By Sarah Fister Gale
PM Network, May 8, 2008 India is no longer necessarily the one-stop shop for all your IT outsourcing needs. It certainly still ranks as the low-cost leader, but competition from other countries that offer near-shore expertise or a more similar workplace culture is prompting companies to look elsewhere-for at least some parts of their projects. "Most of the Indian outsourcing services providers no longer enjoy client exclusivity," says Anurag Gupta, group manager, strategic marketing at Wipro Technologies Ltd., the global outsourcing giant based in Bangalore, India. "There is a high amount of overlap in the customer base, and this has elevated the competition which existed between the service providers." In nearly every corner of the world, IT vendors are opening shop, offering an array of services in regions where strong labor pools and reasonable pricing can give India some stiff competition. And that means destination-specific outsourcing is becoming a thing of the past, as more companies hand off chunks of projects to multiple vendors in multiple locales. But it also means companies must take a more active role in supervising and coordinating all those vendors. Companies seem to realize the old model isn't functioning as well as it might be. Only 20 percent of the 226 senior executives in global private-sector corporations participating in an April 2007 PriceWaterCoopers LLP survey said they believed offhore outsourcing works in "real life." And, although they acknowledged a continuing need to outsource IT projects, 50 percent of the respondents said they planned to increase investments in multisourcing in an effort to regain quality and oversight. Companies need to maintain better control over their outsourced projects to get the results they want. And they're starting to realize cost alone is not the best way to choose a vendor, says Scott Petty, London, England-based group executive of services for Dimension Data, an IT provider based in Johannesburg, South Africa. "Multisourcing is about finding the best mix of providers to get the most operational benefit for your IT infrastructure strategies," he says. The move to multisourcing frees companies from the shackles of an offshore outsourcing model that often takes control of projects to another side of the world. Some companies are opting to go with nearshore vendors operating in a similar time zone and culture to their own. Others ship pieces of their projects to several different countries, awarding each contract to the company that best meets a particular need. And some organizations are even choosing vendors willing to move their offshore teams to the client site. Done right, multisourcing gives companies access to best-of-breed solutions to their problems. "Multisourcing gives a customer an opportunity to keep working with its favored supplier but at the same time start cooperation with other vendors", says Alexander Egorov, CEO of Reksoft, an IT services provider in St.Petersburg, Russia. Using multiple providers also helps mitigate project risks because you can tap into the expertise of many teams of vendors in multiple nations. "A disciplined multisourcing process results in engagement with a set of suppliers, each one of which will be a specialized expert in some identified areas," Mr. Gupta says. "It fosters a high level of competitiveness among the vendors which should reflect in the quality of delivery, promptness and pricing." Investigating the Possibilities Wherever the vendors are located, choosing multiple project partners takes more up-front investigation by company executives, both in defining the exact needs of the project and determining which factors are most critical. But it's not always easy to ask multiple vendors to collaborate when they're used to cut-throat competition, Mr. Gupta says. To make sure everyone's "playing nice," some Wipro clients establish a vendor management office or a dedicated supplier relationship management program with set processes, strategic vendor management, appraisal and relationship management. "For better governance, we are also seeing customers adopting a 'primary vendor' strategy in a multisourcing environment," he adds. "This primary vendor owns the accountability for a big part of the business needs of the customer while the other vendors bring in their services capabilities." But companies should still keep tabs on the primary vendor's handling of secondary vendors. "Because in the end, it's their business that can get affected," Mr. Gupta warns. When international banking company ABN AMRO, Amsterdam, Netherlands, decided to completely redesign its IT service delivery model, it forged its own way of multisourcing -making a clean break with the way most such deals are negotiated, managed and controlled. First, ABN AMRO investigated several delivery and sourcing scenarios: in-house, single vendor and multivendor. But as the bank was choosing vendors to fulfill the complex statement of work, it recognized that although it didn't want to relinquish control, it also didn't want to manage operational IT in-house - it wasn't a core banking skill. The solution was to define a new role in the multisourcing model: the vendor "guardian." "This role was conceived to avoid any aspect of the end-to-end services falling between the gaps of service responsibility between the various vendor partners," says Rob de Haas, group CIO of ABN AMRO. The bank chose IBM for the leadership role, both for its own expertise and because it was the vendor responsible for taking the work live, which made it dependent on the success of the others. "IBM was also the furthest along the IT food chain, so its final product was a combination the work of all the vendors, making it a good choice as coordinator," he explains. As the guardian, IBM was the "first among equals." ABN AMRO maintained control over the vendors and the model, but left the operation details in the hands of IBM. The chosen vendors also signed an agreement to work together with all of the other service providers - even if they were rivals. Although IBM acted in the guardian role, Mr. de Haas and the bank team remained intimately involved with the development and maintenance of the model. The bank established a governance structure and project management strategy for operations that includes reporting requirements, and then scheduled meetings the best of with the vendors. ABN AMRO and IBM managers convened with representatives from all of the vendors regularly, either in person or via videoconference, to discuss progress, problems, innovations and cost issues. The team also received regular reports on all the vendors from IBM and was involved with any problems that escalated beyond the IBM-vendor relations. If you choose a guardian, you should not assume you never have to speak with the vendors again - you may as well just outsource," Mr. de Haas explains. "Dialogue is key." Door-to-door service One way to help manage the multisourcing process is to integrate a common project management structure into all service agreemens and negotiate the same expectations with each of the vendors. Global wireless and telecom giant Vodafone developed a framework to help it outsource the 400 network changes that come in per month from the 900 projects running throughout the business. Of course, there's also something to be said for working in close quarters. So one of the company's vendors, Dimension Data, has some of its team working at the Vodafone headquarters in Newbury, England, where they manage a flow of project needs under the leadership of Heidi Godfrey Jones, who developed the framework. "Having the vendor come to us has helped us to ensure our suppliers are staying true and delivering what's expected," says Ms. Godfrey Jones, head of core operations at Vodafone. The move gives the company full use of the IT personnel without the hassle and cost of employing them on staff. Having vendor employees on site also gives her easy access to their progress through team meetings and unannounced spot checks, all of which are built into the service agreements. "You have to stay on top of the vendors and constantly check the schedules, the milestones, the key performance indicators," she says. "You need to make it clear the reviews and reporting are not negotiable." This constant review process has helped Ms. Godfrey Jones identify several issues that might have caused delays and problems if they'd gone unchecked. For example, during a recent spot check of the Dimension Data team progress, she discovered one of the Vodafone business units was making a huge number of requests for service, which were sapping resources from other projects. She investigated and found the business unit had just launched a major project and was making multiple individual requests for service to keep up with its growing needs. Armed with that knowledge, Ms. Godfrey Jones was able to assign another full-time person to the unit, thus easing demand on the vendor's time. "That's when I knew our review process works," she says. "Through the spot checks, we stopped a problem before it affected other projects." Laying Down the Law Along with instituting a constant review process, companies need to build a solid communications mechanism. Vodafone's service agreements outline details about when and how teams will meet deadlines for deliverables and reporting requirements. Ms. Godfrey Jones meets with her teams briefly every two weeks and in-depth once a month to review progress and identify trends that may require contract changes. "You need to define the scope, set the ground rules and all agree upfront," she says. "Otherwise you will have expectations that your vendor won't be prepared to deliver, and they will fail." Regardless of the multisourcing model chosen it's up to companies to maintain control and management t of the project and ensure all of the vendors are aligned. "The vendors still do the work, but the client maintains project management ownership of the results," Mr. Petty explains. "It's not just about handing off a project, it's about building relationships and managing the cost-value balance," he says. "There is a lot less complacency." Effective multisourcing often comes down to establishing a clearly defined strategy, says Dave Wilkes, engineering vice president of the Workgroup Solutions Business Unit at Novell, a Provo, Utah, USA-based network solutions provider. "You have to build the same process with each vendor and insist that they be amenable to your way of doing things," he says. "Put the time in up front to identify what needs to be done and what your requirements are. Then set the standards for expectations and make sure they comply." Or, it may be time to find another vendor. On the Map With more outsourcing destinations open for business, companies need to think carefully about which vendor relationships bring the greatest benefit to their business and the unique circumstances of the project. Boasting a large English-speaking labor pool with an established skill set, India still ranks as the most economical option, says Wipro's Anurag Gupta. "India continues to offer extraordinary financial benefits," he adds. "The cost base of India is approximately one-sixth of that of the United States." But India is no longer the automatic choice. As companies consider the bevy of outsourcing options available, they're assessing an array of issues such as cultural fit, time zones, turnover rates, longevity and history of the vendor, project risk and long-term needs. And in many cases, other countries are simply a better match - especially in terms of location, says Beni Lopez, CEO of Softtek Near Shore Services, a global IT services firm headquartered in Garza Garcia, Nuevo Leon, Mexico. "Anyone who's ever tried to manage a project problem with a vendor on the other side of the world understands the impact such choices can have," he says. "A small functional project change can take days to resolve when your vendor is working on the other side of the world." And these days, companies no longer have to settle for long-distance relationships. Outsource options are cropping up in Russia, Europe, Asia, South Africa, and Central and South America to deliver skill sets, cultural understanding and a more compatible workday than conventional Indian offshore providers can give. Mexico, for example, has become a popular choice for US companies because of the nearshore benefits it offers. "They share a time zone, schedule and calendar, and collaboration comes much easier," Mr. Lopez explains. "If you need application support during business house in the United States, you will be better served by people who are not working a night shift." Expertise in a particular industry can make one country or region more attractive than another. "IT skills are strong in all countries, but there are certain industries for which they will have a functional expertise," he says. Mexico has a strong financial industry, so its labor pool has more experience with the vernacular and business needs of those projects. In Brazil, though, industrial manufacturing is strong and the business community follows a European business model, making it a good destination for logistics projects, particularly for European companies. Here are some other front-runners vying for India's clients: Canada: another preferred spot for US companies, the country ranked fourth in a recent Gartner Group review of top 30 countries for offshore It Services. It fared worst in the North American region, however, for cost of labor. Russia: this emerging player has become known for delivering high-end software research and product development, says Alexander Egorov, Reksoft. "Russia will most likely never outperform India in the cost aspect, but the combination of a vast human force potential and the ability for creative thinking and strong technical background allows Russia to do product design and research and development better than any other country on the market," he says. Mr. Egorov adds that Russia has a similar business culture to nearby European nations. "For companies based in Europe, Russia presents an excellent outsourcing destination since the labor pool is large and the travel time is small," he says. Morocco: a popular destination for French-speaking companies, the country served more than 50 percent of the French-speaking offshore market in 2006, according to the Oxford Business Group. To support its growing popularity, Morocco has plans to develop several "outsourcing zones" that will offer call center, back-office operations and other offshore IT services. China: already dubbed "the new India", China is fast developing its own IT services infrastructure. And business should increase even more as the Chinese market booms and companies look to develop products that meet local needs. |
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