Offshoring as a Service

Recently posted a question on the various “offshoring/Sourcing” groups at LinkedIn.
1) With multi suppliers how should the non-core areas/blocks be divided? Should for e.g. 2 suppliers get application development and support while infrastructure/operations be given to 2 different suppliers? OR 2-3 suppliers get application/infra/operations? How should the multi-sourcing set-up be defined & divided?
2) What are the pros- and cons with the different set-ups?

Replies from The BPO and Offshoring Best Practices Forum

Comment 1: 1. Yes your are right the services should be outsourced to different vendors.

i.e. Application Development/Support. – This is to maintain healthy competition between the parties and also that they will try to perform well because of competition in terms of Cost, Quality Deliverables and SLAs.

Also one should have the signed contract between both the parties including Service Definition Document, Third Part Service Contract (Contract should also contain clauses for non-performance of the service by the provider with respective penalties.)

Also One thing should be made clear i.e. work areas for the providers other wise they will start blaming each other to save their shoe/SLA target time.

Comment 2: A multi vendor approach can have several drivers – healthy competetion keeping the vendors on their toes, evaluation of performance in absence of benchmarks, business continuity, best practices from several sources etc. Actual implementation could be decisioned by several factors again – opportunity scale, linkages between the different areas to be sourced, vendor competency in specific areas, amount of time and effort that could be made available for vendor management, past experience and capability for doing this, existing relationships etc. Circumstances permitting and with the above in mind it would be ideal to reduce dependency on one vendor and get the best from several worlds. For this to happen one would tend to split one service across two different vendors and the second one among the same set of vendors or different ones.

Comment 3: While multi-sourcing has obvious potential benefits, the critical success factor is not the specific demarcation of service partitions, nor is it the number of service providers involved, because there are many ‘right’ answers to both questions. The number one indicator for success is what I define as the service integration challenge: how well will your organization perform in assembling, collating and managing a portfolio of service providers over an extended period of time, as operating conditions, business requirements and environmental factors combine to stress these service relationships.

For some more thoughts on this topic, please see the deck that I presented at the recently HCL Global Conference: http://slidesha.re/cxMgkN .

Comment 4: On the pros, cost reduction through competitive jockeying (negotiation, benchmarking); availability of skills with a single provider; concentration risk management;

Not a panacea though. Think of governance costs; hand-offs that create inefficiencies; and the loss of process adjacency. The buyer, the vendor community, the IT side over time lose sight of the overall process and look for local optimization of their fragment. The ability to quickly change, transform, scale are dramatically reduced through fragmentation.

Use a holistic framework to determine what the objective is (it has to be cost, plus what?). Map the process against a some key dimensions – competitive advantage vis a vis value addition; rate of change vis a vis criticality to business; importance of linkages vis a vis bargaining power at the process and application level to determine the advantages of cost vs the cost of fragmented processes.

Comment 5: I agree with Mark that governance is critical for multisourcing success in the long run, and with Shammik that you need a holistic framework.

That holistic context, that single integrated view of the enterprise – owned by the business and in the language of the business – provides the essential framework for sustainable success in multisourcing, and for continuous performance improvement.

All of the stakeholders – process owners as well as folks in organisational change, sourcing strategy, risk management, IT, knowledge management, relationship management, etc – are then working from a common reference point and within a single enterprise-wide governance framework.

More on this here if you are interested http://bit.ly/bxMaUg

Comment 6: Mike, saw your blog, and am glad we share the same views. Here’s what I am grappling with. Folks, your views are very welcome. Rita, no intention of hijacking the question.

What do we do about the existing deals that are already outsourced to multi vendor relationships (some “vendors” being owned captives) from a process, application, hosting perspective. No vendor in this case has the holistic picture, and arguably, neither does the service buyer, any more. Now that the cost savings are passe, how does one start to create the integrated information and framework necessary for “transformation”? I know the definition of the term also varies between the vendors (”IT led”, “Process led”, “Quality led”) and the buyers. Does this mean transformation is stillborn because of the earlier chase on cost as the sole driver?

Comment 7: Shammik – I can’t see how any organization can manage the outsourced environment without visibility and ownership of its end-to-end business processes. Any buyer that loses intellectual control of outsourced activities will pay a very high price – that’s my experience.

Feedback from Outsourcing & Offshoring

Comment 8: A multi vendor strategy is a good way to go to get the best performance from your vendors. Divide your RFP into different blocks and get all your proposed vendors to provide separate pricing for each block. Based on capabilites of each vendor, strategic business objectives and pricing, select the top 2 or 3 vendors to be your service provider for each area. If processes and delivery has dependencies, it should stay with one vendor to ensure effecient delivery and accountability.

Comment 9: To begin with, you would have to clearly scope out the areas that you are planning to outsource. Once you do this, tag the areas being critical and non-critical (from a business standpoint). From here-on, you can take a two-forked approach.

1. For those areas that you deem critical, go for only one vendor. Perform a complete due diligence, asking for case studies from vendors and if possible (strongly advised) talk to the companies that the vendors quote in their case studies to understand how exactly the vendor worked with them. Choose the best vendor that matches your skill set requirement, budget and response times.
Bottom-line: You do not want a setup in which vendors are blaming each other for things going wrong. Only one vendor who owns up is the best choice for critical areas.

2. For non-critical areas, you can opt for more than one vendor in the same area. Vendor relationships are seldom a one-time affair and evolve with time. Non-critical areas are the best for you to try options and identify vendors that suit your company’s business in the medium and long run. This is also the place where you could negotiate rates without being bothered too much about quality directly impacting the business (and also observe which vendor gives the best value for your money e.g. acceptable quality at an affordable rate (vs) ‘more than needed’ quality at a high rate). A best practice here is to club areas across business units and use the volume business to negotiate rates rather than using a piece-meal approach (vendors equally love visibility of business as much as they love big money).

Thank you!

Managed services, which I have written previously about, is the practice of transferring day-to-day related management responsibility as a strategic method for improved effective and efficient operations. Here, the focus shifts from managing vendor and its resources to monitoring delivery, at an operational level. It is the vendors’ responsibility to manage its resources and part of the process that belongs to the vendors’ organisation.

Manage service can also be on-demand. When there is a high demand the vendor adds the needed resources and removes them when not needed.  Helps minimize team leadership responsibility from group/middle managers; this is a value-add from the vendor, saves cost & brings about flexibility in the organisation.

Operational governance model: This governance model is a set of best practices to be used in the processes at an operational level.

Agree on the the process principles described in “Operational IT governance”

• We apply policy to processes.
• We apply standards to processes.
• We enforce decision rights in processes.
• We measure and control processes.

Plan (set objectives): Start by defining the processes and its objectives that the operational governance is going to govern upon. For e.g. application maintenance & support process and its objectives.
Implement (design & deploy):
Intellectual Property (IP) issues: Knowledge capture document is often saved in the vendors’ knowledge repository. This is customer’s IP. If tools & templates belong to the vendor make sure that the terms and conditions for IP rights are covered in the Master Service agreement. 

Remember that the list below is best practices. Select the relevant areas, define them, follow up and improve upon as the process and organisation matures with this “way of working”.

It is important to
- define roles & responsibilities (in-house resources and vendor resources).
- define the process interfaces. Where does the customer’s process ends and the vendor takes over and vice versa? 
- define the tools to be used (incident & problem management, defect management tool, solution templates, Change request tools, etc.)
- define the infrastructure to be used
- define artifacts to produce and who is responsible for them. Review these artifacts.
- define monitoring tools such as KPI & SLA
- define communication methods such as telephone, video conference is the resources are spread out.
- define how often meetings need be held. On Operational level once a month? On strategically level twice per year?
- define often the resources need to travel onsite.
- define decision points so that no decisions are taken without the right people being involved.
- define escalations levels when a problem arises. Even escalation levels to give feedback.
- define and encourage risks management
Manage (control & monitor):
Agree upon the method to control and monitor.
- control that the objectives with managed services are fulfilled
- control that the selected best practices fulfil your objective
- monitor KPI and SLA
- control that the vendor contributes to proactive maintenance by applying solution templates and change management.
- control that the vendor is proactive and gives value-adds to the relationship
- control that the vendor resources flag risks in time before they become a problem.
Assess (evaluate & analyze):
Evaluate & analyze results to the overall objectives. This is an input for continuous improvement.

Managed services is the practice of transferring day-to-day related management responsibility as a strategic method for improved effective and efficient operations. The person or organization who owns or has direct oversight of the organization or system being managed is referred to as the offerer, client, or customer. The person or organization that accepts and provides the managed service is regarded as the service provider.

Typically, the offerer remains accountable for the functionality and performance of managed service and does not relinquish the overall management responsibility of the organization or system.

Consider having non-core application support & maintenance being offshored to the vendor as managed services.  Application Service Provider (ASP) is is a business that provides computer-based services to customers over a network. Software offered using an ASP model is also sometimes called On-demand software or software as a service (SaaS).

Some points to take into consideration:
- Re-use resources that have built customer capability in the offshoring development center ODC.
- Have the vendor resources onsite time-to-time to minimize enployee turnover.
- Have an infrastructure that makes this service possible.
- The price model can vary from fixed monthly rate to time & material model as well as price per desktop, server or network device. Important to use the correct model depending the type of managed service to be used.
- Important for the customer to be a good orderer. Besides support & maintenance activities, it is important to take into consideration proactive activities that also need to be  performed.
- Follow up of SLA’s & KPI’s are important. If there is a requiremet for 99,96% uptime it is vital that this has be fullfilled.
- Make sure that the process is in place that defines the roles & responsibilities.
- Make also sure that the Master Service Agreement covers the terms & conditions.

There are a number of advantages such as
- Redeploying IT staff and tools to focus on strategic technology projects that impact the enterprise’s bottom line
- Access to product and technology experts dedicated to available products
- A provider’s service level agreement guarantees a certain level of service

Disadvantages are
- Loss of control: resource & knowlegde will be build up at the vendor.
- Loss of control of corporate data
But since non-core services are managed by vendor it should not be a problem.

So look at each assignment and instead of resource augmentation maybe this can be packaged as managed service?

Employees who would otherwise face layoffs from their North American jobs at IBM are being given the chance to work abroad through ‘Project Match’. There are a number of options and India is one of them. Will it be Indian wages with local labour laws is not yet sure.  There are many parameters needed to take into consideration for an North American to move to India.

But what about Swedes wanting to move to India? I am not taking up the discussion about layoffs here. Just looking at basic differences such as wages & taxes for e.g. – is there a huge difference?

According to Payscale median self-reported hourly wage is Rs 1,000 (USD $20.50) for an Indian Sr. Software Engineer/Developer/Programer.

According to Lönebarometern median self-reported monthly wage for a programmer in Sweden  is SEK 28061 (USD $3941,15). My crude calculation below and I apologies.
Around 278 working days per year (including 5 weeks vacation).
278days/12months= 23 working days per month. 
23d * 8h = 184h per month
$3941,15/184h = $21,41 hourly wage

I have just looked at programmer but there are many categories at Lönebarometern. I have also taken into consideration 8 working hours per day.

Tax in India
Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act. The rates for personal income tax are as follows:-
Income range (Rupee) Tax Rate (%)
0-100,000 Nil
1,00,000-1,50,000Rs 10%
1,50,000-2,50,000Rs 20%
2,50,000 and aboveRs 30%
Surcharges of 10% on total tax is levied if income exceeds Rs. 8,50,000

Tax in Sweden
Taxalbe earned income/Local income tax (average rate = 31.60%)
For other taxes see the link.

Other considerations such as labour laws, working conditions, living conditions, moving family, etc. etc. needs to be taken into consideration. Well, I wouldn’t mind 25+ warmth right now.

Of course I have it easy and the actual decision is much more tough especially for a person who has never been to India. Morgan Spurlock, from “Super Size Me”, has a TV show called 30 Days where he documents 30 days of a laid-off US IT worker finding employment in India.  It’s also available at Amazon: 30 Days: The Complete Second Season

So, what do you think?

In my previous article, “Effective communication & value proposition“, I mentioned an exampel where often an Indian vendor describes how a solution was deployed in USA with a higher consultant volume to a Swedish customer who wants to test offshoring with a couple of consultants. It is a challenge for the customer to make the vendor understand step-by-step process he/she needs to take while for a vendor to adjust his/her sales pitch to an European market.

Found an interesting article, “Do Europeans look differently at offshoring?“. What do you think? Is this true? Do we differentiate between outsourcing and offshoring?

I touched on communication in my previous article. Some more thoughts on communication. There is a lot of communication & information floating but is it effective? Does it add value to the listner?

Many a times an offshoring vendors describe how they solved a similar situation for e.g. in USA on a higher volume commitment (400 FTE in USA to customers 3FTE in Sweden) and from offshore (while the customer wants them to start onsite). Does this give value to the customer? Does the vendor really understand the customer?

Communication becomes effective when the speaker knows the audience and talks in their language. Communication is efficient when the information given is relevant to the listner. When the information has a purpose, intent & outcome to the listner.

For e.g. the business customer is not interested how the IT vendor is “technically” solving the problem. The business needs to understand certain aspects to take correct decision. The information should be relevant & concise. The business is interested to know the expenses. For e.g. the servers were put up when needed based on SLA. Not ahead of time and in a hurry costing the customer more than neccessary. What type of data is needed for tests? When is the acceptance tests going to be performed? etc.

So be effective & efficient in communication & base it on value proposition so that the customer can take the right decision.

Our work situation is much more complicated today than it was for 20 years ago. We change jobs more often be it within the same organisation or to another organisation, we meet many more people today due to cross-functional roles & responsibilities, we have global contact due to the market place being global. Which also means that COMMUNICATION becomes important.

Every project should prioritise communication from the start and follow it up. Every human being reacts to his/her map of reality and not to the actual reality itself (basic assumptions of Neuro-Linguistic Programming). This applies to you and me living in the same country and can be challenging in a project while working together. Add people from different countries working together in a project from different location (not physically present in the same office) makes it even more important who the actual participants are and the person leading the group.

If the participants
- do not understand that everyone has own reality that is different than mine – does not have empathy for the uniqueness
- try to communicate in an effective way, for that to happen take into consideration the recipients reality
…than the project is going to be painful.

If a person has performed similar tasks, it is possible to model it and teach to others. Modelling successful achievements leads to mastership (NLP).

Success stories after success stories are presented by sales personnels. A lot of information which is fine but often a “good” customer also wants to know:

Is this “success” based on metrics, KPIs, SLAs, etc? 
Is it customer or the vendor that call them successful?
What challenges were faced at the start and during the assignment? 
What are lessons learned so that they do not do the same misstake?

It is of course of interest for the customer to know that the vendor is capable
- to ramp up and have the resource volume 
- technically to handle the assignment
- having a long term relationship
as well as that the contract has been renewed by the customer a number of times.

So ask the tough questions and look through the sales pitch critically so that you as a customer do not fall for “the success stories”. It is a lot of hard work and a long journey to reach an OK level.

SACC (Swedish American Chamber of Commerce) has a mentor program for women with international careers and on 25th Nov we had a early Christmas  get together at JP Morgans. It was great networking with 60 participants and the message was, “Do business with each other”. It was a very productive evening not only meeting these fantastic women but also finding business opportunities.

It is easier to network if there is a clear goal. Working fulltime, running a business, having family with 2 kids and other interest I do not have time for networking and like to make the most of it. Without clear goals the evening is spent making small talks and I then question if it was worth it.

This evening was worth it. Besides networking, finding business possibilities I introduced a colleague of mine from Scania to this mentor program.

Being in the offshoring sector and coming from India and living in Europe, often I find myself having interesting discussions with people with similar background.

We find ourselves comparing work contra freetime in Sweden and India. It is a difficult to find a balance between these two irrespective be it India or Sweden. The common factors are that work has moved into our living room due to internet, mobile and VPN. Also the higher one climbs the career ladder the more hours one puts in.

There is more pressure on Indians (within IT), be it outside the organisation to their customers due to time differences or within their organisation to their seniors. There is more respect for private time in Sweden.

Commuting back & forth takes a long time since traffic has gotten worse over the years. Even heard stories about women preparing dinner by cutting vegetables in the local (trams) on their way home.

What happens to private life? If husband and wife both work within the IT service sector do they have time for each other and their children?