Increasing Remote Operations in Offshore Operations

What has probably existed for few years in the US based operations of OEM majors who are also service providers, is now catching up at offshore locations of these and other offshore players. Increasingly administrators are working from home - thanks to the improved network services which are also cheaper along with the reducing costs of a laptop and a mobile phone, not to mention the pervasiveness of chat and video conferencing.

Till 2-3 years back, such were just privileges which some of the senior folks in the offshore operations could enjoy as not everyone yet has a laptop in most offshore operations' teams which work on customer projects. Secondly, the efficiency of home networks (cost and quality) has improved several times. My home broadband has more than 99.99% uptime for the last few years I have been using it in India.

Another advantage of the home worker is the saving in office space along with reduced commute time (and cost) for the worker which motivates them to work well from home. Of course they need to ensure that they have a decent "home office" with no interruptions which is something that many struggle with as most homes are not big enough to have a study.

Other issue that many report is the inconsistent power supply in some of the cities/areas. However these days the power outages are mostly couple of hours in a stretch (as a maximum limit) which is better than the situation few years back and an air card with a laptop ensures that the worker is active even when there is no electricity for few hours at home.

So it is a win-win for the employer and employee but what about the customer? While many companies may not explicitly disclose to their clients the number of work from home workers on the account, most often the quality of service is at par with the workers working from a regular office. And most who work from home still come to the regular office once or twice a week to meet up with their supervisor and some of the face to face team meetings.

Another important "constituent" set are female employees who find it very useful to work from home in a predominantly patriarch society of most offshore countries where the woman of the house is still responsible for cooking and cleaning though it is gradually changing. Many are also able to afford domestic help with the new salaries they enjoy.

So it does  sound like a win-win-win for employer, employee and the client. Talking to some such workers - most enjoy the flexibility to handle home and work but yes they do miss the water cooler moments which technology still can't help with!

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.

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.

Shared and Dedicated Delivery Models

All traditional IT infrastructure service providers (like IBM ,EDS etc.) have over the years built competency and infrastructure to deliver IT Infrastructure Services through a shared delivery model. Most of the "commoditized" activities like monitoring and service desk (rather helpdesk as in case of many) are shared across multiple customers with the delivery team. This helps them lower costs, build their own processes to deliver services, very importantly have their own set of tools to monitor and troubleticket ( and so reduce cost and have a focused tools strategy across engagements).

Most offshore based (India based really in that sense) IT services companies jumped to the Remote Infrastructure Management (RIM) bandwagon more recently. In the last 3-4 years since their focus they have tried to get into mid-sized and now trying to even get large deals to bid. However their delivery model (for most of them) is a dedicated delivery model where each engagement has a dedicated team, a dedicated tools deployment and runs on processes varying for each customer. This is a big difference from what the traditional players do but is often missed out by clients and not effectively highlighted by these companies.

The India based IT Infrastructure Services or RIM service providers do not have a shared delivery strategy because:

• Most still have an application development and maintenance hangover which really is still their bread and butter. Those engagements have for most parts for most of them being Time & Material (T&M) contracts where the services were delivered and paid on the basis of number of consultants assigned to a contract. Essentially it is a "body shopping" work that most have been doing and so that hangover has continued to now where these large deals are Fixed Price managed services contracts.
• With the exception of couple, none has yet the long term investment horizon to invest in a shared delivery model in advance so that those can be proposed for new engagements. Those that have realized are waiting for a critical mass of engagements before making that investment but that does not happen fast unless they win large deals with a shared delivery model's cost effectiveness and process maturity. Classic chicken and egg!
• Some do not have the maturity and experience to set up one. This applies to some, where the intent is there, need understood but the efforts have not been focused and time-bound.
• The Indian offshore based players have still won many mid-sized and some large deals despite not having a shared delivery model. This has been primarily because of existing relationships on the application side which offered synergy and because they were still cheaper in a dedicated model from offshore than onsite based shared services model of most traditional IT outsourcing service providers. So their present success is jeopardizing their future success.

This move to a shared services model is inevitable. The traditional players realized that few years back and are mature on that front. The sooner the Indian based IT infrastructure service providers realize it, the earlier it would take them to those coveted tables where $1B+ deals are done.

Business vs Technical Proposition for IT Outsourcing

Most offshore-based IT outsourcing companies still look at selling to prospects on the basis of the superiority of their technical proposition. They go at lengths to come out with technical data, analysis, process models etc. All this to prove that they have a better story than competition which is now not necessarily another offshored-based IT outsourcing company. ( It mostly used to be then but now as they look at playing in the turfs of the big boys, this is not always true). So they go to all lengths to woo the CIO and his team and convince them how they are superior technically.

What they miss out is to woo the CFO and sell on the basis of the larger compelling case - the business case. The big boys of the game (IBM, EDS, CSC etc.) have been playing golf and wooing the CFO along with the CIO. The truth is that most often having a strong technical solution (not necessarily the best but even if it is one of the better ones) is a qualifier than being a clincher.

Isn't it so true - "The business of business is business" and so till there is an appealing business case, the CIO may not have the last say.

Reminds me of the sales mantra which I learnt early in my career : Sell to the M-A-N in the account:

M: Money (the person who controls finance)

A: Authority (the person who has the authority to decide/influence the sales)

N: Need (the person in the prospect organization)

The CIO mostly is the "N" while the CFO is the "M". Both or some others will have the "A".

As India based(offshore-based) IT outsourcing companies look at playing larger deals, they need to recognize this and not miss the CFO who may be the reason for those deals that unknowingly swung off while they had best technical solution.

Asset Takeover - Why Doesn't It Fly With Offshore Based IT Infrastructure Service Providers

There are many differences in approach and delivery model of the traditional IT Infrastructure outsourcing firms (like IBM, CSC, EDS etc.) and the relatively newer kids on the block - the offshore based IT Infrastructure Service providers. While that can be a topic for a full book, one of the key differentiators is that most (and probably all) offshore based IT Infrastructure Service Providers do not get into taking over assets of customers' IT environment. These typically are the servers, desktops etc. The traditional biggies in fact have had this as a core streak in their proposition. How they handled it can be differentiated into two parts - those who were hardware vendors and also had a hardware agenda and those who were pure play services companies. Whatever be the way it was dealt it was always a financial engineering subject. It gave a flash on the topline but the bottomline took a hit.

The offshored based IT Infrastructure Service Providers have traditionally evolved as application service providers and never had assets in their deals. The inclusion of such deals causes a lot of concerns, some of which include:

• Impact on the bottomline which would make it into single digits which they are not used to and do not consider core to their growth strategy
• Lack of a hardware business does not get the extra dollars to offset this "hit" with revenues in some other businesses
• Lack of critical mass and economies of scale (across multiple customers) which the biggies have
• No related business model like hosting services or data centers with leased servers where the residual equipment can be gainfully deployed
• Need for enhanced stickiness as such deals then require a much longer and deeper relationship which the relatively new offshore based IT Infrastructure Service companies have not seen (since they are still new and have not spent as much time in the marketplace)

Now these are the most common but relevant reasons aggregated across various companies. Specifics may vary with companies.

Analysts talking of the emergence of new non-asset linked services and its benefits (which cannot be denied) to the client are only making the market place an exciting place with different players having their own value prop stories.