Category Archives: Inshoring

IT Provider & Client Relationship – Short term goals Vs. Long Term goals

Most of IT big-budget, multi-year contracts are inked with months if not weeks of due diligence most often looking at the credentials of the firms and their leadership. Almost all of the big firms have exceedingly high reputation at their senior leadership levels with unmatched sincerity. Coming to smaller firms it takes them years to build that steadily one client at a time while they evolve to maintain their growth.

Let’s talk about the big firms specifically – The leadership enjoys high confidence among the corporates of the world for their sincerity for their willingness to work at personal levels to resolve differences, help clients concentrate on their business growth while they keep the IT shop humming leaders of IT, their accessibility and reach etc. Providers have won huge praise and awards from governments the world over for their contributions and their dedication in all sincerity.

There are ofcourse bad eggs in ever industry and IT is not insulated from it. Firms that promised much but didn’t deliver on the promise broke agreements and left clients in a lurch.

While the top leaders from IT providers develop long term relationships and grow the business the tasks of growing the holding the fort and delivery falls on the middle tier leaders often don’t follow the core principles their leadership used to bag the contracts and grow. The goals of middle tier is often grow their individual careers, look for short term revenue opportunities, one up man ship, unhealthy competition, poor client engagement, making untenable promises, politicking, pitting one against another, indulging in infighting, complaining on their client partnerships – just to name a few. Some are outright ill-qualified The analogy of “too big” to be thrown out of the client or multi-year contract also creates an atmosphere of protection for the middle tier leaders of the IT firms to be comfortable with.

This is one of the top issues that IT providers and their leaders struggle with but don’t make an issue for their clients to know that this exists. Often the middle level managers who are representatives of their leaders on client sites totally forget the principles of client engagement their bosses laid out and toe their own line often with negative consequences.

Aided by some of the negative pressures on outsourcing in developed countries from the locals this problems at times can spiral out of control. Some of the managers from IT providers are untrained and cannot fit in culturally or they reach client locations due to other considerations. Top tier IT firms have taken steps to train and mentor them before they join client sites which has helped alleviate this problem. However this exists in quite a good measure.

The vision and foresight to look at long term client relationship is not kept in view while dealing with day to day client engagement / client requests. A good part of the strategy of middle managers in IT firms is to look at making the quick buck forgetting the fact that these instances become a thorn in the flesh at growing business and actually exposes their firms to host of issues that come to bear during the renewal or extension of contracts and impede the growth of their organizations goals and objectives. Not to generalize there are few exceptions that actually end up rising to the top. The ability to sacrifice short term trivial benefit towards developing a relationship with the client for ever is often ignored. It takes a lot to bag a new client in the competitive market environment and retaining and growing it takes much more while losing the client due to short term opportunities at the cost of quality and client satisfaction is something IT providers should keep their eyes and ears open. If you study the growth of the global Big 3 consulting firms, their sole mantras has been towards keeping client interests very high on their radar and align to their long terms growth.

The philosophy of customer once – client forever, needs to be adopted by the IT Outsourcing firms and ensure everyone in their organization lives to their reputation to this motto.

Pain sourcing senior resources…

Most of the run of mill outsourcing providers have it easy providing resources with average years of experienced ranging from zero to 5 years, however ask for a senior resource they have trouble finding them. More so when your rates are tiered, fixed or lower than the prevailing market rates.

Sandbagging on bringing in senior resources when asked for is common. Extension of SLA to onboard with various excuses is not uncommon either. Instances of senior resources asking for higher comp, broader role, career growth etc. also hinders outsourced providers to shy away from bringing on senior resources though the client’s needs them or the role merits.

If you go flex on the rates you may get some result via contracting which has its own pit falls. The outsourced provider is at the mercy of a sub-contractor who could pull the plug any time. However if your rates are fixed you are often out of luck. Often on large outsourced contracts, you will find a vast majority of your resources are from the lowest tier 0-2 years of experience which helps providers keep their margins intact or even grow higher.

Ensure you have the talent you need; it makes sense to hire a full-time employee if the outsourced provider cannot give you the experience you need. Have competition – if one provider cannot provide, switch that open positions to another provider. Keep an eye on the overall talent pool, the experience band, some resources may seem experienced on the book, but their performance could be way down.

Reviewing your overall talent pool periodically is extremely important, it is perfectly okay to have a pyramid type structure, while watching the bottom tier. if it is too flat at the bottom you definitely have a problem.

IT Resourcing from India and China

India and China are traditionally the best markets for sourcing for most IT requirements, However other countries are not lagging behind – Philippines, Poland, Brazil, Mexico, Canada and other countries are also vying for their smaller share. Come to near-shoring the Caribbean Islands, Mexico, Honduras, Columbia are propping up with creating good infrastructure with readily available English speaking graduates and enticing providers albeit concentrating on call center initially.

There are challenges in hiring from the major markets which are undoubtedly India and China. Contrary to popular belief there is not a huge pool of talented resources that can hit the ground running. The employable pool is actually less than 25% of the available resource pool which his large no doubt. Though both countries produce thousands of graduates every year, they are not truly ready when they walk into their first assignment. Except for some of the top universities many of the private colleges have dismal infrastructure and resources to give the graduates the education they need to be successful once hired. Some of them are like paper mills churning out graduates.

The tendency to hire big numbers from universities bringing in resources that come without any formal training has been an issue that has had several consequences. The bigger firms found this trend early on and invested very heavily on training facilities to quickly train them and move them to billable fold. Some of the training facilities are truly world class, this was fueled by the need to fill the bigger numbers of resources that are needed to fulfill large contracts and keep a bench strength needed to provide a quick response when needed.

The need for large numbers to fill meant IT providers had the upper hand and could put resources that were semi qualified. For clients it meant hidden cost since the efficiencies were not the same.

Here is your check list if you are looking at resourcing :

Don’t settle to just fill the numbers, look for talent you need.
Don’t compromise on your skillset and experience requirements,
If needed the training or re-training, that should come at the providers cost not yours.
Never offer training on technology available in the market at your cost except on legacy or niche technologies not available in the market.
Extend the non-billable time till the resources become efficient enough.
Have a screening policy for onboarding new resources.
Drop resources that don’t fit your needs as you know, don’t keep them on your rolls.
Put checks and balances to review output.
Don’t allow low productivity resources to stay on large teams go un-noticed and bill you out.
Get a upper hand on resource approvals, don’t allow your IT provider to dictate terms.

Managing crisis situations

Crisis situation in IT outsourced environment is common if not frequent. It is more prevalent during the initial stages of the contract or relationship than in an established one. It is important to have a good crisis management team comprising of both sides ready to handle. It is again important to have this from ground up and have all the relevant players and keep it balanced with both client and providers representatives. Identify players who are mature, have prior experience, the knowledge and patience and the understanding of what this means to the business. Roping in Incident Management and problem management teams is important to manage crisis professionally, give it a sense of legitimacy while following the communication and reporting protocol.

The tendency to point fingers should be resisted. Immediate attention should be focused on managing the crisis and restoring normalcy. A lessons learnt is pertinent once the storm blows over.

Most often trivial situation get out of hand and become full blown crisis that need maturity in handling. The tendency to sweep under the carpet initially at the lower levels as the matter gets out of hand is not uncommon. The culture more so in Asian sub-continent is to wait till last minute to see if they can solve the issues is something that needs to be dealt with. It is good to stress an open environment to encourage reporting of situations that could become crisis in the near future and a take a toll on both sides. Keeping a close eye on risks that have become issues will help alleviate getting into crisis situations or atleast know the background when it does become one.

Developing and having an action plan in place to deal with crisis, with names and contact numbers, a toll free number to join, a identified representative who can play the role of ombudsman on both sides will save a lot of time and money when crisis does hit. Also important is to keep the plans utilized during past events with updates from lessons learnt to use it under similar circumstances.

Attrition – Measuring its true cost and impact

Attrition is the key indicator of the health for your outsourcing contract. Outsourced providers like to keep this in check, for their own benefit and for the health of their contract or relationship, however the tendency to camouflage the metrics and downplay the hidden cost to client is high. If this percentage is more than 20% it is an unhealthy sign, you are possibly losing out on efficiencies and cost savings. Up to 5% is considered the best while an average of around 10% is still acceptable depending on the size of your outsourcing resource pool.

Circumstances beyond the control of outsourced providers play into this. It was pretty bad before the recession began couple of years ago. When the job market is scorching hot the tendency to jump ship is very high among the technology resources. The ability to increase your pay packet is the immediate driver, other key reasons are to seek promotions from their existing roles, change skill set from legacy to newer technologies, cut the commute to work, poor reviews, morale or motivation, moving from smaller lesser known firms to bigger ones and look for opportunities to move to client site. There are few more reasons that actively encourage attrition from the resources perspective – poor management, lack of direction at team level, odd working hours, increased work load, unrealistic timelines, poor pay and benefits etc. Personal reasons like moving from one city to another to join spouses, marriage, medical and family reasons also play a smaller part.

The last few years have been a golden period when attrition got itself under some control thanks to global recession and slow down. This meant lesser positions being created which cut down recruitment. Bench strength was being cleared to make sure there were not carrying non billable resources beyond their tolerance. The existing resources even those that were talented were afraid to move out from their existing jobs fearing risk factors and playing the wait and watch game. Major IT players joining forces on this subject meant sharing information on experienced resources and discouraging recruitment of resources that had too many career moves on their resume.

Calculating the true cost of attrition is often a difficult exercise, many clients choose to ignore often and just ask the provider to bring it down via a few escalations or stern notice. Most often the IT outsourced providers respond with few measures only to go back when the memory fades.

Any calculation of true attrition cost involves looking at loss of your resource time that was spent prior and being duplicated every time a new resources joins, the knowledge transition time to bring the resources up to the same levels or anywhere close to where the former resource left, loss of time spent in training on the project or assignment, disruption to normal work, loss of valuable time when replacements are not worthy or qualified enough, impact on quality and loss of efficiencies are major factors. it is easy to factor when projects slip due to attrition based on the hourly cost and the cost benefit analysis for the project based on number of days slipped. Time spent on specific training be it technology or subject matter expertise, training via external vendor are all to be factored while calculating.

Also watch out for manufactured attrition, when there is a tendency to move people out to bring down their costs. I have been witness of atleast couple of instances where the outsourced provider discovered their margins were at stake and slowly allowed senior resources to move out and brought in fresh graduates to drop costs. At times moving from particular location to consolidate operations to reduce cost for providers also is one of the reasons for attrition from provider side.

As a best practice it is advisable to have the provider maintain a dashboard to show attrition numbers and at the client end maintain a template / report with key factors to calculate the true cost and publish every month and review at the appropriate forums at a regular cadence. It is equally important to align with the definition of attrition on both sides. The tendency to keep certain reasons mentioned above out of the purview of attrition to keep the numbers low needs to be avoided. For the client any loss of resources other than those originating from the client is an attrition – simple enough.

Performance Measurement in IT outsourced Environment

Lord William Thomson Kelvin said “If you cannot measure it, you cannot improve it “

Measuring the performance of your outsourced arrangement is extremely important. Not just from financial perspective, there are many other considerations involved here ranging from measuring productivity, contribution of your employees, morale and motivation, project and deliverables at stake, time to market, security amongst others. Transparency is the key, don’t ignore the right team members that need to see the metrics, again different metrics for various levels of audience is fine. Insist on showing action taken where appropriate.

Some best practices to adhere are :

• Invest in looking at all metrics together at a glance – many of these are related and helps to look at the overall health of the outsourcing arrangement.
• Review at different levels, pick a cadence weekly, monthly, quarterly and of course yearly overall.
• Look for amber and red not just greens. Reject the all green report, it means nothing. Look for false claims
• Dashboard with historical data and trends would be of immense help to see the pattern whether you are improving or going south
• Constitute special teams to tackle the toughest metrics needing remedial actions
• Conduct / facilitate reviews at appropriate level – make it in person if feasible. Over the phone conversations don’t tend to go well more so when the metrics are mixed
• Distribute widely among those that are not in attendance or don’t get a seat at the table while metrics are reviewed and solicit feedback
• Don’t have too many levers to measure – measure what is important to you and in that order
• Avoid too many numbers –focus on essentials. Have a crisp summary for the period under review
• Don’t delay looking at reports – for example monthly reports should be reviewed the first week of following month likewise – no point looking at metrics after a long pause, the damage is perhaps done already
• Look for noise that tops the bad metrics, eliminate those metrics that you don’t care but the outsourced providers cares and induces it into the mix
• Encourage showing what is not green – after all that is what needs attention. Discourage the “All green” reports, they mean something is wrong

Don’t lose out on averages…..or statistical lies, imagine the famous sentence attributed to Mark Twain “Lies, damned lies, and statistics” describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments.

The IT Outsourcing Bandwagon- India & China – who wins the labor market

India and China are long considering the primary and secondary outsourcing countries. While China has a head start  benefiting from  the manufacturing outsourcing boom, India scored big on the IT outsourcing with its huge English speaking skilled graduate pool.  China hurt itself due to lack of English knowledge which it is trying to make up now to level with India at some point.   Communist China in 80s and 90s continued to adopt the policy of keeping English out which immensely helped India entrench itself in an enviable position today.

China continues to invest heavily on all fronts – training its people, providing sops to IT providers, currency devaluation support to keep rates in check, infrastructure support, investing in English language education and vocational training.

No doubt China dominates the hardware market and is flexing its muscles to drive advantages to translate into software side.  It is trying the acquisition route too gobbling up smaller niche firms to forge an entry into western markets.  India’s strength is in IT and software now extending slowly into broader areas within the ambit of outsourcing of IT extended services. However the labor is not cheap anymore – it used to be in the nascent stage, but the values are eroding faster than expected.    India does have  some of the brightest talent in the world that keeps the business leaders to keep going there. Some of the biggest companies in the world have more Indians on their board than Chinese. Look at the silicon valley startups, more and more of them have the Indian connection than Chinese.

What is worrisome is both India and China are not looking at long term prospects to sustain the growth  – growing inflation, increasing wages, infrastructure worries, lack of talents, language barriers, in some cases fraud with its judicial system  a major challenge, lack of governance from NASSCOM are top reasons.   The prospects for growth are tremendous.  By its own admission, NASSCOM predicts another 30 lakh jobs or 3 million jobs will be added in the IT sector by 2020.  That is not a lot of jobs. By adding 3 million jobs,  India will double the workforce that  they have now. 6 million IT jobs may seem a lot. But, it is not. The population of India is well over a billion. The number of IT jobs is below 1% of its population.

Let’s deal with India the outsourcing giant.    In 1990s, IT services in India was the next big thing. There were so many obstacles for industry leaders to get a head start in this businesses.  The IT industry together with NASSCOM did a good job of removing obstacles and created a new breed of industry which is now stable and growing.   It is now an established  industry and considered a cash now that even has been spared from taxation to a large extent.   Here is where the leadership of NASSCOM comes into play.  It needs to be more open and supportive, create a congenial and level playing field for all its stakeholder and create more transparency and offer governance to  surmount new challenges.  The judicial system is a major challenge with most matters settled out of court.  It needs a major revamp.

Both India and China have Outsourcing business as one of its global aspirations to emerge as world leaders by 2020.  To achieve greater success and drive the growth to its advantage both  need to create conducive climate and the overall infrastructure, training and education capabilities  for its IT providers to create products and brands which command a global premium and compete in this emerging market. The only way to do it is to improve their overall capabilities.   As competition from smaller countries heat up, both these giants will have to concede some of their portfolio.  Their near term outlook looks strong.

Has the offshoring boom largely run its course…..

The current resurgence of Manufacturing jobs coming back into US will certainly have its influence on IT outsourcing as well leading to some of the jobs coming back to the US. The statistics in manufacturing is proving the point already. IT Outsourcing was down 33% according to research firm Ovum, that was lowest in 9 years.

Couple of years ago pundits mourned the loss of manufacturing that would never come back. But the tide is turning slowly. Lots of factors are playing an active role in this aspect. Global recession sent business leaders on finding smarter solutions to reduce costs, automation has brought down costs to a good extent, pressure on unions to negotiate has helped drive labour costs down, it brought down pay that was sky rocketing, inflation is in check, cheap loans are common, government grants and subsidies are plenty, real estate is cheap, energy costs are down, market optimism is picking up, companies are hoarding cash and willing to experiment in bringing jobs back in manufacturing and be ready for the next boom when economy gets into full throttle.

This isn’t a blip. It’s the sum of a powerful equation refiguring the global economy. U.S. factories increasingly have access to cheap energy, thanks to oil and gas from the shale boom. For companies outside the U.S., it’s the opposite: high global oil prices translate into costlier fuel for ships and planes, which means some labor savings from low-cost plants in China evaporate when the goods are shipped thousands of miles. And about those low-cost plants: workers from China to India are demanding and getting bigger paychecks, while U.S. companies have won massive concessions from unions over the past decade. Suddenly the math on outsourcing doesn’t look quite as attractive.

The next couple of years will definitely see a rising trend of manufacturing jobs coming back which will pave the way for IT industry to look at this aspect closely some of it for the very same reasons that manufacturing is benefiting from. The cap on H1B more so going into lottery this year will mean companies source more locally. Large IT contractors needs resources onsite, lack of continuity in visa process means more jobs onsite here than offshore. The rising wages in IT sector in India and China is another aspect which is weighing on the minds of business leaders. it is expected to rise upwards of 50% by 2018 which will mean less incentive to offshore considering other costs.

If the market continues to improve leading to more investment here in US and as businesses see growth prospects and invest cash they accumulated during the last few years it will only improve jobs coming back.

There are still pressing factors like talent shortage, visa issues which still encourages near shoring to low-cost locations, cost savings which still seems attractive, new technologies that have severe shortage here while it is available offshore like Big Data, Cloud which are in huge demand now and the fact that today’s business thrives more in a global environment needing 24/7 attention via staffing.

Looking from an optimistic perspective we can as well claim “offshoring has run it course” it time to see winds change its course albeit slowly.

Immigration reform and its influence on IT Outsourcing

This week Mark Zuckerberg, founder of Facebook announced formation of new organization fwd.us

It is co-founded by leaders of USA’s technology community to focus on immigration issues and advocate a bipartisan policy agenda to build the knowledge economy. In my previous blogs I did mention how much IT outsourcing is influenced by this topic, free movement of people back and forth is key to keeping the knowledge economy humming. The statistics of how immigrants shaped the silicon valley is there for all of us to see. It has only increased with lot smaller players now emerging with innovative and cutting edge initiatives.

Unlike other sectors, in a knowledge economy the most important resources are the talented people that we educate and bring into our country. Keeping with us those that we educate in our best of the breed universities will be a big boost to our knowledge sector. Losing those talents to the poor immigration policy is a big loss in our effort to build a knowledge enterprise of the future.

The notion that welcoming immigrants in knowledge sector will take away jobs of the people who are already here has been proved to be wrong in many ways. For every immigrant that we welcome in this knowledge economy it creates two to three American jobs. A good example this year is shutting the doors to qualified immigrants via h1B going lottery way is the worst we can do ourselves to damage our fledging social media revolution which we badly need to boost our economy to grow after a recession. The need to drive down federal deficit means adding to our economy jobs and precious money via taxes, also consider the fact that the immigrants are amongst the hardest working, paying taxes and use less of entitlement that government doles out.

It’s time to think out of the box and accept the true benefits of immigration reforms and exploit it for helping grow out knowledge sector. Why settle for mediocre returns when we can be leaders.

Attrition in IT Outsourcing firms

There is no magic bullet to this problem. This has been a burning issue for several outsourcing firms and many of them have used innovative methods to retain talent. My observations looking for the some of the biggest reasons are manifold. The scorching market for job seekers during the last decade (it has slowed down a bit during the last two years) was among the biggest cause. When there are fewer talented job seekers to fit a rising wave of outsourcing from west, the tendency to jump ship for wage increase is immense, this was so rapid that recruiters often sat outside their outsourcing rivals poaching on their trained pool often just asking for their last payslip and giving them a fat raise and an immediate offer to join. Some firms have been paid the severance that the old employers applied, or dangled carrots in various forms to entice them to quit.

The recruitment teams are not trained as well to screen the candidates, the evaluation was poor to identify bad hires before they start. Sharing of information on why someone left their last job was just not available. All the recruiter was looking for was short cuts to fill their open slots that went begging with billing tied to them for incentives.

If there is one platform all the outsourcing companies join hands it is this one. So much that they have joined forces to share information on candidates via a common database that provides lot more information than the background verification.

Again some level of attrition is expected – somewhere in the range of around 10% is okay since you do want to hire some fresh talent, swap skill sets, etc. However the range of 20% and above which was the case for couple of years steadily is not acceptable. Outsourcing firms typically follow the pyramid model where they want to keep very talented, employees that follow their culture and willing to building a long term career. They welcome resources to leave that are underperforming and those that don’t fit into their scheme of things.

Attrition is also caused by lack of good Infrastructure where an hour to two is spent commuting each way, lack of transportation facilities e.g. Bus, Car, lack of amenities in the buildings, poor leadership on teams, not so meaty assignments where resources get struck with dumb roles just because they continue to be billable and client likes them do the same thing till they need much against their career aspirations. Also remember the resources pool is often in the age group of anywhere from 21 to 35 which forms the highest block and they often are moving targets with marriage or joining spouses, going for higher studies, migrating to other cities or changing professions, venturing into self-employment etc. One more reason is not finding an onsite assignment, come to think of it, a very small percentage of the large pool gets to go onsite, so the rest are left to finding it on their own often moving into firms that won large contracts recently or are known to rotate their resource pool.

The rate of attrition at all levels of outsourcing providers in several hubs has seen a fall in the range of 25-50%, in the last two years, mostly due to a fragile global economy. An uncertain global economic environment, together with cross-currency fluctuation. This has compelled employees to adopt a wait-and-watch policy, leading to a sharp decline in the attrition levels in the IT-BPO sector, which has been grappling with a talent crunch due to a shortage of competent managers at the middle and senior management for quite some time. This has led to a fall in hiring activities, bench strength and a high employee retention rate can been seen at almost across all levels of management.

It has come as a blessing in disguise, considering that human resource is the key to the success of this knowledge-intensive industry. Employees are wary of switching over jobs due to continued apprehensions of the economic slowdown being likely to continue for some more time till the economy really warms up and Europe gets back on its sound footing. The fact that is not likely to happen very soon means outsourced providers can breathe some relief with lower levels of attrition till it lasts.

Bottom-line there is no one good reason why this attrition occurs, often several of the above play a factor, sometime there are one or two dominating factors that nudges the percentage a bit either for good or bad.

Clients can alleviate some of this by providing a conducive environment, treat the consultants on par with their own employees, encourage their consulting pool to achieve the same levels as their own, provide work life balance, conduct surveys to find out what makes them tick, bridge gaps by encouraging visits from both sides, provide rewards and recognition, competitions to encourage their show of talent, rotate resources to keep them motivated – there are many more creative ideas that clients use to keep their consulting pool from their outsourced providers ticking which directly translation into billing efficiencies.

In one of my next blogs I will throw more light on how this subject means hidden costs.