It is not a new topic, and much has already been written on this topic. I'm also writing a hand-book on this topic, where I have tried to cover the topic by bifurcating it into two, i.e. Customer and Vendor.
The customer aspect would detail the activities, analysis, and decisions that a customer has to make even prior to starting discussion with vendor. The reason being, the discussions come much later; first, they do some "house keeping" in terms of "evaluation of needs", and vendor short listing.
The vendor aspect would cover the details on activities, and analysis with respect to "work on hand", the client needs vis-à-vis identified work, the understanding of objectives, current state, and "to be in" state. Of course, the analysis on internal processes with regard to compatibility, and customization and on count of capacity is also necessary.
Since I cannot put the complete contents of the book over here; therefore, to start with, I will provide some background on AO, leading to evaluation of claims of vendors' in this aspect, and finally, concluding it with some questions to think it over. I'm deliberately not covering the vendor aspect, as I believe that should be left to explore (though I would cover in my hand book).
What is it?
Like any other outsourcing deals, application outsourcing also deals with “transferring” the part / complete responsibility of operations to third party. Please note that it is transferring of responsibility alone, and not ownership or accountability.
The scope of the application outsourcing is generally limited to software business applications, which could again be complete or partial. Therefore, it differs from business process, knowledge process, and infrastructure outsourcing in terms of scope domain (if I may call so), otherwise the fundamental principle of outsourcing does not change as such.
Why Do Customer Outsource?
There are various reasons and many literatures on this subject have sited those reasons, like,
1) Strategic initiative
2) Cost Reduction
3) Non-core area of business
4) Innovation
5) Better alignment between IT and business needs, etc.
However, I personally believe there is only one reason for any outsourcing activity, in any sphere, i.e. improvement / betterment. What it essentially means is that any outsourcing deal must result in improvement, which could be (more the better);
1) Reduction in costs
2) Reduction in cycle time
3) Improvement in Quality
4) Accessibility to qualified resources
5) Redeployment of employee in more core / critical areasAbility to “match” business cycles, i.e. faster and efficient ramp-up / down etc.
What it also means is that maintaining a status-quo is NOT enough.
Phases of Outsourcing
If someone were to outsource, one needs to go through phases before realization of benefits. In addition, the benefit "score" would be directly proportional to one's understanding of outsourcing need, and alignment of processes, resources, governance etc. as per needs. Now, without describing it further and elaborating on each phase, let me list down the phases (of course, I will be detailing those in my book);
1) Planning
2) Transition (considering “Knowledge Transfer” as part of it)
3) Steady State
4) Transformation
Vendor's Marketing Information
Again, to save space (and time) I will cover few aspects, which most of the vendors have in their AO marketing capabilities;
1) "More Than Cost Savings Alone",
2) "Application of Innovative Processes"
3) "Application Modernization with SOA, Mashups etc."
4) "Association as Business Partners"
5) "Accessibility to Skilled Resource Pool"
6) "Multi shore capability" ...........
Now, any curious soul would be able to analyze that all points but point #1, i.e. if a vendor meets all points but #1, it will be of no use. Therefore, it is in our interest to not to trivialize the importance of points #1.
The next two points, i.e. #2 and #3, those are an integral part of "Transformation" phase; therefore, the differentiation would be one's understanding of client's process and application of technology and re-defined processes to suit the business needs of the customer. The reason being SOA, Mashups and like, should be seen as the tools available for transformation, along with others. What fits the best for a given customer is not dependent on technology, as technology is only a facilitator.
Therefore, knowledge and expertise in given technology can be an added advantage (may be a differentiator too) to go with a particular vendor; however, the advantage is more governed by business needs, and not by technology alone.
The next point stresses on the need to work together to increase the value creation. Now, one should look for the "offerings", i.e. what is that vendor has to offer, or had been offering, that would result in this kind of relationship, and has not been offered by others. Similarly, has the vendor defined the changes / support procedures / activities / tasks that you as a client should be doing to foster the "partner" relationship. And, more importantly are those acceptable to you, and do not jeopardize your business values / advantages etc.
Availability of large skills is definitely advantageous; however, does that also provides the easy flexibility to absorb the business fluctuations, i.e. ramp-up / down? Do those skills are relevant to you? Do those match your "planned" cost structure? Do those skills are available where those were required, i.e. "shore" availability? These and many more of like these, are the questions that one must ask and answer to truly assess the "value" of these "capabilities".
The Party Pooper - These capabilities are no longer the differentiators, as almost all "matured" vendors provide these capabilities, and more importantly, these have become the threshold for selection, as almost all client's look for these capabilities (I'm not counting client's with "small" needs in this category). Therefore, the mentioned capabilities in themselves are not differentiators anymore, instead, it is the application of those capabilities, which differentiates one from other.
The last section of this write-up "Self Introspection" poses some questions to you; try answering those questions without any prejudice. I'm sure you will be surprised with your findings, "before" and "after". In addition, you will also find the ambiguities in needs / goals / actions of clients and vendors alike.
Customer - Gather Information ON;
1) What is the competency level of the vendor in outsourcing; their track record, and if possible, reference(s)?
2) What are the support models a vendor has to offer?
3) What are the pricing models that are applicable for given work?
4) What are the infrastructure requirements to support it?
5) What are the governance models, and associated costs?
6) What are the synergies between vendor and client?
7) What is the transition time a vendor is committed to?
8) What are requirements from resource perspective?
9) What are transformation policies / processes?
10) Existing customer referrals
11) Security policies and implementation (physical, data, confidentiality etc.)
12) SLA currently supported (operational efficiency and effectiveness vs. business value proposition)
13) Work ethics policies and implementation level
14) Infrastructure – within center of operation and with city / country of destination
15) Financial verification?
16) Recruitment process
17) Risks?
The answer to these questions would provide you data points to evaluate vendors “fit” to your requirements. Please remember this is a preliminary scrutiny, wherein, you are trying to establish the “interest” in vendors, i.e. you are “short-listing” the vendors, whom you would be interested in doing business with. Therefore, at this stage you do not have to defend, look for a solution, or prepare for negotiation, as that would follow. For example, a competency check on a vendor itself may further explode into close to fifteen (15) questions!!
Self Introspection
1) What is true differentiation; technology, processes, or resources?
2) If "Sales" is product / services focused, and "Marketing" is customer focused, then why is it that we have only Sales persons in a customer deal, especially in AO, where there is no direct and readily applicable solution?
3) Technology, and processes can be copied, and invariably are copied over a period of time, and personnel are hired (at competitor's expense), still some companies are able to differentiate, how?
4) It is being said that client's focus from immediate "cost" gains, has changed over a period of time; why is it so, invariably the deals last leg revolve around price "bargains"?
5) What is that a vendor can provide in addition to cost reduction (by lower price) that would be of interest to customer, and would also help the vendor?
6) Philippines, Eastern Europe and former USSR countries are seen as viable alternatives to India, and China; in this context, how far the claim that customer's are looking beyond reduced price, holds true?
7) What are the instruments available to a vendor / customer to increase the "value" of the deal, so that negotiations are being carried out beyond "price bargains"?
8) An AO deal can be multi-geography and multi-vendor proposition; how does one govern it? What is best governance mode and order in this case?
9) How does one define the SLA in absence of any historical data? Can it be entirely based on client needs, and / or vendor's maturity / capability? OR, can there be some "intermediate" stage, along with more than one solution approaches?
10) Client does not like T&M kind of pricing, and vendor would like to avoid FFP kind of pricing; what is the best pricing model for AO deal? Can it be standardized for all AO deals?
11) It is being said that client and vendor should act as business partners to maximize the benefits of a deal; what prohibits them to act as business partners? Can those differences be converted into synergies?
12) AO deals runs for years together; what are the elements, which can impact the deal, OR in other words, what are the attributes that one should cater to, in order to increase the "predictability"?
The above questions would lead you to answer some of critical questions that both (vendor and client) the entities should be attempting for any AO deal, i.e. "What are things (activities, data gathering and analysis) a vendor and client should be doing, prior, and during an AO deal?".
No comments:
Post a Comment