Throwing Bodies and Hardware : How Do The IT Infra Service Providers Stack?

Onshore based providers who are also equipment manufacturers (IBM, HP,and now EDS) and offshore based providers (like TCS, Wipro, CTS, HCL) are different in their traditional approach to resolving issues in customer environments. 

The onshore equipment manufactuers who are also IT Infrastructure service providers, are known largely to adopt "throw more hardware" principle when faced with performance issues, whereas their offshore based counterparts have seen the "throw more bodies" approach work better. Each has used what costs less and is in more abundance for them.

This approach has led to different levels of expertise and competency for each of them:

• For the onshore equipment manufacturers/service providers, with abundance of hardware, they have learned to optimize a lot on other expensive resource - labor. That is the reason, they have a much matured delivery model in terms of maximizing output from resources deployed. Shared services set up is yet another example of how this competency has evolved. 

• For the offshore based providers, who had abundance of cheap labor, the first place to focus was on how they could optimize the existing capacities in the client's environment. Do more with less of hardware. This has been an area which they are relatively more focused though the onshore equipment manufacturers./service providers have, by virtue of also being more aware of the internals and designs of hardware, also a fair view of this. In the typical service engagement model though they may not be too focused on reducing hardware footprint as it comes cheaper to them.
  

So, the offshore based providers are kind of disadvantaged in that while their competitors in the onshore equipment manufacturers/service providers, also have a fair view of their area of focus, they do not yet enjoy the same.

This is obviously a maturing stage for both of them as they start from opposite ends of the band. As I wrote in an earlier related post , they are also working to cover what they lack and with time, there will be the  need to identify other differentiators when these become common with both.

This discussion does leave onshore based pure service providers (do not manufacture hardware) like Accenture, CSC, Cap Gemini who form the third category of IT Infrastructure Service providers. In some ways they have a bit of both of other categories and do enjoy a go position. Will cover them in another post.

Client Visits

Anyone working in any  IT services company in India will tell you how common it is to have "client visits" - these are visits of high profile CIO, VP-Procurement, Operations Heads and their likes to India to evaluate potential partners in their quest for offshoring IT services.

All these visits have few things in common:

• Client teams will typically visit at least 4-5 service providers criss-crossing between at least Chennai, Bangalore and Delhi. Surely Bangalore though as it is the Mecca of offshoring IT services
• If the team consists of first-timers to India, visit schedules and agendas are often at the mercy of the service providers who vie for maximum connect time often at the cost of other service provider's time. Extending allocated time is very common, moreso when the client's intend to move from one service provider's office to others the same day.
• The visits consist of "floor walkthroughs" where the client teams are taken to the Offshore Delivery Centers where the existing clients are serviced. Many clients (rightly so) insist before starting for the trip from their home country, that they do not want conference room presentations but more of floor walkthroughs - but most vendors will have  that elusive "one more last slide" in the conference room sessions
• Dinners are most sought after by service providers as it gives good "off the guard" time to connect and also strike a rapport which is just not possible to do when in their home country. Just imagine, trying to get an hour of a CIO's time in his office in his home country .. and how when in India he is literally at the mercy of the service providers with a solid 8 hours (most of them are at least a day visit) to connect. 
• Many such visits also have parallel tracks where a large team from the client's side is split into various sessions to make most of the time.
• Most visits are invariably delayed and run over allocated time
• Travel time on roads is heavily underestimated
• Each service provider gets the client teams to meet at least 35-40 individuals for various sessions with big teams from their side for each session "just in case a question in that area comes up" 

On the lighter side:

• No one from the client's team wants to sit in the front seat of the cars after seeing the traffic and how close the traffic moves
• Client teams often run out of cards by day 2 or 3 having to give out to everyone they meet and with each visit needing at least 20-25 exchanges with the huge team fielded by the service providers

From a recent example when I hosted a senior team from a major US bank earlier this week: the team had split going rounds of various service providers in major cities. Some of them could not make it to some visits due to burn-outs.  They were meeting us in that particular location in addition to a major day long session they already had with our company. They had planned to visit at 6 PM and go up to 9 PM that evening. The team we met was very tired, up that morning at 3 AM for a flight and due to catch another one next morning. Off that flight they were to go direct to another service provider's office for meetings till 8 PM next day. From there they had to rush to the international airport and take the 1 AM flight out back to US!! They finally decided to cut short the visit, dinner and all and head back to their hotel for the much needed sleep.

Hiring Slowdown

A recently met the head of recruitment for one of the major IT services companies from India. He was looking much slept than his earlier self and the reason became clear in our discussion.

He disclosed how finally there has been a slowdown for recruitments and in his company really a freeze. In the past he had targets to hire 5000 recruits (fresh and experienced) each quarter. One of the key KPIs for his and his team's performance has been "target achievement" for the hiring target. They have added almost 30,000 employees in the last two years!

Thankfully companies are realizing that reckless hiring has to stop and cannot go as they did in the past. 

TCS Acquires Citi's Back-office operations

The acquisition of Citibank's back office by Tata Consultancy Services brings forth the following:

• Further validates that offshore captives are passe and no longer hold the charm.
  
• Offshore IT players consider a BPO capability essential to their future growth. This being operations, it gives a credible platform to bring new customers, especially those that are moved through cross-sell from the list of customers for application development and maintenance.
  
• This deal gave TCS a ready pool of 12,000 resources who would be productive from day one and speed-up what would otherwise take at least two years to recruit along with ready infrastructure they come with.
  
• On the new business, part of what TCS pays would be recovered with revenue from Citibank over next few years and that is part of the deal .
  

Citibank thus becomes TCS larges customer, a position held by GE for some time.

Cloud Computing : The Emperor's New Clothes?

This article on eweek.com (Oracle CEO Larry Ellison Spits on Cloud Computing Hype) has Larry Ellison blasting the hype around cloud computing. He has been quoted in the article:

The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do. I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop? We'll make cloud computing announcements. I'm not going to fight this thing. But I don't understand what we would do differently in the light of cloud computing other than change the wording of some of our ads. That's my view.

Considering Oracle itself has been riding on the cloud wave, with these comments Larry maintains his image of a straightforward maverick calling a spade what he thinks it is -- a spade.

Is this a case of the Emperor's new clothes? If Larry spoke his mind, surely he has come out in the open on something which everyone otherwise thinks is probably the next big thing in IT services.

Reverse Outsourcing

This article in Wall Street Journal Business Technology : The Rise of “Reverse Outsourcing” talks of the increasing trend of reverse outsourcing. Couple of key paras:

"While 82% of businesses surveyed said they were satisfied with “sameshore” outsourcing (the industry has adopted several absurd terms to describe where work is done in the wake of the offshore boom ) only 33% were satisfied with offshore efforts. "

“A lot of folks were comfortable taking the work to India, but it turns out they’re even more comfortable taking the work back,” Wilson tells the Business Technology Blog.
That doesn’t mean businesses will start sending more work to outsourcing companies based in the U.S., however. Instead, the desire to have work performed closer to home, which is largely attributable to the need to communicate with the people doing the work, has led to what Wilson calls “reverse outsourcing” – companies based in India opening up offices in the U.S. "

"One area of outsourcing that seems immune to this trend: infrastructure management. Businesses seem happy to let overseas workers monitor their networks and make sure that tech equipment is processing data at the right speeds. The reason, says Wilson, is that infrastructure management is largely automated, so communication isn’t as big a deal. “It’s low touch,” he says. “There isn’t a lot of interaction.”"

Personally I think there are some more layers to peel here to really get to the core of why enterprises prefer "sameshore" outsourcing than just the stated need for better communication.

While Indian companies (like TCS, Infosys, Wipro, Cognizant, Satyam, HCL) may be opening offices on the "sameshore" this will eventually bring them closer to the traditional in-continent outsourcers (like IBM, EDS-HP, CSC, Accenture, Cap Gemini) in terms of operating model and quality of service. Really the very DNA of these companies. The cost, operating style will gradually tend to be the same since a lof of folks then would be local hires bringing with them the style from those other in-continent companies where they worked earlier.

Alternatively, if the Indian companies decide to run the operations with the same style and skills as they run in India, with resources imported from India ( which is not practical) I am sure this will lead to a new category of companies with sameshore operations but still not popular with enterprises outsourcing.

This really is part of the continuing story of IT outsourcing and how it has evolved over the years. The current state of affairs is another section of this story which is bound to evolve with time. Following are four broad phases in which I see this story to have unfolded till now:

1. Phase 1: In the first wave of IT outsourcing in US (and little later in Europe) companies outsourced to in-continent outsources. These brought workforce closer culturally to theirs and often it also had staff moving from client's rolls to the outsourcer.
2. Phase 2: With the advent of offshore based providers came an army of culturally different teams with little or no representation from the local population in their sales and delivery teams. They still got business ( though new with little past track records as the in-continent outsourcers) as they promised costs almost 50% down. Enterprises were willing to take that even though the teams were not culturally aligned.
3. Phase 3: In the next phase a lof IT outsourcing, the in-continent outsourcers noticed the offshore models of newfound competitors and figured out that it was something they could also do - have resources in offshore locations like India, and deliver services from there. It was easier to hire in India with a ready set of trained professionals trained and developed by the traditional offshore based outsourcers from India. So time-to-deliver was not too long and their hired some of the senior folks from these very offshored based outsourcers who knew the tricks of the trade.
4. Phase 4: It's time to play catch-up for the offshore based IT outsourcers. They realize now that what they miss is a workforce more local to their customers in-continent along with a more culturally aligned workforce to their customers' teams. Often not stated but understood is also that they realize they have been missing on the golf courses where the client CxOs spend time and often get to strike a discussion with sales reps from the in-continent outsourcers. So, they are doing an encore of Phase3 now in the in-continent outsourcers' turf.

This is great levelling match. End of it, with the principle of equillibrium both types of outsourcers will want to get the competitive advantage of others and soon it will be difficult to distinguish between them in a crowd. It would then be time for some other differentiators to play and offshore as a differentiator will really cease to exist in its current form.