Appendices
Appendices ... 69
Timeline research ... 70
[case1] Case summary: Client A – Service provider L ... 72
[case2] Case summary: Client B – Service provider M ... 74
[case3] Case summary: Client B – Service provider N... 76
[case5] Case summary: Client E – Tata Consultancy Systems ... 78
[case6] Case summary: Client F – Service provider P... 80
[exp1] Expert interview Ralph Hofman ... 83
[exp2] Expert interview: Erik Beulen ... 85
[exp3] Expert interview Arno IJmker ... 88
[esp1] Interview Service Provider: Capgemini ... 90
[esp2] Interview Service Provider: Service provider A ... 92
[esp3] Interview Service Provider: Service provider B ... 95
[esp4] Interview Service Provider: Service provider C ... 97
[esp5] Interview Service Provider: Service provider D ... 99
[esp6] Interview Service Provider: Service provider E... 102
[esp7] Interview Service Provider: Service provider F ... 105
[esp8] Interview Service Provider: Service provider G ... 108
[esp9] Interview Service Provider: Service provider H ... 110
[esp10] Interview Service Provider: Service provider I... 112
[esp11] Interview Service Provider: Service provider J... 114
[esp12] Interview Service Provider: Service provider K ... 117
[escm1] eSCM Expert: Lead auditor eSCM-SP, ITsqc consortium member A... 120
[escm2] eSCM Expert: Lead auditor, ITsqc consortium member B... 122
[escm3] eSCM Expert: Jane Siegel, Carnegie Mellon ITsqc... 125
Timeline research
document Date Interviewee(s) Organization Location [case1] 15-02-2007 Program manager Consultancy firm Amsterdam
[exp1] 16-02-2007 Ralph Hofman Blinklane Blinklane, Amsterdam [case1] 16-02-2007 Program manager Consultancy firm Netherlands
[exp2] 23-02-2007 Erik Beulen Tilburg University Accenture, Amsterdam
[exp3] 14-03-2007 Arno IJmker Quint Quint, Amsterdam
[case2] 15-03-2007 Offshore manager Client B Netherlands [case3] 16-03-2007 Applications manager Client C Netherlands
[esp1] 18-03-2007 Frans van den Hurk Capgemini Capgemini, Utrecht [case4] 28-03-2007 Applications manager Client D Netherlands
[case5] 28-03-2007 Transition manager Client E Netherlands [case6] 30-03-2007 Project manager Client F Netherlands [esp2] 13-04-2007 Engagement manager Service provider A France [esp3] 16-04-2007 Manager global
transformation
Service provider B Mumbai, India
[esp4] 17-04-2007 Delivery managers Service provider C Mumbai, India [esp5] 19-04-2007 Associate director Service provider D Mumbai, India [esp6] 20-04-2007 Senior consultant
Associate VP
Service provider E Mumbai, India
[esp7] 20-04-2007 Head quality Service provider F Mumbai, India
[esp8] 24-04-2007 Vice president
Relationship manager
Service provider G Bangalore, India
[case3] 26-04-2007 Delivery managers Global service provider A
Bangalore, India
[esp9] 30-04-2007 Senior managers Infosys Bangalore, India [esp10] 03-05-2007 Vice president
Senior delivery manager
Service provider I Cognizant, Bangalore, India
[escm1] 09-05-2007 Lead auditor eSCM-SP ITsqc consortium member A
Bangalore, India
[esp11] 10-05-2007 Vice president
Senior delivery manager
Service provider J Bangalore, India
[esp12] 11-05-2007 Senior delivery managers Service provider K Bangalore, India [case3-2] 04-06-2007 Applications manager Client D Netherlands [escm2] 11-06-2007 Lead auditor eSCM-SP ITsqc consortium
member B
Conference call (Hyderabad, India)
[escm3] 06-07-2007 Jane Siegel Jeff Purdue
ITsqc, CaClient Agie Mellon University
Conference call (Pittsburgh, PA, US)
[case1] Case summary: Client A – Service provider L
Client A is a large Dutch bank
Indian service provider is a tier-1 Indian service provider
Interviewees (separate interviews): Program manager (one of two program managers), Program manager (Representative from an internal client)
Background information
Client A is an independent business unit from a large Dutch bank. It administers 1,5 milion accounts and handles over 6 milion transactions every year. In the beginning of 2004, client A decided to renew their IT-systems and business processes, the objective was to reduce costs.
The indication was that the cost per transaction for securities would be € 5 in the market, the current costs from Client A were € 50 per transaction.
The strategy to lower the costs per transaction consisted of three parts:
- The IT-systems and infrastructure would be renewed. Also, business processes were redesigned according to Straight-Through-Processing, which would automate the transactional processes as much as possible.
- A joint-venture was set up with a Belgian bank to share operational costs and costs of the development.
- The new joint venture would serve external clients as well These measures would lower the costs to € 12,50 per transaction.
In the beginning of 2004 the project started to renew the IT-systems. In September of 2004 Indian service provider L was chosen to do the development. This service provider already had a separate product to handle payment transactions for banks and already implemented this successfully. At the end of 2005 the first internal clients would migrate. In 2006 the Belgian bank and external clients would follow. However, the project had some major delays, in 2006 none of the new IT-systems were operational and the Belgian bank quit the project.
Determinants of success and failure
Service provider Lhad to be very tightly managed. Especially the transition of knowledge tuClient Ad out to be a problem.
Change-management had to be installed very thoroughly.
Escalations led to higher management levels of Service provider L in India. They couldn’t handle the workload resulting from the escalations.
Client A demanded skilled personnel from TCS. Client A was not able to steer purely on result, and therefore went to micromanagement, they required certain skills and experience within the offshore team.
The selection of the service provider had to much more thorough. There was little experience in selecting a service provider within Client A, let alone an offshore service provider. The selection process was too much based on gut feeling.
Agreements were not tight enough, agreements about changes were not clear. Escalation routes were not clearly agreed upon. The Due Diligence phase was not thorough enough (CMMi statements were not verified).
Knowledge management was inadequate. Important employees were made redundant in the beginning of the project. The domain knowledge from Service provider L was inadequate.
Service provider L was not able to translate high-level requirements into detailed requirements and functional specifications.
There was little leadership within the Client A team. Weekly meetings had the impression of a tea-party. The project management was not skilled enough and the former employees from AEX had little experience working in a commercial project environment.
Development processes were not thoroughly designed and executed according to CMMI.
Change-management was not executed well.
Within Service provider L, it was very important who the person was you were talking to.
Everyone had certain responsibilities, and you had to be very specific and precise in giving the right person the right input. Governance structures are very important, responsibilities had to be clear from every stakeholder. Manage the offshore team through their managers.
Service provider L was not able to make a proper planning, Service provider L was not able to make realistic promises. Clients should make a joint-planning with the service provider, educate the service provider.
One-on-one teams have been very successful. Close cooperation between employees from Client A and Indians have clearly had benefit, especially on the development site of Client A.
[case2] Case summary: Client B – Service provider M
Client B is a large Dutch insurer
Service provider M is a tier-1 Indian service provider Interviewee: Offshore manager Client B
Background information
In 2004, Client B underwent severe restructuring of their organization. Client B was divided into three business units, with their own shared service centers. These business units were Client B UNIT 1 (Life insurances, Mortgages, Funeral insurances) Client B UNIT 2 (Health and property insurances) and Client B UNIT 3 (Pension fund). In addition to these BU’s, Client B has a central bank and there is a central IT department.
Client B was looking for a new partner for application development and maintenance for their mainframes. Client B already had experience with outsourcing IT to Western service
providers like Pink Roccade, EDS and Logica. However, this had little impact on the business, the same people were working at Client B with a different number.
Senior management decided to start offshore outsourcing. This decision was based more on gut feeling than facts.
Around 125 people in India are working for Client B, 25 people from Service provider M onsite at Client B and about 5 managers from Client B.
Determinants of success and failure
In the new situation, Service provider M had to work together with existing IT-partner Pink Roccade. Service provider M was supposed to take over work from Pink Roccade. Pink reacted by demanding to work on other parts of the IT-organization as well. At this moment, there were three parties involved in the delivery of IT, the responsibilities were not defined clearly enough and this led to conflicts. Every party blamed each other, did not take their own responsibility and this certainly was a blow for the IT-performance. Within other BU’s of Client B, Pink Roccade was still acting as an integrator. However, this led to many noise in communication and governance and therefore a bad performance. Also within these BU’s Pink Roccade will be eliminated from the contract.
Working with a Western integrator was definitely not recommended in the situation of Client B. This was not thought out well within Client B, if the different strategies would have been more in alignment, these issues could have been anticipated beforehand. Organizational strategy > IT Strategy > Sourcing strategy. This has everything to do with the working culture of Client B, which excels on operational and tactical level, but has shortcomings on the strategic level. This tuClient Ad out to be a great cultural match with Service provider M, originally a hardware supplier.
The work started by Service provider M before the framework contract was signed. The creation of this contract took no less than 1,5 years. Agreements were made on short notes.
During this phase, Service provider M definitely showed their good intentions by not exploiting these agreements.
There is direct contact between the staff of Client B and Service provider M. This was not the standard way of working for Service provider M, but both parties definitely see the added value. The direct communication structures were very beneficial to the relationship.
The attrition rate of the offshore team of Service provider M is very low. Only 3 of 50 people have left in three years time. This was also due to the active relationship management on operational levels.
In the beginning, the processes for quality requirements management were still not
institutionalized well. This had to be improved, so Client B employees could focus on more value-added activities.
All changes are viewed as official Requests-for-change. This was a difference in working with local service providers, but has not led to major problems. But when the relationship matures more and the contracts more solidly, this has to be defined more clearly.
The processes to manage the service provider did not change significantly, but the required competencies from Client B employees had to change.
For the sake of the relationship, a good contact has to be established on all levels. Direct communication between the employees of Client B and Service provider M on operational level, but also on strategic level by means of the yearly partnership day.
Innovation has to be steered from the client organization. Innovations should be coming from the business and translated into the requirements. The gathering of requirements must
therefore always be kept in-house, to manage the service provider effectively and to manage innovation.
The deadline is holy in the relationship between Client B and Service provider M. Service provider M will not miss the dealines.
Knowledge management is very important. All knowledge is shared with Service provider M.
The Indians are integral parts of the teams, and therefore have access to all knowledge.
Culturally, Indians are more eager to learn than WesteClient Ars and make quicker progress than Western employees.
The risks raised by offshore outsourcing are well manageable. Client B would consider to place all applications development at an Indian service provider.
[case3] Case summary: Client B – Service provider N
Client B is a large Dutch energy utility
Service provider N is a global system integrator Interviewee: Manager Business Support
Background information
Client B is a leading energy utility in Holland with roughly a third of the overall market. As a vertically and horizontally integrated energy company with an operation spanning the entire energy services value chain, Client B’s business includes managing generation, storage and transportation for fuels and power, metering, waste and water management. Facing impending deregulation and increased competition, Client B wanted a cutting-edge solution that would increase visibility across its entire business and improve its ability to handle large volumes of complex data, as well as help them significantly increase revenues and operate more
efficiently. By pioneering a better way to operate in an era of increased compliance and competition, Client B could also secure a clear competitive advantage in its industry. Client B partnered with Service provider N to implement this business-critical program redesign the business processes and application set that support its entire range of energy data management needs, including portfolio optimization and risk management.
One of the first phases included that Service provider N addressed the challenges Client B experienced as a result of the deregulation of the natural gas market. Service provider N developed a Gas Optimization solution that provided Client B with real-time visibility into its entire gas portfolio for the first time. This solution, which resulted in costs savings of 4MM Euros within 24 hours, literally paid for itself the first day it went live.
Client B partnered with Service provider N to develop a state-of-the-art energy trading platform. Client B and Service provider N were able to manage a team of 100, dispersed over The Netherlands, Germany, the U.K. and India.
Determinants of success and failure
There are certain limits to what Indians are able to do. They don’t have sufficient knowledge of the business for a certain kind of systems, an enterprise risk engine could never be
developed only in India.
Attrition is a large problem in India. Indians are job-hopping, especially within Satyam and TCS. Infosys and Service provider N are doing better.
Conducting business directly with an Indian service provider is cheaper than doing business with Western service providers with Indian subsidiaries. Pure-players are also more flexible, doing business with companies like IBM and Accenture is like doing business with two mammoths.
Service provider N is a system integrator, they have implemented package software for Client B. This has led to Intellectual Property concerns within the developer of the package software.
This wouldn’t have to be a problem if Client B had a captive center.
Clients should keep their focus on quality. Quality from their own deliverables, as in complex requirements, and quality from the service provider of the end product. This should be
secured in Service Level Agreements.
Because of the large distance between India and the client, in general, clients should not expect that Indians will truly understand the business of the client. Indian developers have little knowledge of business processes and the environment of European clients.
It is extremely important to have a good relationship with the service provider. Personal relationships are very important. When they are patronized by their clients, which still happens frequently, trust will disappear and you can be sure their deliverables will be of low quality. It is important to visit them, but it remains to be difficult to convince clients to take these trips this. It is critical to gain a good understanding of the Indian environment, the working conditions, and it will strengthen the relationship.
Do not go for costs only.
Cultural differences won’t oblige a totally different way of working. Working with Indians is no rocket science.
[case5] Case summary: Client E – Tata Consultancy Systems
Client E is a large Dutch bank
Service provider O is a tier-1 Indian service provider
Interviewee: Vice President, Services NL IT / Transition & Transformation
Background information
In 2004, Client E signed an agreement with five service providers to outsource their entire IT- function. The contract was divided between 5 primary service providers.
From the IT-organization of 5000 employees, around 2000 were transferred to a global service provider and another 1500 were made redundant.
Service provider O is the largest partner for application development and application maintenance with a share of 60%. Service provider O is doing the standard maintenance projects and another Indian party performs the testing.
The primary motivation for Client E to move the work to an offshore destination was to save costs.
Determinants of success and failure
The interviewee does not know the model, but sees the added value of it.
An important success factor was a good relationship. This has been the key reason for the transition managers to frequently visit India. Every 6 weeks, one of two transition managers was going to India along with several project managers, to build and sustain a good
relationship. This was particularly the case during the transition, when people changed at both sides.
In retrospect, there was not enough attention for personal relationships in the beginning. To build good relationships, managers had to travel a lot and therefore costs money, and in the beginning the CIO was unwilling to approve these expenses. Also project managers should be aware of this and actively build a relationships when starting to work with an Indian.
Because of their culture, Indians tend to keep things under the carpet. Clients have to be prepared for this. Create a culture of openness and share knowledge. Also internally between the project managers themselves. Also, Indians need to be very carefully supervised.
Indians had to be helped with project management. The Indian team had great difficulties in making a good planning. For Indians this was more the result of a formula, instead of a planning based on experience.
Communication is a major success factor. Communication mostly occurred through e-mail, because other tools were very hard to implement due to security concerns of the infrastructure.
This also had a negative impact on the overall performance. Especially because other companies were involved in the management of the infrastructure.
Both parties invested a lot in capturing all agreements in the contract. The different Client E locations, and the multi-vendor situation were causes for a very complex contract.
The interviewee still considers this to be necessary in a context with such a complex
governance structure. It provided clarity internally. Another reason was that an Indian service provider takes the contract literally. However, an extensive contract is by no means a
replacement for a good relationship. The contract has a penalty clause to keep attrition low within the offshore team. Although this is rarely invoked, it enables discussion on this topic.
Because the improved labor market for IT-personnel during the transition, Client E had little problems in making employees redundant. The bank offered a good social plan and intensive guidance for all employees. This cost a lot of money.
Agreements were made about the price per function point, the number of function points was decided upon together.
The waterfall method was used. This method works a lot better than agile software
development methods in an offshore context. Usually, requirements were made by Client E and Service provider O made the specifications.
Service provider O should be more pro-active. Often, instead of solving a problem, they first propose a solution.
The employees of Service provider O have a very good working attitude. Client E is now open during the weekends and Service provider O meets the deadlines.
The use of CMMI is very beneficial in offshore outsourcing engagements. Client E has certified most departments on level 2, and some portfolios at level 3. This is in line with a strong process approach within the bank.
[case6] Case summary: Client F – Service provider P
Client F is a large Dutch bank
Service provider P is a large global service provider Interviewee: Transition manager
Background information
At the end of 2002 Client F reached an agreement with Service provider P to outsource most of their IT-activities from Client F. The business unit involved serves multinationals,
governments, large companies and financial markets in over 50 countries. It has an annual turnover of over 5 billion euros and more than 10,000 customers. Since the beginning of 2003, most of the 2,200 employees of the IT-department have been outsourced to Service provider P.
The contract had an approximate value of 1,3 billion over 5 years.
The outsourcing engagement would shift IT support, IT Infrastructure Management, Applications Maintenance and Applications Development to Service provider P. Within Client F, only the demand-and-supply organization would remain. Service provider P would gradually move the work to the offshore location India. The contract value would gradually decrease every year.
Course of the project
From 650fte in The Netherlands, the work of around 400fte would be moved to India. The most important motivation to move the work to an offshore location was a reduction of costs, the strategy to achieve this was very aggressive. The targets were set on board-level.
The activities that were to be moved to India were mostly maintenance and chunk projects.
Most of the new applications development already took place in India.
Service provider P managed to deliver to the targets set by Client F by moving up to 80% of the work to India.
Determinants of success and failure
The employees of Service provider P, consisting of former Client F employees, still had the same phone numbers and the formal and informal structures hadn’t changed. Therefore, Client F project managers would still steer on particular persons. Also, responsibilities within Client F were still very ambiguous. Client F managers were not encouraged to actively reduce costs and were still steering on people, instead of the output. This made it much harder for Service provider P to send work offshore. Giving new telephone numbers would have helped.
Within the Apps-division from Service provider P, there was a transition budget of three months. However, transition lasted for much more than these three months and the costs tuClient Ad out to be significantly higher than anticipated. However, due to the higher margins on work done in the offshore location, Service provider P managed to remain profitable.
During Due Diligence, certain aspects were overlooked. Like the level of documentation within Client F, or specific skills of both parties. Documentation is essential in offshore outsourcing engagements.
Projects were divided among different teams, this obliged the first team to better document the application and guarantee its stability, since the next team would have to do the
maintenance. If this would have been done by the same team, they would have cut coClient Ars, because they could possibly fix their own mistakes. The implementation of CMMI was very useful in dividing the work.
After the transition phase, people in India were trained with specific skills. But these people were often overlooked in new projects.
It was hard to measure the performance against the goals. Not enough attention was given to the alignment of the registration of work. Indians were booking their work in different project codes. It was very hard to exactly give the right metrics for each project, like the onsite- offshore ratio or the total costs.
Client F demanded Service provider P to work on at least CMMI level 3. However, Client F itself was not capable of good requirements management: the requirements were changing constantly. Good requirements management is essential in moving the work to an offshore location.
A common pitfall was the structuring of virtual teams, consisting of Westerners and Indians, often with a Western project managers. Indians formed an integral part of these teams, but project managers got away with blaming Indians for project failures, instead of taking responsibility themselves as project managers. This resulted in a lowering of confidence and trust within the Indians. Because of the lowering in trust, Indians were feeling cornered and stopped giving useful feedback. Indians should be treated as useful and equal employees, instead of ‘stupid coders’. Small compliments can make a big difference. Find champions among the onshore team, employees who could really advocate the use of offshore resources.
Sit down with people whose work is likely to be moved to India. Explain the roles and opportunities remaining at the client, at the service provider, and other career opportunities.
This will create commitment.
Connectivity tuClient Ad out to be extremely important. Due to the stringent security
guidelines from Client F, it tuClient Ad out to be a challenge to connect Client F with Service provider P with Service provider P India. Besides the security restrictions, the many different stakeholders (other service providers from Client F) complicated this even more.
Communication was very important and cultural differences have a large influence on communication. Information Technology in the end is about people and many issues arose due to the attitude of the employees of Service provider P Netherlands.
- Arrogance
- Threatening way of doing business
- Implicit assumptions were not made explicit
- Indians were the easy scapegoat in project hiccups.
The ability to move the work offshore is very much depended on the ability from the client and onshore provider to send the move offshore. Few people feel like visiting India to visit the service provider, however, this would be very helpful.
Indians communicate indirectly. Saying yes is not a commitment for an Indian. Managers have to be on top of them, and manage them very tightly to get what they have said.
[exp1] Expert interview Ralph Hofman
Friday, Februari 16, 2007
Interviewee: Ir. Ralph Hofman, partner Blinklane Consulting
Ralph Hofman is partner at Blinklane Consulting. Previously he has been country manager at Quint Wellington Redwood. He has been engaged in consulting management boards of large organizations on IT strategy, outsourcing and offshore outsourcing. He is also author of several publications in the field of strategy and sourcing.
Trends, observations
There is still much more discussion about offshore outsourcing than that companies actually are moving their work to an offshore destination.
There is a lot of competition of service providers in India, especially between tier-2 and tier-3 companies.
Organizations are still developing captive centers in India.
The most important motivation for organization to offshore outsourcing is the scarcity on the on labour market for qualified IT personnel.
In The Netherlands there is little political and social resistance towards offshore outsourcing to India, in contrary to the UK and US.
The largest Indian service providers show increasingly the same characteristics as the large international players like IBM, the differences are likely to decrease between them.
eSCM
Ralph Hofman knows the eSourcing Capability Model and uses the model in the consultancy practices of Blinklane Consulting.
The eSourcing Capability Model has been the only model which specifically addresses issues of outsourcing. Outsourcing is becoming a core-process for organizations and therefore, the eSCM will be implemented by organizations. Sourcing is viewed as an ongoing activity for organizations by the eSCM, this is a significant different with other frameworks.
Certifications for client organizations are not likely. Organizations benefit from
implementation, but the costs and effort for certifications do not justify the added value of certification. Service providers are more likely to opt for certification, because they could leverage it as a marketing instrument.
The eSCM should be used as a means to develop competences. These competences will ultimately define the quality of the output. The implementation itself would not lead to success automatically.
Offshore outsourcing would be a reason to better implement the eSCM, because organizations need better sourcing capabilities to successfully manage offshore outsourcing engagements.
The eSCM has little attention for project management. Especially processes regarding the outsourcing of applications development are underexposed.
What determines success and failure in offshore outsourcing?
Knowledge Management is a large success factor. Are you able to direct if you’re not an actor.
Knowledge disappears, it’s hard for organizations to stay in control when the knowledge is outsourced as well.
The risks regarding intellectual property are limited.
Contracts are becoming more complex, this needs to be done by specialized lawyers.
Advantages of a Western service provider is the knowledge about the client organization and the level of domain knowledge.
Advantages of an Indian service provider are better access to technologies and people.
However, these service providers still lag behind in domain knowledge.
[exp2] Expert interview: Erik Beulen
Friday, Februari 23, 2007
Interviewee: Dr. Erik Beulen (Professor University of Tilburg)
Erik Beulen is working for the University of Tilburg, he has written numerous publications and books about outsourcing and offshore outsourcing. He is also working as senior manager applications outsourcing for Accenture.
Trends, observations
During the past 15 years, the role of the client has changed. The client has matured, and relations are seen more as a partnership. Today’s organizations have positions consisting of managing a relationship with large service providers.
Time differences won’t lead to major problems in relationships between European and Indian organizations.
The wages are rising in India, however, this is especially related to the experience of the employees and they are gaining in experience as well. The Indian wages will not come close to Western salaries.
It is often said that service providers are more mature than client organizations, but this is not the case in reality. The professionalism and capacity of the front office is the most important determinant of success.
eSCM and Offshore outsourcing
The interview does know the eSourcing Capability Models, but has no experience with the client-side model.
The eSourcing Capability Model only specifies the requirements on a high aggregation level.
The eSCM is particularly useful as a guidelines in discussions concerning outsourcing. The document is well structured and of high quality, therefore it is perfectly suitable as a basis and usable as a guideline for outsourcing engagements.
It is unlikely client organizations request official certification, certification must be seen as mainly a marketing instrument. However, it is interesting for service providers to measure the maturity of the client when responding to an RFI or RFP, since this will require substantial acquisition costs (around 3% of total contract value).
What determines success and failure in offshore outsourcing?
In offshore outsourcing engagements, usually, requirements management will lead to the largest problems. The requirements on operational level between the employees from both organizations will lead to the biggest problems.
A success factor is a single coordination point within both organizations. Success depends on the capabilities of from these coordination points. Capabilities are depended on available steering mechanisms, power and work load.
Organizations should use uniform delivery processes, like ITIL and CMMI.
When the origins of people matches, cultural differences can be bridged and this is important in gaining success.
Organizations should be mature when they want to outsource to India.
- There should be more knowledge about the market
- The selection process of the service provider should be more structured - Management is harder due to the distance
- The documentation and communication must be in English - Demand management must be professionalized
Good performance management is essential in managing a service provider. Ideally, performance management is based on a dashboard with business metrics. However, this is still in the future for most organizations, so a balanced scorecard approach with IT-targets is acceptable.
The dimension geography is becoming less important. It becomes easier to conduct business over larger distances. Indian service providers are building their presence in the clients’ home markets and Western service providers are building their presence in India. At the same time is it important strategically that the work is being done in the best location.
For a good relationship there should be the right point of contact.
In outsourcing engagements, innovation is always hard to achieve, because innovation is disadvantageous on the short term for the service provider. It is also hard to realize innovation in a situation where the IT is outsourced. This is applicable to local sourcing to offshore outsourcing, but offshore outsourcing complicates it even more.
The transfer of knowledge is extremely important in offshore outsourcing engagements. There are roughly two methods. (1) get Indians to the client for a few weeks and give them an intensive knowledge transfer (2) get Indians for a longer period, e.g. half a year, to work along with the client before sending them back to India. The choice depends on the situation, but in dynamic situations, the latter option is preferred, despite the much higher costs. This will also contribute to the relationship quality.
When signing the letter of intend, both parties should have seen the people who are actually going to do the work, like a service delivery manager.
From a process perspective, the differences between onshore outsourcing and offshore outsourcing are rather small, however, in an offshore outsourcing processes should be followed more strictly.
Important for contracting is deciding which law is applicable. It is also important to record which steps should be taken when something is not covered in the contract itself.
[exp3] Expert interview Arno IJmker
Quint Wellington Redwood, Amsterdam, Wednesday, March 14, 2007
Interviewee: Arno IJmker, senior consultant and partner Quint Wellington Redwood Arno IJmker is senior consultant in the field of outsourcing and has wide international experience in the banking and insurance sector. He is a frequent speaker on conferences and has published severly on this subject. Arno IJmker is also member of the executive committee of Platform Outsourcing Netherlands.
Adoption of the eSCM
Arno IJmker knows the eSourcing Capability Model, he has studied the 6 pages summary so far, but is not using it in his consultancy practices.
IT-outsourcing is a relatively young field of expertise. There is no industry standard yet. The only initiatives in the market are eSCM and The International Association of Outsourcing Professionals (IAOP). There is a demand in the market for certification, training and the eSCM could benefit from this. Also the large parties involved in eSCM and the prior
experience with the CMM(I) models increase the likelihood of success for the adoption in the market. However, it is a weakness there are no individual certifications of eSCM (yet). The actual adoption of the eSCM will only be noticeable in a few years.
It is not likely client organizations opt for certification, the advantages do not justify the heaviness of the certification and costs. This will be different for service providers, where certification is more likely. Especially because of cultural differences, Asians are more likely to implement a model in a whole. The eSCM will be adopted more directly by Asian
organizations. Dutch organizations will not be willing to implement the model precisely. The structure however, does provide freedom in implementation, for instance by using the
Capability Areas as guidance, without holding to the institution of all processes.
IAOP has a certification program for individuals. The content and the knowledge on which it is based is an empty shell, but IAOP is better accommodating to the demand in the market, by offering individual training and certification programs. The core of IAOP is the body of knowledge.
Practice has to define whether the eSCM turns out to be useful, or remains to be an academic model. This was the case for ISPL, a framework for the acquisition of IT services, which did not gain a foothold in the market, because it was too academically.
For a useful implementation of the eSCM, there is always a need for a knowledgeable third party.
What determines success and failure in offshore outsourcing?
In order for an effective relationship between two parties, always a good interface is needed between the client and the service provider. The interface from the client needs to translate the business requirements into IT requirements and needs to manage the service provider properly.
The interface from the service provider needs to manage the “factory” from the service
provider well. In offshore outsourcing engagements, a more mature translation is needed of the business in IT requirements. There is a greater emphasis on requirements management.
When the business is not exactly sure what they want, it will lead to great problems in managing the service provider. Indians are able to execute your projects, as long as you specify it well.
In offshore outsourcing engagements, you need to implement business processes more tightly.
[esp1] Interview Service Provider: Capgemini
Capgemini
Monday, March 19, Utrecht
Attendants: Michiel Willekens, drs. Frans van den Hurk (Vice President Technology Services)
Service Provider
Capgemini Technology Services is responsible for new application development. At the completion of these projects, the work is handed over to the business unit Capgemini Outsourcing.
Capgemini has 13,000 employees in India after the acquisition of service provider Kanbay.
Capgemini Netherlands is certified on CMMI level 3, Capgemini India is certified on level 5.
Capgemini has introduced the Rightshore model. This is a global delivery model, it defines the size of the front office and back office, and where the work takes place. This is determined in dialogue with the client.
Capgemini has a lot of experience and knowledge in the front office, and Capgemini is large enough to leverage economies of scale in India.
Rightshore offers a tailored global sourcing solution to the client. In many cases, a strong front-office is essential for an effective sourcing strategy. This also helps to gain confidence from clients, who are often not willing to do business directly with pure Indian players. Also, the front office has a lot of value for client in the form of business knowledge. Also,
Capgemini has a lot of experience in doing business with Indian parties. Rightshore has become the standard way of doing projects for Capgemini.
Trends, observations
The interviewee has not heard of the eSourcing Capability Model.
Cultural differences are apparent in outsourcing relationships, but are not the cause for most problems. The large distance is the most complicating factor in working together.
India remains to be the best offshore destination. Around 70% of the offshore work goes to India. The wages are rising, but will not approach Western salaries, because of the lower standard of living.
China has certain disadvantages in comparison to India - Language
- Demography, the average age is much lower in India - China has a shortage of young people
- The IT-infrastructure is stronger in India
Clients have better expectations nowadays of the Indian capabilities and the possibilities of offshore outsourcing.
What determines success and failure in offshore outsourcing?
Offshore outsourcing emphasizes the importance of demand management at the client.
Especially the definition of requirements needs to happen more disciplined.
An important success factor is the communication between both parties. The process of making implicit assumptions explicit needs to be installed. When ‘obvious’ things are not included in the requirements and specifications, they are not included in the end product.
Implicit statements need to be made explicit on three areas:
- Technology. Clear agreements have to be made about the infrastructure, standardization of technology and uniformity of technology
- Process. Processes need to be clearly defined to effectively work together. Capgemini uses CMMI to do this and a Distributed Delivery Framework.
- People. Indians should be treated equally. They are integral part of the teams and the right provisions need to be made to have people work together. Examples are video- conferencing.
To make implicit assumptions explicit, standardization and facilitation are very important.
An important success factor is a good relationship. To build a relationship, Indians working in The Netherlands and vice-versa is a good way to build relationships between the two teams.
A success factor is to involve the people who have to do the actual work in early in the sales process. Difficulties arise in the definition in requirements, let the people meet who make the requirements and who build on these requirements.
The skills of the Indians are very high in general. A point of interest is the attrition rate of personnel, this is especially a problem at the bottom of the pyramid (the operational staff).
Client organizations should make stable and high quality requirements. The client is often not able to do this, the front office of Capgemini could overcome this.
[esp2] Interview Service Provider: Service provider A
Service provider A is mediumsized Indian service provider
Friday, April 13, 2007
Attendants: Engagement manager
Trends, observations
The interview does not know the eSourcing Capability Model. Quality models with best- practices make a lot of sense and definitely add value in case of repetitive situations. The use of the eSCM would therefore make sense if outsourcing is a frequent activity in its
organization.
It is a necessary development that service providers are building a presence in Western countries. India has been very successful in English speaking countries, the UK and USA.
Because of the benefits of the language.
Clients are more mature towards offshore outsourcing than a few years ago.
Social system in France is still closed, culturally French are not very open. Offshore outsourcing still has a bad reputation in France.
India has a shortage of qualified personnel. From all applications, only 1-5% will be hired. A lot of filtering has to be done to filter inaccuracies in experience and education from the applications. Recruiting is done at hiring events where candidates will be interviewed several times a day and possibly walk away with a contract. Another method is to directly hire people from universities and put them in an in-house training program.
A trend is the shift from merely ITO to more BPO. Service providers are building knowledge and capabilities to handle whole business processes for clients. This might include the
restructuring of business processes. E.g. accounts payable. Service provider A calls this BSP, business services provisioning.
If vendor is providing both BPO and support for IT system on which the business process relies, it creates opportunity to improve business process more efficiently as underlying infrastructure is under vendor’s maintenance
When vendor is the owner of the IT infrastructure, runs business process on it and provides services to multiple clients on the same platform, this is BSP.
Use a methodology towards outsourcing and offshore outsourcing. Many clients have an opportunistic approach. This leads to poor performance. They particularly don’t know how to approach the service provider, how they could build a relationship and how to define the operational structure. A good structure is an important success factor. Escalation methods should be well-defined, and which measures both parties will take in order to resolve conflicts.
Well-defined software development processes should be in place for the service provider, a proven model is CMM. Provider’s CMM level does not guarantee efficiently immediately as
1) linked operations of provider’s and clinet’s teams will require time to be designed, implemented and to mature
2) there is often a maturity gap between the client and the service provider and therefore overall maturity level will be lower.
The client should handle its deliverables rigidly. The specifications are to be more detailed and last minutes changes are not possible. Service providers should train the client to write detailed specifications. Clients and service providers should design and use business processes to increase success.
Clients often handle (offshore) outsourcing as a commodity / product purchasing. However, clients should look at outsourcing with the same principles of mergers and acquisitions [partnership]. Clients should assess whether both companies have the same principles, if outsourcing is financially beneficiary for both parties, if there is a match in size, if a
relationship has a future, the interests of both parties and if there is a cultural match. This is particularly important when clients want to leverage the strategic benefits of offshore outsourcing. Offshore outsourcing as a purely low-cost solution could have a more transactional-based approach.
Client and vendor should have common objectives in regard to the project they engage in together, but they may have different interests. Important is for both understand interests of each other, so that they can make steps that are strategically motivating for both.
The relationship quality is the most important determinant of success in offshore outsourcing relationships. The clients should not focus too much on the contract in order to control their service providers. The relationship quality would suffer from the exploitation of escalations, penalties and conflicts of the contract. Penalties are important to provide a control mechanism, but not to be overused. The personal relationships will define the quality of the output.
Projects should have a critical mass to leverage the advantages of offshore outsourcing.
Service providers improve their success when they hire local people at client locations. Client organizations are more open to local people in their own language than to Indians. This increases the quality of the information significantly and is important to build relationships, because building a good relationships is based on very subtle things. This is especially true with European cultures like France.
Clients should have the right mindset towards offshore outsourcing. It takes more effort to manage a service provider in India, than a local service provider. In offshore outsourcing relationship it takes more effort to make the right requirements, it takes more time, effort and money to build a relationship. This often leads to lesser motivation at the client’s side. A project manager who is used to manage a local service provider has to do more in order to get the same results, this might frustrate the manager. A practice to overcome this is to appoint a new project managers, with new challenges and a new goal, this person would be more motivated to achieve success. This has been a successful practice for one of Service provider A’s clients.
Communication is a key success factor for offshore outsourcing. In local outsourcing relationships, communication will occur naturally, and a good relationship will be formed naturally. It is easier to get away with a less structured approach, since everybody is around and know what they are talking about [domain knowledge]. This understanding is much harder to achieve in offshore outsourcing relations. Clients and service providers should therefore provide more information than actually necessary to do the job, e.g. their long term business goals, impact of the service on the client’s business. This leads to a better
understanding and to more trust between the two parties. It is also important that both parties select good communicators. If the people on both sides are not able to communicate well to each other, this will certainly lead to a bad performance. This is harder to achieve than with local service providers.
Indian service providers are focussing very much on processes and structures. But the personal touch makes the difference, Indian service providers should develop soft skills.
Cultural aspects [culture] should not be overlooked. Especially since communication is more indirect in India. It’s not normal to say that the other person is wrong [contradict]. In practice, an Indian employee will not indicate that something the clients want is wrong, if there is a better way. Clients should operate more in coaching mode to their Indian service providers’
employees. By explicitly requesting a proactive mentality from the service providers.
Normally Indian employees won’t question the client’s requirements. Clients should therefore actively challenge them to think about the requirements and to suggest possible improvements.
Training is therefore very important. A local relationship manager will help a lot to resolve cultural issues.
Both parties should seek a partnership to leverage the benefits of offshore outsourcing. This implies openness in terms of financial benefits, cost structures from both parties. A client should assess the attention it gets from the service provider in sales, negotiations and other interactions before the start of the project. One of the ways to evaluate transparency of the service provider is to see how willing he is to discuss a termination clause in the contract.
In order to decrease attrition, Indian companies should offer a good working environment, career options and improve their brand. Indian employees are looking for personal
development. The largest Indian service providers have a better brand than tier-2 players. This compels smaller service providers to offer more compensation to its employees.
[esp3] Interview Service Provider: Service provider B
Service provider B is a Western service provider with an Indian subsidiary Monday, April 16, 2007, Mumbai
Attendants: Michiel Willekens, Manager global transformation from Service provider B India
Service provider
The Interviewee has seen the model and Service provider B has already implemented similar processes from some areas of the eSCM. There is no direct further interest in certification, or implementing eSCM processes within client’s organizations.
Service provider B offers the right mix of onshore and offshore model.
1. Service provider B has a lot of organizational knowledge of its customers, domain knowledge.
2. Service provider B is really able to do outsourcing, by integrating personnel from the client in the service provider.
3. A global presence is not the same as body shopping.
4. Service provider B has a very good infrastructure with most of its clients.
A large presence in the client’s markets, Service provider B has a lot of business knowledge.
The pure Indian players have more of a traders mentality. In contrast to Service provider B Indian service providers are not building any assets, e.g. investing in data warehouses. The only money they invest is in large campuses, however there is a lot inspiration and their performance is good.
Trends, observations
US-companies [clients] historically have been much more active and have more experience with offshore outsourcing. The important reasons for this are:
- Language
- Business scenario is more performance oriented. There is less resistance towards bringing the work to India, since this would increase shareholder value
- US-companies are more accustomed to movie business, e.g. to China.
- The US is a multi-ethnic society with a lot of Indians
Since 2004 European customers are more open towards offshoring.
Best-of-breed strategies are a small trend. It is not the standard.
The main advantage of India is its huge base of talents. There is a lot of experience in converting this talent into productive talent. Eastern Europe has large advantages of the proximity and the EU legislation, but wages will rise quick. China is a good offshore outsourcing partner for Eastern Asia.
Time zone differences with India are not a problem.
The wages in India are relatively raising. The wages have gone up in Europe as well. In absolute terms are the wages still low. Because of attrition, Indian service providers have
much more experience in rotating personnel. So higher level staff can more easily be replaced with lower level (cheaper) staff.
What determines success and failure?
All relevant stakeholders in the client’s organization should be convinced of offshoring.
Offshore outsourcing urges clients to professionalize their organization. This is a
transformation process and leads to change. Change has an impact on the organization and this demands structure. Simply, people want to know what is going on. A model [eSCM]
would be a good way to analyse this and to analyse the impact on the different stakeholders.
Clients often fail to manage this transformation process themselves and this substantially impacts the performance of offshoring.
There are two ways to look at offshoring. As a transaction, then there is no need for a relationship. As a program, in order to ensure a successful outcome a good relationship is critical. This also leads to the involvement of different stakeholders.
When clients start to outsource their work to a service provider 6000 km away, people quickly start to feel out of control. Out of sight is out of mind. And this is also the reason you cannot get away with sloppy management. In order to sustain control on your service provider you need more formalization. This involves a change for organizations. Processes, governance structures, roles & responsibilities have to be much clearer defined. There is a need to emphasize on working models.
Clients are often inexperienced with offshore outsourcing. Therefore Service provider B actively helps it customers to put numbers to their strategy. By making a scorecard, building a business case, making a roadplan, also by implementing performance management
mechanisms.
It is important to bring clients to India and employees from the service provider to the client’s location. This helps in understanding each other’s business and creates informal relationships.
Also user teams are visiting India. By this trust is created between the client and the service provider. In the end it’s all about people, if that goes well, the rest will be ok.
Cultural differences will be most visible, and important in communication styles. If a client would say he is disappointed in an Indian, this person would perceive this very badly whereas a European would consider this to be straightforward and not insulting. Miscommunication often leads to escalation and this should therefore be very well organized. Escalation would bring issues to senior managers and they are experienced to handle these situations.
Attrition is a large problem for the entire IT-industry in India. It is important to minimize its impact on the business and the quality of delivery. This could be achieved by a good
knowledge-system and a good process structure which makes processes less people-depended and by minimizing the attrition. Service provider B identifies for each team a few core
members, which are labelled a high-potentials, this significantly increases their loyalty and attrition is low for this group. It is important to be upfront about these issues with the client.
Clients should understand the issues of service providers and therefore take these into account in making demands. It is unreasonable to ask only senior developers on a single project or to ask for a stay of multiple years of a particular person on a single project.
[esp4] Interview Service Provider: Service provider C
Service provider C is a tier-1 Indian service provider Tuesday, April 17, Mumbai
Service Provider
Service provider C is a midsized Indian IT company with approximately 13.000 – 14.000 employees. It is structured in vertical business unites (e.g. financials, manufacturing, retail).
Service provider C is certified on CMM level 5, ISO 9001, will be certified at CMMI level 5 later this year, and has a certification on PCMM.
Service provider C has a significant presence in the U.S. with a global delivery center in Boston.
An important differentiator for Service provider C is its size, with 13.000 – 14.000 employees they have the critical mass to delivery scalability, but are not too big for most companies.
All major clients have an onsite account manager.
Trends, observations
The interviewees have no experience with the eSourcing Capability Model, neither they have heard of it.
Western service providers can easily mark up salaries 20-50% over Service provider C. Low- cost is still a key differentiator for Service provider C.
Global service providers face internal challenges. They first have to sell offshoring within themselves. Offshoring is the natural way of doing business for pure Indina players, they have more experience with offshoring and a better understanding of the geographical challenges.
Service provider C has over 25 years of experience with offshoring.
What determines success and failure in offshore outsourcing?
Using models to structure business processes improves the response time of organizations and daily operations are improved. This is easy to communicate to clients, since these models have become the industry standard [CMM] and most service providers are using them. Well- defined models are critical in large-scale projects, without the processes and supporting tools it is impossible to manage these projects.
Internally processes have been implemented to manage customers and the pre-sale process.
eSCM could be particularly useful to create a good match between the expectations of clients and the service provider.
Traditionally, Indian IT-companies are moving from mass large-scale work into consulting.
It is a major challenge for offshore providers to provide a steady stream of quality
deliverables, ensure resources, manage attrition, train resources and re-use them over multiple projects. Service providers should develop domain expertise. Knowledge about the industry, the market and relevant business processes.
Offshore outsourcing means an increased cost of communication, in terms of money and effort. It takes significantly more effort to communicate well in offshore outsourcing situations. Onshore, communication is easy, people are around each other, the situation is perceived better, the risks involved are perceived better. It costs a lot more (effort, money) to achieve the same result.
Clients should understand the challenges of the service provider. Asking a service provider to have one particular person on a project for several years is not possible. This is improving nowadays, clients are visiting service providers more often, which is important to gain insight in their issues. Both parties should be willing to share business plans, long term goals in order to improve visibility and transparency. This shouldn’t lead to micromanagement, but to more understanding and trust in the relationship. Ideally, clients should treat service providers as an extension of itself. Service providers should break into the mindset of clients to achieve this, creating trust, rolling out a red carpet, and creating a center of excellence. Trust, visibility, transparency is much harder to achieve for Indian service providers due to the distance.
The client should be professional in its agreements. Clear documentation.
The right software development method should be chosen. Waterfall is not applicable to most of today’s business environment and it also causes a long delay before the first deliverables, quality deliverables are critical to achieve trust. Agile development methods need too much interaction in order to be successfully executed offshore. RUP is a good compromise.
Indian service providers should be at the forefront of technological innovations.
Attrition is mainly a problem for people with 2-5 years of working experience. After graduation and successfully executing an ambitious project, they often go jobhopping.
Career opportunities are very important for the sake of retention of personnel. Also, knowledge management is important in order to minimize the impact of attrition on the business. Job rotation between projects is a good incentive for employees. Positive
recognition of individual project members by the client definitely has a large impact on the motivation and is a major incentive.
[esp5] Interview Service Provider: Service provider D
Service provider D is a large Western service provider with an Indian intermediary Thursday, April 19, Mumbai
Service Provider
Service provider D is well organized within its group. Service provider D uses a global delivery model. It has a strong presence in its home markets (Europe). This strong-presence will help European clients to win their confidence in offshore outsourcing. It also improves their IT-capabilities, because of Service provider D’s strong domain knowledge. This helps a lot of to overcome language issues.
Trends, observations
The Indian working culture is beneficial to the performance of IT-companies. Employees are willing to postpone their vacation in order to finish their projects, in contrary to Europe were vacations are sacred. In general, people are more flexible which leads to more flexibility.
Language issues are crucial to offshore outsourcing. Dutch clients generally have most documentation still in Dutch.
Cost-savings are not the most important motivation anymore to do offshore outsourcing.
Clients are mainly looking for flexibility and scalability.
The US market and European market have very different characteristics. European clients are less experienced with offshore outsourcing and are less mature than U.S.-companies.
What determines success and failure in offshore outsourcing?
Discipline is very important, because of the distance.
Service providers should know the context of their projects. So clients should share more than just a document, which is minimally needed as input for the project. Both parties should be willing to build a transparent relationship, built it as one team and create a good working environment. Communication is key to this.
Service providers are also responsible to educate the customer to improve their
communication. This includes lots of travelling between the client’s location and India. This wouldn’t be necessary for mature clients in mature relationships. Clients should also be clear in their communications, clarifications requests should be handled well by the client.
The client must control its stakeholders very carefully, especially regarding scope creep, which occurs regularly. This has to be controlled with a lot of discipline. A good way is to do this is to establish a change board. The change board should have members from different stakeholders of the client, a chairman and members from the service providers. All changes will be discussed in the change board. Many changes are requested, because ‘it’s would be nice to have this feature’. These changes would not add value to the client, but could have a major impact on the work of the service provider. Therefore a change board could structure
the change requests, analyse the impact, create a consensus and agree on changes in milestones.
Both parties should be willing to invest in the relationship to achieve trust. Trust comes slowly, but goes quickly. To build trust, most importantly, the quality of the deliverables from service providers has to be high. Issues occur, but these issues don’t have to lead to big
problems, people are not afraid of issues, as long as there is trust. A way of gaining trust could be to realize innovations for the client.
The project-management in the front-office has a very important role. They have the job to manage all stakeholders. Project-management is also responsible of breaking down cultural differences. In disputes, frustration often occurs within the front office of the client,
frustration on India, the front office of the service provider should set the expectations right and act as a more mature person to overcome these issues.
The back office does not feel real emotions in doing their job. Since they are distant from their client, and their main contacts are through email or phone, they often miss the true emotion that comes from the business of the client. They miss the urge, need, feeling of the clients. The front office of the service provider should be aware of this and bring these emotions to their project members, also rich communication by way of video conferencing is a good tool of getting a good feeling with the client.
Cultural differences shouldn’t have a negative impact, since they are rather small. Both have the same culture of going to work and do their job. The way of communicating is different however. Indians can be very indirect, not confronting the client with issues, this is often, because they are not sure of these issues themselves. Therefore good communication should exist, also with the backoffice, so employees are communicating with the client more easily.
Both parties should participate in making a joint-planning, create one plan which is shared with all teams and agree on milestones.
Knowledge management is a key area in offshore outsourcing. Clients should share the context of the project in order to give the service provider a good understanding of their business, since this understanding is much less obvious in offshore outsourcing. Internal knowledge management is also of critical importance for service providers, ramping up projects is an important differentiator for Indian service providers and there is a lot of rotation of the personal. Good management enables organizations to manage the large rotation of staff in projects. Service provider D makes for all projects detailed powerpoints, which all new team members have to go through before they join the project.
Reuse could be seen from two perspective. A business perspective, which defines the reuse of requirements, project information and knowledge gained from other projects. And a
technological perspective, which could consist of the reuse of a xml framework, detailed design, class reuse.
Changes in versions have to be monitored in a centralized disciplined way by a software configuration manager.
People are the most important factor in IT. Information Technology is about people (Client), for the people (Users) and by the people (Programmers).
Roles have to be defined very well for every project. What will be the role of the front office, the back office. What work is done where. Who will clear the deliverables, who is responsible.
This should be recorded into baseline documents. All stakeholders should have the right expectations.
Motivation is given to people by making them feel important, involving them in discussions, throwing them in the water and coach them well. This together with good career development is important to manage attrition.
The RFP forms the basis of risks management. In this phase the most important risks are identified, the most important factor is the clarity, and frozenness of the requirements.
Security issues can be overcome, this has done before by Service provider D as well.
