Maturing Remote Infrastructure Management Capabilities

RIM service providers are maturing, or so most say, when it comes to developing capabilities up the value chain. Following (in ascending order) are the service areas when it comes to assessing maturity on a single dimension of nature of service delivered. There are other dimensions -- in terms of pool of resources, number of customers, innovation, patents etc. but we will for the sake of simplicity, limit the discussion to the nature of work being outsourced to offshore RIM providers. So, here's the list in ascending order of maturity:

• Monitoring : L1 monitoring of events; resolving basic ticket and assigning tickets to L2/L3
• Management : L2/L3 support; resolving tickets assigned by L1 teams or system generated and queued
• L4 support : L4 or close to OEM technology support
• Architecture : Designing of IT Infrastructure
• Implementation of mid/high complex infrastructure : includes Storage, Backup, high-end computing platforms
• Transformation Consulting : Roadmap and recommendation for transformation
• Technology Development : Pioneering new frontiers of technology related to IT Infrastructure

Most IT Infrastructure providers or RIM service providers are today operating at the lowest two levels of L1/L2/L3 support. There may be one off engagements where they deliver higher levels of support at L4. For those higher up in the value chain (in italics above), it is still a space where they have not established themselves.

It is not easy to find resources who have practical experience in those areas at offshore. Competencies are being mostly build with experience being at L1 through L4 levels but that is not easy. Hiring professionals in other geos is an option which some have started to consider but then they cannot use that as a scalable model without upsetting the labor arbitrage.

HP & IBM

Among the various OEM majors two companies stand out for their coverage and above all "offering mix". Each of these two have a hardware business to reckon with, have a software aspiration (or also a software business to reckon with) and each of course is big in the services play.

Let's look at some of the major competitors in each of these categories:

• Hardware : Dell, Sun
• Software : (is a big space depending on where you are looking): Oracle, CA, BMC
• Services : EDS, CSC, Accenture, Offshore based players like TCS, Wipro, Infosys, CTS etc.

This is an interesting situation because their competitors in each of these three distinct categories are also possible alliance partners or sources of size-able revenue for one of the other category.

Both these companies realize that wooing the service providers who also compete with them is also important for their hardware and software business. Thus it is not uncommon to see HP/IBM presenting and sharing technical details of their hardware and software products with these service providers.

This is an interesting relationship! The two companies are competitors for large deals but also need each other though often the hardare vendors seek them more than the other way. In caseses where the service providers encounter mainframes, of course they would then seek IBM for specific inputs.

On their part, HP and IBM talk of how these distinct teams are different and insulated from each other. The sales rep will give some standard explanation of how his colleagues work on the same deal but they don't talk and the whole of IBM/HP till the top is unaware of IBM/HP teams working on the same deal.

Impact of Recession on Offshore Based IT Services Companies

I wrote some time back on "Wall Street Meltdown & Offshore IT Players". In the past months the meltdown has crossed over to the oft quoted Main Street and now is on Hosur Road, Whitefield and OMR in India.

The global recession which was being discussed in whispers and "what ifs" is now full blown in terms of acceptance. However the extent of its impact is yet to be known. With the domino effect it has been having this time across various industries ( I was reading last week that in the previous quarter Volvo reported new orders for just under 150 new trucks globally, against a number close to 15000 in the same quarter last year). Unlike the last one, this recession is not limited to or greater in impact to the technology companies alone. In this one it seems that the technology companies will feel the heat as opportunities from various industries they connect with, get impacted. So, the impact is more widespread, it has shaken the fundamentals of economy and business in many countries and has now crept to impact everyone with the government bailouts, mortgages and job losses.

So, what does it mean in terms of its impact to the offshore based IT companies in particular. Here is my take:

1. The worst is yet to come. What we are seeing now are steadier revenues from business signed few quarters back. Since a large part of the engagements are relatively longer in terms of contract, the real effect of the slowdown will show when the deals that were to be signed now and in future will result in loss of work in the coming few quarters. Some of the short term project work has of course taken a hit and the impact is clear with the layoffs being seein now even in the Tier 1 offshore based IT services companies.
2. The impact, once in its full by mid of next year, will be the worst that the industry has seen. The positive fall out is that it will make these companies re-think on their "hire more people for more revenue paradigm". All are now sitting on a big employee base with labor cost (salaries) being their largest part of their operating cost which is bound to reduced.Another development that will soon set in is that some new offshoring contracts will get signed in the next 2-3 quarters. These will be related to outsourcing/offshoring those work which the client operations teams could hold off due to fear of losing their own jobs, losing control to an offshore team, due to risks in security which could be now be re-assessed with a higher risk taking ability in the interest to keep the work going. Next quarter we should see traction from mid-sized companies which would want to decide very fast for IT services in general. It is also possible that in case the enterprises have an incumbent, they have already called them and asked for a flat 10%-15% discount due to the business climate. Increasingly this is not unusual and an RFI/RFP issue only adds to the thread in case some large onshore based vendors are not willing to budge.
3. By next year, almost all would have asked employees to take a pay cut. The focus would also be to create products, upgrade competency and even pursue mid-sized deals (either smaller contracts with large companies but more likely, larger end to end contracts with smaller companies).
4. Not restricting to offshore vendors, but in general too, this recession will really move up the bars for risk/reward system in contracts. Companies will find innovative ways to structure contracts with contained risks for service providers partially but a big thrust on sharing their fate with the payout with service providers. In absence of much action elsewhere, offshore based vendors are more likely to jump for such deals since their cost base are still relativevly smaller than the larger onshore based companies.
5. Offshore based providers, again not restricting to them, but they in a big way will start scaling up their sales efforts in non-US markets. Moving sales staff from US to South America, Europe, South Africa and APAC will be a big focus.
6. When it ends, it will bring the offshore providers back with the labor arbitrage that they were fast losing. It may not put in them in the position they were at the beginning of the century but the frenzy would give way to some more sensible selective pay hikes and not those blanket ones. The attrition (staff turnover) due to volunteered resignations has dramatically reduced though larger number of employees are leaving as they are being asked to.
   
   

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.