Landed Staff vs Local Staff

One of the big differences in the delivery and staffing model of offshored based providers against traditional onshore based providers is the use of landed staff. Aside of the whole issue around immigration and its impact on economy which has been widely discussed, these present an interesting contrast in operating model --- the landed resources are almost certainly working from client premises and are more connected to IT teams by sheer physical proximity. The local in-country staff may not always be in-premise all the time which impacts their connect.

Also, since the landed staff is in the country only for that work, and are more culturally tuned to the offshore based teams, they often have a not so busy social life which along with the work culture they are mostly tuned to, end up working more in terms of sheer hours.

There are several other interesting aspects that I have seen at closed range as I have worked in both models and will discuss those in some future posts.

Captives : The Middle Path

The value proposition of an offshore based captive is very compelling for large global corporations. Those that have gone through few cycles of offshore services contract, smelt the value in streaks in their experience but also most often faced the business disconnect as IT moved away from an inhouse function to a service provider. While there are cost efficiences to leverage, most enterprises do not expect and are not prepared for the commoditized service model that service providers unleash. Fact is that part of the cost efficiency and its related lower management overhead is derived from these models but IT teams and business often find this to be the most understated situation in the before and after discussions they had during the sales cycle.

It is like moving from a gourmet (and in-house at that) restaurant with all the bells and whistles of a fine dining  place to a fast moving pizza delivery location which at best may have few chairs thrown in just in case patrons are too hungry to take the pizza home. The delivery model for the pizza place which is running a large scale operations at a competitive price with low real-estate footprint and staff does not have the well dressed manager who greets you at the door of a fine dining place. From there, you see that most stuff in the pizza place is standardized and fixed. They may be able to help you with some of your special request but cannot do a made-to-order dish that you can relish at the gourmet place. You often leave the pizza place unsatisfied on these counts if you are not prepared for this change from your gourmet habits. So, that's coarsely what is at play.

Now, the captives step in like couple of those pizza joints which also have a manager who greets you at the door and while they use the same kitchen and staff, the relationship with the client is more refined and customized and factors in your special request (to the extent the kitchen can accommodate). There would silverware for those who look for it and he could take time to explain how the cheese is made and stuff. 

So, in summary, the captives on paper do have a compelling proposition. The devil lies in the detail of execution. Running an offshore set-up requires more than just running an internal IT department. And if the set-up is in the neighborhood of service providers, resource management and retention is just one of the key challenges. Some companies have found the secret (pizza) sauce and are doing well while others are trying to refine the model and few others have already exited selling their set up to IT service providers ( who else?!) as part of a lock, stock barrel deal.

"Yes Sir" and No "No Sir"

I was having a lunch conversation with a colleague who has moved from the IT department of an enterprise to an offshore based service provider's organization. He was sharing his frustration on the lack of assertiveness on the part of most team members in the offshore service provider's team (and in that company in general). Since he had moved from an internal IT organization to a service provider, these were frustrating for him when he was in calls with the client where his colleagues mutely accepted whatever the client asked for --- be it additional scope of work, very aggressive timeline commitments or unrealistic service expectations. They just didn't push back!!!

This is in fact a recurring sentiment I have heard from many on both sides of the table -- those who offshore work to IT service providers and those who provide such services working for offshore based IT service providers. This is in fact a very rampant behavior trait which neither party wants to discuss because one is taking advantage of it and the other is being taken advantage of. Worst, most often the team members don't even realize that there is an option to push back. I am not suggesting that the trait should be a "push back all the time and every where" attitude but there are ways to respectfully and collaboratively correct a client's expectation if they are unrealistic or may have issues which they may not be aware of. Most folks in several offshore based companies just do not acknowledge this and this seems to run through the echelons of power in such companies. I have heard of some companies where the relationship manager says " How can I say NO when the customer is asking for it? He is the after all the CUSTOMER!" for situations where what the customer is asking is just not do-able or practical. What is not understood is that in the process incorrect expectations are set and face-off is deferred to a later time when anyway the expectations will not be met or lead to consequences which are not desirable.

Now, the interesting part --- though most customers who offshore take advantage of this cultural trait ( we will delve more on how much of it cultural and how much of it is anything else), in private they acknowledge that they want partners who can challenge them and say NO when the right answer is NO. They do not want to get a submissive YES for everything because then the service provider team is not bringing value in validating what they think. If, whatever the customer think prevails, there is no check or balance to bring in perspective from similar experiences with other customers. Not just that, many even say that they actually would respect an offshore provider more if they see the teams more balanced and responsive and say NO when that is the right answer.

What is the reason for this seemingly foolhardy behavior?:

1. There is a bit of a cultural aspect to this given that such conversations happen across cultures. While at one end are customers from the western world ( mostly Americas and Europe ... and I don't want to get into which ones from these two are more aggressive!) who are more aggressive in general, at the other end is a typical Indian or some times even attributed as an Asian trait of not confronting the client directly in business situations.
2. Another reason and more plausible is also that it just is not there in the DNA of such offshore based IT services companies because they essentially grew through T&M (Time & Material) contracts contributing almost 96% of all their revenues in the last 20-25 years. In a T&M contract, the resources from the service provider works as part of the staff of a manager who is from the customer's side. So, they are essentially executing tasks assigned to them. There is little chance to be asked for opinion in that sense and whatever opportunities exist are not leveraged due to the cultural trait discussed earlier. So, over the years, the organizations have grown on a staple of T&M engagements where their staff has followed what was assigned to them not having much of a chance (or inclination) to speak up to do things differently.
3. Another reason for I have seen is the "Customer is always right" syndrome which is conveniently used as it means whatever the customers asks or says is to be followed and takes away the "burden" of finding what is better or right if that is not known.
4. Another reason, which is again highly debate-able and needs to be understood in the right context has to do with the evolution of most of the offshore based IT service providers. In the early years of their formation, the staff they mostly used were from their base countries. However the IT maturity in these base countries was not to the level of what existed in most of the western world where the customers were located. Hence, while the staff started working, they were mostly on a learning curve for some of the technologies as these were new to them. Hence, in those early years, they also lacked the confidence of knowing that they could have a point to make since they knew that the client teams had worked in these systems for a longer time in the past than them and hence they found it more convenient to follow what was being told due to lack of confidence.
5. Finally, many organizations just do not understand still of what the customer is looking for. They think that by agreeing to what the customer is asking or suggesting, they are making the customer happy and ensuring continued business.
   

However this today is not limited to traditional offshore headquartered IT services companies. Since many of the employees in the offshore units of onshore headquartered IT services companies have been hired from the offshore headquartered companies, they carry these personal traits too with them in their new organization. This has further contributed to their own challenges in meeting expectations at times in their new organization or at times led to further rifting of the great divide that exists in such companies between their offshore units and their base home units set up onshore in the Americas or Europe. That rift is probably a topic for another post though!

But before I conclude this post, I should say that these are typical traits heard from many people on both sides of the story. This however does not mean that all offshore based IT service providers or all the team members of a particular service provider demonstrate this trait. There are many who are highly appreciated and their clients will tell you how they brought value by brining in perspective that were really brilliant. However, for those who found these traits, the above is an analysis on why it possibly happens given that such a behavior does not help either party in the long run.

Pricing Models and Choice of IT Service Providers

Among the various pricing models in vogue with the offshore based IT services providers, the key ones are time and material (T&M) and fixed price (FP) models. While there may not be complete data ( or at least I have not seen), on which ones rule the most --- my personal take is that T&M contracts should be accounting for almost 80% of the contracts if not more. The rest are mostly fixed price. There are some others like device based unit pricing, outcome related pricing which may be there in pockets but mostly T&M rules the chart.

This also shows the nature of engagement --- the customer owns the risk in such contracts -- and probably s/he don't mind it as the nature of work outsourced is chopped and packetized to ensure it follows the technologies, processes and skill requirements that already exist. However as corporations move to a managed services environment, if you can rely on your provider, then to help them realize the full potential of their innovativeness and cost-efficiency, one needs to look at pricing models like fixed price, utility based, transaction based or, outcome based. However, the difference across these models (apart from how you assess the charges and the risk ownership) is also the degree of control you, as the outsourcing enterprise, would wield. So, not only does it require a mature, stable and innovative partner with a track record, but it also needs the outsourcing enterprise to agree to let go control, to varying degrees to completely benefit from outsourcing.

It is not uncommon to see most CIOs embark on a roadmap starting with T&M model, with a stated objective to move to other more deeper models gradually, but somewhere down the road that does not happen -- often fuelled by the outsourcing enterprises' staff's need to retain control or due to the lack of leading-the-curve trait shown by the chosen provider. And then, between the choice of going for a new partner in the hope that it will be different or to continue with the current one but with a lower degree of involvement ( and no transition and a whole lot of other stuff to face) organizations often choose to continue with the chosen provider.

So, it is also important to choose a service provider carefully in the first place before you let them in. It is much more difficult than shifting to a new desktop manufacturer ( which in itself is not easy either!) when it comes to changing service providers for IT services.

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.

Captive Offshore Centers

Let me start with a story:

Traders from far off exotic lands used to get precious gems to a certain village. These were much sought after and sold at a price to the locals. Few smart folks from the village, who liked these gems, wanted to know more about this trade and the trader. So, they found where he comes from and where he gets his precious trade. They figured out that it was futile to pay for these gems those prices when they could get it cheaper if they undertook the same journey from the far off land and brought the stuff to their village.

So they befriended the trader, went with him to his country and found the places to pick those gems. They surely could buy a lot more for the same price that they paid to the trader in their village. However after the initial euphoria of the new find subsided, they found that undertaking this journey to get the gems was taking a toll. They were not able to spend enough time in their village and so their own business was suffering due to the lack of attention. Secondly over a period of time, with some maths they found that the cost of getting the precious finds home was actually more than taking it from the trader! They had initially overlooked the local expenses and costs - the cost of stay in an unknown place, the cost of hiring labor to extract (with a comparatively smaller scale than those of people like their trader friend), cost of security, cost of travel etc. So, while the gems themselves were cheap there, the lack of volumes, lack of knowledge of local conditions, lack of core competency in that space was causing their overall costs to go up.

Finally the smart folks gave up their newfound venture and settled for buying the gems from the trader who visited their village. They could get it at better price than they would have eventually played to get themselves and they were also able to focus on their business.


The story is similar when it comes to offshore captives set up by many enterprises who find it more lucrative to set up an offshore center than to pay a provider to get offshore delivered services. So, while they want to get the benefits of labor arbitrage, they want it do it all themselves.

Over the years, the industry has seen many such captives being closed or sold off. The companies ultimately found that running offshore based delivery centers were best left to be run by companies which understand this business better. They were bogged down by high attrition, escalating cost of labor, lack of opportunities to offer to their employees as compared to service providers and other local conditions.

They still get the gems ( the cost efficiency and improved profits) while they focus on their core business and let the professional service providers run ofshore services for them.

It is no different than the classic "make or buy" decision - only that in this case most companies have realized that "buy" is the way to go. There may be exceptions where a "make" may make sense but then that's what they are -- exceptions!