IT Outsourcing Contracts

IT outsourced services represent an intent on the classic "make vs buy" decision. Organizations choose to "buy" a service than doing it in-house. Of course there are variations where organizations may also choose to keep some services in-house (which happens most often) but largely that's the intent. 

In doing so, organizations have few control levers than the contract as they embark on such a partnership. The contract seems to be the only sane way to keep control on the provider for the next five or seven years (or whatever is the duration of the contract). However organizations often miss out few key things:

1. It is not possible or feasible to document each and every aspect of expectation and scope in a contract as several areas may emerge as services mature or as the service provider's  (or providers') operations are understood

2. Needs of business will change and evolve over the period of the contract due to business climate changes, market changes and several factors which cannot just be foreseen so far ahead as the duration of the contract. These just don't include the scope but also the SLAs, engagement model, delivery model etc.

The more successful relations have seen a start based on the framework provided by the contract but then the relationship should mature based on mutual trust and understanding. In the later years the contract may just be an over arching framework to be referred in case of deep disagreements but largely the teams working together need to understand each other and make things work than getting the lawyers to do the same.

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.

CSAT Programs for Outsourced IT Services

Enterprises and service providers alike have not been able to find a consistent way to really tap into the the user perception of IT services that are outsourced to external providers. There are only a handful of them who have a well oiled framework to regular mine feedback from users of outsourced IT services, siphoning it back to the delivery teams and tracking the progress against the areas of improvement. Even there, the process is at best reactive. 

There are several variants of doing this but a lack of a consistent framework stands out --- and is so surprising that no one has really been making moves across the industry in this space, moreso with the growing trend of moving work to several countries outside the base country, multi-sourcing and other emerging trends which adds several moving parts to what was earlier a simple support model with in-house and mostly local IT support.

In most IT shops where CSAT programs run, these are mostly around service desk where a % of users whose tickets are closed are served with a 5-8 question survey to gather feedback on that experience. However there is need to include resolver groups in this or separately and also to track trends of root causes and teams scoring lower scores consistently. However this is mostly the B2C kind of CSAT if you may. The other is the qualitative feedback on a provider's ability to deliver the intended goals, service improvement and support for business which are more of the B2B kind of CSAT. These are more crucial to gather what the customer leadership team thinks of the provider and are most often modulated due to the "in-band" nature of information gathering. The teams which collect such information are part of the account relationship team and have a conflict of interest in collecting such feedback on performance which reflects their own. Also, it is not easy to standardize such B2B CSAT feedback as each client has its own unique set of requirements.

An ideal CSAT program covers both B2C and B2B CSAT feedback and analyzes these and finds trends to assess how the services are trending. A great area to improve and grow for both enterprises and service providers alike.

This news article has pegged UK as the second largest IT outsourcing market after the US:

The government has put a huge FOR SALE sign over the country’s public assets and services. According to the sharedserviceslink.com website, the bulletin board for “leaders in finance shared services”, the United Kingdom is the world’s largest out-sourcing market after the United States. The number of contracts in the UK has increased sharply by 47 per cent to 148 contracts a year since 2010. The annual contract value for this country jumped 16 per cent in 2012 to $3.75 billion! All this before the major sale drive about to take placein the NHS.

The International Services Group (ISG) states that the UK accounted for 80 per cent of all contracting out across Europe, the Middle East and Africa, making our government alone among the major European economies in using out-sourcing  as a key element in its response to austerity. Richard Vize, ofOutsourcer Eye, says that the application of cuts is dominated by “short-term thinking”. The effects of all this activity on quality or cost is unclear and there is no reliable information on the impact of cuts or out-sourcing – though these effects are visible, for example, in local government, the NHS and government agencies such as the Inland Revenue.

While EMEA was always considered the second largest ground, UK taking that cake on the back of a strong government driven initiative speaks of the growing importance of the country in the global marketplace. While the scale and growth rate are still lower than that of US, this demonstrates the prominence of the region not just in the European context but overall in the global IT market context.

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.

Cultural Sensitization

Anyone who has been involved in offshore based outsourcing for some time, in any way, will surely have interesting stories of how lack of cultural awareness led to serious and some times just hilarious incidents. Fact of the matter is that while the common denominator that drives work to remote locations is the fact that at least in technology services, these are finally technical stuff which can be delivered by anyone technical, these closely linked to cultural aspects too.

What is not often factored in, is that these technical services are needed and provided through human interface and these provide the cultural tone to services, through the consumer or provider of these services. If there is no adequate sensitization on both or at least one side of the equation, it can often lead to misinterpretation, service deficiency or frustration. Most companies which provide offshore based services have understood this now, many the hard way, but there is still a big gap to cover and most measures are not comprehensive and do not tend to address the root cause.

Now, it is also true that it is not easy to change the cultural affiliations of people so easily and so, ultimately it comes to making people appreciate the cultural gap and having them be aware of the major socio-cultural aspects through learned behavior in an effort to match what comes naturally and effortlessly to the other party as it is part of human social and behavioral manifestation.

Bottom-line : it is very important to ensure that both enterprises and service providers appreciate this aspect and jointly work to address this in a way so that it at least neutralizes the obvious rough edges fairly consistently and is baked into the fabric of service delivery enablement. 

Making IT Work With Offshored Services

Came across this article IT Offshoring Still Works, If You're Careful which talks about what some of the companies have matured to do, in handling the offshored IT services through various service providers. 

While there is no magic potion (!), fact is that enterprises need to be cognizant of the fact that this is different from the way outsourcing worked earlier and need to make some changes in the way they structure the contract and engage with the service providers's teams. There is surely tremendous value still, provided a proactive approach is jointly taken by both sides.