CIO Specialist Advisory LLP                                                Leveraging excellence and value through collaboration
 
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DD Mishra, Partner, CIO Specialist Advisory LLP, challenges various myths and hypes around IT outsourcing and provides his views to counter some of them. As per Mr Mishra, a dedicated partner management competency at both consumer & partner end to deal with outsourcing can be extremely helpful in maximizing value from outsourcing decisions.

Over a period of time, every concept is surrounded by myths, which develop as folklores by practitioners from distorted facts of isolated events and outsourcing is not an exception. Many a times our outsourcing decisions or executions are impacted by these myths and result in expensive learning. While presenting these myths, I must admit that I faced these challenges and expectations constantly. While presenting this, I am sure many experts will agree to disagree but I would welcome a healthy debate and constructive criticism around the topic and will not shy away from the raising the veil.  These are not the only myths but a subset of them.

1. Outsourcing Saves Cost from day #1: Outsourcing evolution has gone through the several stages. It started mostly in 90’s to exploit labour arbitrage and these days it has matured to leverage value. The cost used to be no #1 reason but now it has gone down in priority for many cases. While considering the cost savings, we should not look at the cost during first year. It takes both sides to mature over a period of time when we actually start comparing the cost of in-house vs outsourced. Generally 2-3 years is the time from first outsourcing we see the results in terms of the cost. The tendency to monitor cost from year-1 could be counterproductive as both provider and consumer need to invest in the arrangement.

2. Partner will manage the mess better than us: Many outsourcing decisions are based on “mess for less” concept. The understanding that the provider will be able to handle the mess better is incorrect as being a consumer, a better understating prevails where more informed risk taking and handling happens. Provider may not understand these initially and possibly the mess will result in bigger injuries to the consumer’s business if not handled properly. Outsourcing a mess is less advisable as it increases cost and reduces possibility of success.

3. Stringent SLAs drive performance better: Quite often we see a tendency to put stringent SLAs during contract negotiations to ensure better performance. This becomes counterproductive and at times unhealthy. This could result in resistance from provider to accept the SLAs and the discussion can go on for ages and opportunity for leveraging potential to improve might get lost. It is easier to draw a road map for expected Service Levels by conducting due diligence. The best advice here may be to look at SMART (Simple, Measurable, achievable, realistic & timely) SLAs rather stringent ones. One can also look at slab wise SLAs and with a well document list of exceptions, periodic progress and planned improvement instead to drive better behaviour.

4. Provider has an upper hand post outsourcing: This is commonly understood that post outsourcing provider gets an upper hand especially if the provider is larger in size. Understanding outsourcing and nuances of various aspects needs to be understood more. If the relationship is managed well with win-win situation, a fairly drafted contract which protects both ends and a partner governance competency from both sides creates more opportunities for healthy debate and mutual trust. My experience of dealing with success and failures tells me that biggest factors are failure to govern a relationship which drives to these myths that provider has an upper hand. The moment this feeling comes, it may be the beginning of the end.

5. By retaining more people, we will be able to manage the provider better: Quite often we see a tendency to retain more people or most competent ones in the retained team. This is driven by insecurity which is a deep rooted myth in our mindset that provider could be more smarter or could be that consumer thinks by retaining best people, they will be more in control. This is incorrect as the provider is going to use the resources for delivering the services and not giving them the best people could be akin to shooting one’s own foot. In addition by building a large retained organization, we create an opportunity to micromanage provider, which could be counterproductive. To protect interests of not losing the best people, providers can “ring fence” the employees for some time. 

6. Displaying sympathy will drive incorrect behaviour & expectations: Empathy & sympathy plays a critical role in driving relationships. Human beings are more productive and get encouraged when we display empathy. By treating provider people as a part of our team, possibly we can get a lot more than other means can do. If the good news spreads in the provider organization, the best people would like to join the account. The tendency to consider provider as enemy who can eat up profitability and should be kept on the toes can be counterproductive.

7. More players will drive competition and provide better value: While this could be partially true, too many providers will be difficult to manage and cost may increase rather than decreasing. A chaotic setup for outsourcing impacts business agility and growth. Moreover it will throw challenges in integrating the work and internal cost will go high. The optimal number of providers could be 3-4 for a large organization with clear segregation of responsibilities. A good work needs to be done in horizontal or vertical slicing of candidate services.

8. We can drive better profitability by reducing the onsite component: In an offshore / onsite model we often see providers display a tendency to reduce the onsite presence to cut costs and improve profitability. By decreasing the onsite presence, providers loose connect with the business, overload onsite team and delay the cycle time as bandwidth is limited. It builds frustration over a period of time impacting business. Over long durations, these practices can be counterproductive. A 70:30 mix may be the best; an 80:20 can be optimal but any calibration beyond that may come with risk. The concept of more collaborative platforms however solves the problem to some extent.

9. Provider will understand my business better: Quite often we see a tendency from the consumer to expect a better understanding of business. This is incorrect as domain knowledge and the knowledge on the ground how a particular business is operating under the same domain could be different. Wherein we can expect domain understanding, we have to really handhold the provider on nuances of business which provider has gained through the experience.

In conclusion, the myths should be clarified or countered with better wisdom. Experience sharing could be one of the best practices, followed by research, due diligence and brainstorming with experts. Outsourcing is a different specialized stream and often we are guided by our own thought process which we consider as best. Building a separate partner management competency and involving experts to help during initial years of relationship building can reduce a lot of pain and unnecessary delays and expenses.
This article was first published in InformationWeek india by the same author
 


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