting best practices, providing contract and negotiation templates, facilitating communication, and helping define the vendor key performance metrics. This is becoming particularly prevalent as companies realize it’s nearly impossible to govern vendors effectively if they haven’t included the appropriate terms and requirements into the selection and contracting – pushing VMOs to participate actively in these steps early on. Some parameter are:
- Provide guidance during the RFP creation project.
- Develop a more structured approach to negotiations.
- Help put better contracts in place.
- Regularly evaluate relationship and performance management.
- Solicit feedback on VMO performance.

A book that will help you create and launch your VMO: “The Vendor Management Office: Unleashing the Power of Strategic Sourcing”

A tall order to fulfill

I have posted a couple of thoughts earlier on importance of change management & governance. They are important factors for offshoring success.  

Here is a article, “The Top 10 Problems With Outsourcing Implementation (And How To Overcome Them” that will help you in your offshoring venture.

The Indian IT market has turned up. Companies have started hiring again in India. This means that the employee turnover that was low will start going up again.

Have you ensured that the resources deployed offshore are secure?

It is a fact that there are “organisational cultural differences” – there is no way coming around this. Some steps to minimise & manage differences.

1. Make sure that Request for Proposal (RFP) defines the services to be offshored as well as describe company culture & values.
2. Visit the sites and get a first hand impression of their culture. Interview employees from the vendor side.
3. Involve the companies in team building sessions to understand your company culture.
4. Organisation cultures differences has to be taught to the partner the same way it is taught to the new employees. It has to be continously reinforced over time.
5. It is a continous ongoing improvement activity and a must to build a long term relationship.

A Swedish article at IDG explains that Europeans are hesitant to outsourcing in India. This article is based on research made by Forrester Research.

The Indian companies have earned 97 Billion SEK in Europe during 2008-2009 which ended on 31 March 2009. 63 Billion SEK comes from UK. Almost 15 Billion SEK from Germany. The total market for IT-services in UK, Germany and France was 648 Billion SEL during the same period.

The reason, accordig to Forrester, is resistance towards outsourcing in Europe and the European customers prefer strong local presence. The Indian vendors have sales offices in some European countries. Many of the vendors personnel work at the customer and Indian vendors do not have so many personnel in Europe.

I am not sure what Forrester have suggested for solution. But here are some of my thoughts.

• Many a times the Indian vendors have Indian presence in Europe. They do not understand the local culture and business culture in Europe.
• Europe with exception of UK is not so offshoring mature. This is going to take time.
• Companies in Europe have to learn how to, in a structured manner, go from tactical outsourcing to transformational outsourcing.

Tactical is the first stage where offshoring/outsourcing is considered to fix a problem.
Strategical outsourcing is where greater value is derived from a partnership.
Transformational outsourcing is where innovation is brought from partners to fulfil customers’ businesses.

• Learn to handle outsourcing process (strategy, scope, negotiation & management) .

Important to do this in a structured manner since greater the distance more challenging the venture.

Thank you all for taking the time to leave comments on the question posted by me. My question was:
Offshoring: Big bang or step-by-step approach?

Even though some companies do not have previous experience of offshoring they take the big bang approach i.e. offshore a LARGE project. While other companies start with a small pilot project to test offshoring. What are the pros and cons of these approaches? Interested to know about your experiences. Which is the best approach and why?

 If a decision is taken to do the big bang (a large project) or step-by-step (a small pilot project) the consequences have to be discussed. The project should be driven based on the consequences/risks and should be started onsite.

The biggest problem is that the organisation is not “offshoring mature”. Most of them have heard about offshoring and the “problems” faced. It will be difficult to have motivated participants in the project.

Another problem is not having worked earlier with the offshoring supplier. Communications is important. Discussions about processes, methods, roles and responsibilities, quality criterias, delivery model, change & configuration management, security, environments needed, etc. is vital.

If done correctly it will be easier to use this exampel as success story to spread offshoring withing the organisation.

Some golden rules:
- Do not generalise
- Create a “we” feeling
- A competent project manager with “remote management” skills is a must
- Have an offshoring governance for support
- Be transparent within the project group and within the organisation of the problems faced and lessons learned
- Have fun

My advice: go step-by-step.

100 tips on doing business in India.

Good luck!