Multi-Sourcing - Some Common-sense Do's

Industry Analysts have of late (for the last 1-2 years) been harping of the growing trend of Organizations outsourcing to multiple vendors. Whether this is genuinely a deliberately thought out strategy leading to such trends remains a moot point. Perhaps organizations are forced to multi-source because their existing vendors are unable to provide specific skills / services or worse unable to scale up with them as they grow. Without getting into that debate, let me address some of the common sense / operational actions that would need to be taken if you were multi-sourcing. They are common-sense yes, but they are also the kind of things that get easily lost when people only talk strategy and forget execution. Limit the vendor panel for each function (IT, ITES, Engineering Services) to 2 or 3 Vendors. Vendors will invest in you as a customer only if they see sufficient business coming from you. A typical company with US Fortune rank of around 500 will spend around US$ 50 MM a year on IT including capital expenses - probably only half of that on IT services. A service provider with less than 50% wallet share of services is unlikely to pay any serious attention to developing partnerships. Try and find vendors with different strengths. Different technology areas, different geographies served or different delivery location (near-shore / offshore). It wouldn't make too much sense to have two similar vendors in the panel. Give vendors preferred status / first right on projects that are below a threshold value in their areas of expertise. Undertake reverse auction / multi-vendor bidding only for the larger projects or where expertise may not have been established. If at all possible commit a certain value of business to each vendor. Identify a contract manager who owns all contracts and thus ensures consistency across vendors. Identify a relationship manager / sponsor for each vendor. The sponsor / relationship manager should in addition to managing vendor also internally sell the vendor. The sponsor should help vendors reach out the project managers in the organization both to sell and to resolve issues. Create a knowledge sharing portal / forum. Vendor employees should be able to post questions / best-practices and other employees can perhaps respond or learn or reuse. This will only work if Vendor IPR's are respected and vendors get some compensation where components created by them are reused. Plan annual summits / workshops where all vendors participate and discuss roadmaps , budgets, skills & best practices. Involve a third-party compliance / auditor / bench-marking firm to monitor the vendors. Be transparent about the process and results. If you run large programs which involve multiple vendors - ensure you have Program Managers who understand the implications of managing work-packet dependencies and can ensure effective communication. They will need to be supported by Project Management Office to keep a tab on everything that is happening Come to think of it, most of this will apply to most organizations who outsource - given that, unfortunately, there are very few organizations who have actually been able to consolidate all their requirements with a single partner provider.

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Human Resource Outsourcing - Road to Success

HRO has seen its fare share of ups and downs. Here are my thoughts on why HRO may need some time before it becomes mainstream Most global organizations tend to have 'utilities' rather than applications to service their HR processing needs outside of major countries (US, UK et al). Not only there is no existing global system, but also the systems that exist are not up-to-date, given that HR tends to be fairly low on priority for technology upgrade budgets. This seems to preclude a lift, shift & fix approach to HRO unlike FAO. Most organizations seek either a concurrent lift & fix approach or a 'Fix & lift' approach. The former has its challenges & risks resulting in expectation mismatches and the later requires upfront investments which customers expect providers to subsidize. Given that a simultaneous IT & Process transformation will always have a far longer pay-back period than a mere process transitionl one way to make it more palatable is by addressing the low hanging fruits. This can either be done by taking a phased approach. One way is to do a more or less As-Is 'shifting' operations for certain countries while 'fixing' those at others. The other ways is to shift processes such as Work Force Administration support or Recruitment process support early on, since they can do with somewhat lesser or older technology. That view is somewhat contradictory to the fact that payroll processing and benefits administration (primarily for US & UK markets) outsourcing has taken a lead and is more or less stable. I believe that this has been driven by upfront technology investments by the providers. This has its own payback related challenges for vendors. The only way for a quick payback in such cases is to scale up fast - winning and delivering a high number of customers. It seems that providers are finding it relatively easier to win customers but difficult to deliver to them - especially from low cost locations. The problem is the lack of availability of knowledgeable associates. The scarcity of resources has meant a huge churn of associates and hence an inability to deliver consistently & effectively. Vendors thus need innovative models to recover their investments. Speculation abounds that in the case of payroll processing the profitability results are driven more by the cash management rather than by the transaction processing fees. Furthermore, there is a lack of a single effective integrated platform. There is at least one ERP in the market which allows multi-tenant model and multiple providers are trying to build their platform offering around it. However, while most ERPs no doubt have all relevant functionality, each HR sub-process- whether its performance management, compensation management or resourcing - has its own 'best-of-breed' application. Customers & Vendors quite often complicate issues by trying to build a mash-up application. All in all - I think HRO would be more successful if it continues to take baby steps for some more time before it attempts giant leaps. While customers should engage providers to deliver the whole span of HRO sub-processes, they need to break it down to process and geography specific SoWs and milestones to effectively pace the outsourcing. This post inspired by Phil Fersht's write-up on Can HRO rediscover its froth despite a 97% success rate?

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Offshoring, Impact on US Jobs & Economy - Part IV

This entry is part 4 of my rants on this subject. The previous rants can be found last week. Offshoring hurts – but is not offshoring an option? There have been talks about laws that would make it difficult (if not completely stop) companies from global sourcing jobs. But then who was it who said – every action has an equal and opposite reaction (albeit in a different context)? Two potential outcomes of preventing relocation – Prices in the USA go up as the cost of production goes up. Other Countries Stop Importing Goods/Services from the USA as a measure of retaliation. For instance the state of Indiana recently cancelled a contract awarded to an Indian company. The Indian company bid for $15.2 million and the next bid was $8 million higher. Though retaining the contract in the USA will no doubt increase the jobs in USA – but it will also mean that (at least) $8 million of tax payers money that could have been used from some other development will now be used up in this venture. This was a government initiative. A similar increase in the cost of initiative by a private concern would mean that the concern would either can the project or pass on the costs to the customer thus increasing the cost of goods. Depending upon circumstances this might eventually wipe out the company. For instance US car manufacturers did have trouble facing the onslaught of cheap Asian cars until they started manufacturing across the world. Now consider a couple of other scenarios – The USA imports 61% of its oil requirements. If the oil selling countries stop dealing with the USA (no doubt at a peril to themselves) – the prices of oil would quickly go up impacting the USA economy. IBM was not allowed to sell directly or employ directly in India till early 90s but Indian has been a big growth area for IBM since it reopened shop here. For instance for the fiscal year ending Mar 2003 revenues from India, though a meagre 0.5% of IBM's global revenues, grew at approx 16%over previous fiscal as compared to the CAGR of barely 2.5% that IBM has had in its global revenues between 1989-2003. If India closed its economy again – this opportunity will suddenly vanish. All in all, to paraphrase John Donne – No country is an island, entire of itself every country is a piece of the global economy.

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Offshoring, Impact on US Jobs & Economy - Part III

This entry is part 3 of my rants on this subject. The previous rants can be found at http://shyk.blogspot.com/2004/11/offshoring-impact-on-us-jobs-economy.html http://shyk.blogspot.com/2004/11/offshoring-impact-on-us-jobs-economy_10.html The statistics quoted (see last post) indicate that net job loss is zero. However that does not take away the fact that as there is increasing global sourcing; certain job profiles would get relocated. Off course laws can be made to make it difficult or impossible for companies to relocate jobs. Since that is something I would like to cover in my next post – let’s talk about what can be done if job relocation continues to happen. As an individual or rather as a group of employees – the one way to stop jobs from going to somebody else would be to convince the employer that hiring somebody else is not a good economic proposition. Typical offshore rates work out to around $25/hr or $4000/month. Perhaps that is peanuts compared to what peers in USA earn – but to me, offering to work at that salary (in the USA, mid-west) sounds like a good option when compared to NOT having a job. Throw in a few sentences about your experience/skills and the savings in terms of management effort and perhaps one can work out a deal with the employer. The concept of farm-shoring is something similar. And though monetary considerations probably make the biggest impact on the employers decision, skills and availability there of also have an impact. Retooling or acquiring skills to move on to the roles below can also help in retaining jobs (albeit with a new job description Moving on to roles up the value chain – Business Consultant, Project Managers, Solution Architect et al that require proximity to the end user and hence cannot be outsourced. Picking up new skills/new technologies such as data warehousing, ERP et al. Relocating to a less expensive area in the USA where jobs are available. Perhaps if Jingoistic politicians and community leaders stopped to think and helped the unemployed move into new roles – there would be far lesser angst all around. Additional Reading http://computerworld.com/managementtopics/outsourcing/story/0,10801,96381,00.html http://techrepublic.com.com/5100-6228_11-5210485.html?tag=crm

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Offshoring, Impact on US Jobs & Economy - Part II

This entry is part 2 of my rants on this subject. The part 1 can be found at http://shyk.blogspot.com/2004/11/impact-of-offshoring-it-jobs-on-us.html ... The numbers say that approx 2% of IT Spending will be/was diverted to Offshore. Does that really reconcile with what we “know” – Every one of us knows somebody who has lost a job or may be one of us has lost his/her job. Is the 2% really a BS then? Not really – for we do not account for the fact that Y2K and the dot com boom substantially increased the jobs available. There was bound to be a slump once these jobs were gone. We also do not account for the fact that at least some of the people who lost jobs (in 2003) have since gained jobs. Lets see what the numbers have to say…Let me refer you to the IT Workforce Study – 2004 conducted by Information Technology Association of America which is based out of Arlington, VA. I quote - “The U.S. IT workforce gained population in the last year, moving up two percent from 10,312,650 in 2003 to 10,526,289 in 2004." Ugh Ugh… 2% seems to be a recurring phenomenon. But seriously - the disconnect between the job losses and the number of jobs increased comes from two factors – Though the number of jobs have increased, the number of “programming” level jobs have decreased (these are the ones that get Bangalorized) Though the workforce size has increased, the demand for (new) IT workers continues to drop. My interpretation of these facts is that though programmer level jobs may have reduced there is still a big market for jobs that can not or are not being offshored. And if the US IT workforce manages to reposit itself to take on these jobs – the impact felt would be much lesser. But wait, I am getting ahead of myself. That is the subject for my next post For the moment let’s see what these (purpoted) job losses really mean to the US Economy. Economists claim that since offshoring gets tasks done cheaper – they would lead to a productivity growth for the US economy as a whole. I quote – “... Just as for IT hardware, globally integrated production of IT software and services will reduce these prices and make tailoring of business-specific packages affordable, which will promote further diffusion of IT use and transformation throughout the US economy” And then there are others who claim that every Dollar invested in offshoring actually returns more than a dollar to the US Economy. I quote – “A recent study by the McKinsey Global Institute, an economics think tank, calculated that for every dollar spent on a business process that is outsourced to India, the U.S. economy gains at least $1.12. The largest chunk -- 58 cents -- goes back to the original employer, but there are many other benefits" Or on a more frivolous note an article from the New York Times about an offshore center – “All the computers are from Compaq, the basic software is from Microsoft, the phones are from Lucent, the air-conditioning is by Carrier, and even the bottled water is by Coca-Cola” Additional Reading http://www.robertreich.org/reich/20030528.asp http://www.itaa.org/workforce/studies/04wfstudy.pdf http://www.iie.com/publications/pb/pb03-11.pdf http://www.mckinsey.com/knowledge/mgi/rp/offshoring/perspective - to be continued -

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Offshoring, Impact on US Jobs & Economy - Part I

I have expressed my views on this topic in the past on other forums and this found this an easy subject to start of blogging on…. Any analysis of Offshoring’s Impact on US Economy necessitates analysis of The Dollar Value of Off shoring IT Job Availability in the US Handling Job losses in the US Impact of NOT Globalizing Let’s visit these in detail over the next couple of days The Numbers US Software Spending (2004 forecast) - $234 Billion US 'Applications' spending (2004 forecast) - $76 Billion US 'Custom Software' spending (2004 forecast) - $17 Billion India’s software revenues from US exports for the period Apr-03 to Mar-04 were a $6.3 Billion or less than 2% or total US software spending. In fact these revenues were way less than Walmart’s imports from China in 2003 ($12 billion). So how big an impact on jobs can a 2% spending be? I have conveniently ignored two factors The outsourcing to other locations – China, East European countries and Canada. The rapid rate of increase in outshoring. But then, I believe that the former is yet in nascent state and the later may not lastg given the outcry against offshoring. Additional Reading http://news.com.com/Commentary:+The+state+of+software+spending/2030-1069_3-5261559.html http://money.canoe.ca/News/Sectors/Technology/2004/06/03/484868-ap.html http://www.computerworld.com/industrytopics/financial/story/0,10801,68591,00.html http://freerepublic.com/focus/f-news/989935/posts - to be continued -

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