Metagrobolize

End (to End) Game: Managing the Multi-Provider Service Chain

Sometimes best of breed can be a headache.

In today’s “multi-sourcing” marketplace, organizations seeking the best service often break into parts what had been a harmonious business operation, particularly in the IT space. They do this in order to achieve focus and efficiency in the management of various elements of technology services.  The challenge for the executive overseeing the sourcing relations: How to maintain a high level of service across the process now that you’ve got myriad providers – including both internal and external teams – doing the job?

Said differently, the benefits of cost efficiency can erode quickly if the result is increased risk of disintegration.

I tend to agree that fracturing a business operation (such as claims processing, order management, settlement reconciliation, or even accounts receivable management) across many different service providers invites some real risks. Indeed, we tell our clients that job No. 1 is maintaining integrity across the service chain.

This demands that the architects of the sourcing strategy think both horizontally (that is, within a service category like servers, or help desk, or networks) and vertically (e.g., a business process such as claims administration, order management, and the like).

Companies often ask us about using contractual mechanisms to manage and mitigate the risks of divvying up responsibilities among multiple providers. We tell them from the beginning that service providers generally aren’t keen to sign “end-to-end” service-level agreements (SLAs), because the providers are rarely responsible for each and every service element in the chain.

That said, a well-designed sourcing strategy can help achieve the desired results. The goal is not to push providers to be responsible for service elements outside their direct control but rather insist that they are at least responsible for managing those service elements on the client’s behalf. They need to play as good citizens and have skin in the game.

You need structure. That means baselining the service levels expected so that providers can measure and manage them. It also entails applying certain rules of the road for being a provider within the corporate family.  There are ways to achieve integrity and responsiveness without prescribing each situation via contractual terms.

It’s less about gaining confidence because of an elegant contractual framework than it is about setting the tone and tempo of operational cooperation within the governance mantra of the participating organizations.

October Surprise: Deal Surge, and India Goes Large

The past year has brought a striking slowdown in new outsourcing contracts, but October appeared to break the trend. I offer some commentary on that month here, doing so in the context of the entire year.

Providers got over $15 billion of total contract value (TCV) in October, the highest TCV tally for a single month in the past two years and almost twice the TCV as the next highest month. Three mega deals accounted for almost $8 billion of the TCV, and one — IBM and AT&T – accounted for $5 billion. Business-process deals figured prominently in the month.

November doesn’t look nearly as good, but more about that month in a moment.

India-based service providers inked several mega relationships in October, in keeping with a recent trend: While many consider 2005’s ABN Amro/TCS/Infosys deal as the high-water mark for Indian providers, since then we’ve seen these providers expand their client list to other large customers. And, in some cases they have done so without employing the relatively slower “penetrate and radiate” method that involves getting a foot in the door then selling the client more services over time. Rather, the India-based providers are showing their ability to win some truly big deals.

While the Indian providers may still be buying market shares (think deals like TCS-Pearl, Genpact-Citigroup and Philips-Infosys) or winning business with a long-time captive client (BT-Tech Mahindra), they also are starting to compete and sometimes win on very large deals that don’t involve clients they’re already working with.

The next trend to surface may find smaller India-based service providers (EXLService, FirstSource, WNS, HCL) starting to look outside their captive client base for a big deal.

Now the cautionary kicker: We have not seen many deals in November, and if this month and December revert to the pattern of the rest of 2007, October could prove to be a blip.

Look for lots more detail when TPI hosts its next Index call in January.

Managing Global Development Risk

I couldn’t be happier to announce on Consider the Source that two of my colleagues and friends at TPI, Jim Hussey and Steve Hall, now have their labor of love in bookstores: Managing Global Development Risk.

There are tons of books on offshoring and global services delivery. Some address up-and-coming offshoring countries that have the education, labor arbitrage and political stability to move your organization to the next level. Some help you define your service delivery framework, others tell you how to conduct an RFP process, and yet others guide you in managing your sourcing relationships. However, this is the first book that I’ve seen that is a resource and reference tool to apply project management to an offshore component.

Overseeing a project management team in which some members are offshore is much different than traditional project management. This book is a practical “how to,” offering sound project management principles to help the software development managers to best execute development when its people are all over the globe. I’d recommend Managing Global Development Risk to anyone in the sourcing community that wants the tools, techniques, and knowledge necessary to achieve project success with offshore resources.

Congratulations Jim and Steve on a job well done!

The F&A Paradox

A number of Finance and Accounting (F&A) functions are similar from company to company, as are the goals: Most companies want to tackle costs, improve performance, efficiently spend money and manage revenue cycles, in addition to undertaking the required accounting and reporting.

The relatively standard processes imply that technology can lend a big hand as long as the people who perform those F&A functions have a fair degree of functional expertise and conform to common processes.  That said, tax complexities, revenue-recognition policies, industry specific requirements among other factors present challenges, but these issues are almost always under the watchful eye of an executive who is highly motivated to achieve the desired accuracy and compliance.

Now contrast this situation with what you see in most Human Resources departments of organizations where it’s not uncommon to find many nuances relating to the geography, business-unit operating models, and various employee programs. One might think that achieving common ways of doing things in HR would be more problematic.

The difference between the two functions raises the question: Why is it that the predominant sourcing model for F&A is labor arbitrage? We see much more standardization and “managed services” orientation in HR outsourcing than we do for F&A functions. Whether companies are using a captive operation or outsourcing, F&A has become the poster child for effort-based sourcing.

So far, the promise of a vibrant market for F&A outsourcing is unfulfilled. The contracts are labor-oriented and the investments made by many of the leading service providers to standardize offerings aren’t being employed. Which leads one to ask: What will it take to change this? Why aren’t CFOs more receptive to a managed service around accounts payable? Might this be a situation whereby service providers are not providing comprehensive solutions to F&A executives? Perhaps it a case where finance managers cannot relate to “managed services” offerings? Or maybe it’s a relatively higher degree of integration among and between finance processes that is making standardization so elusive?

Whatever the cause, today’s outsourcing landscape offers a much higher degree of maturity for HR services than F&A services. Is the lure of cheap labor so compelling that the promise of a managed service for F&A is just not worth the effort?

Insulting calls from Britons make them sick “All’s not well at call centres in India”