Are IT sourcing Third-party advisors losing steam?

IT Third-party Advisors for sourcing were viewed as trusted advisors and facilitators of IT decions by several large client. We have seen several TPA both global and niche players in the last decade 2000-2010 offering services such as soucring/legal advisory, facilitating bids for clients through their standardized templates/process, information reports, etc. They had played a crucial role in helping clients in making the righ sourcing decisions on the buy side and providing a good marketing/information service for the sell side clients. Hence their role as information intermediaries for the IT industries had worked extremely well.

With the IT industry maturing and their outsourcing services getting commodotized the large question comes to mind if their sourcing services are helping discover value for the outsourcing clients?

The clients on the buy side have the following percpetion about these intermediaries:
1. Makes the bid process expensive due to the long buy cycle
2. Generalist mentality pushing procurement process, legal diligence, etc. while losing the larger focus on bringing value to the businesses that sponsor the outsourcing decision in long run


On the sell side the Being in the IT industry have the following perception:

1. Paper pushers whose primary drive is in filling templates and lack of transparent rating process leaving the IT vendor confused on client buyer values
2. Make the entire sourcing process driven from legal standpoint rather than really driving value-buy decisions for client.


We have been seeing sever TPA in the market either closing shops or getting acquired by larger TPAs (a.k.a consolidation drive). As most of the IT outsourcing services are getting commoditized leaving us with few questions:
1. Are the TPA really adding value to Client buyers and IT vendors?
2. Should client be paying TPA for sourcing advisory services considering most of the information are in public domain?
3. Can this be a free service offered to clients rather than a paid service?

What next? - IT outsourcing industry.

We have seen some interesting differentiators used in winning outsourcing deals in the last decade:

Technology based
1. Communication/Connectivity technologies
2. Internet technologies
3. Emerging technologies????

Event based
1. Y2K
2. Dot.Com

People-based
1. # of graduates (engineers)
2. Talent pool

Business/Economic based
1. Manufacturing -> Services

Quality based
1. Quality certifications leading to claims on Industrialized/factory model for delivery

Cost based
1. Labor arbitrages
2. Factor costs based on countries

Risk based
1. Shift and degree of accountability and ownership changes

What is the next dominating set of factors that could (re)shape the IT outsourcing industry?
- Politics (Regulation, taxation of outsourcing industry, and other trade impediments)
- Economics (Inflation, Exchange rates,....)
- Social structures (Free agents as opposed to employees of organization, ???)
-????

Setting-up and Running a successfull business in India - A Pardocixal market for the mystics

India is a market filled with Paradoxes...every MNC that come here get carried away by the GDP growth (6-7%) even during recession, the middle-class size (remember the 200 million middle class episode painted by Chidambaram in late 90s and the market flooded with MNC searching opportunities), the growing affluent class (also remember the Percapita income of ~USD 3000) demanding new products and services, deregulation and progressive structural changes in economy leading to open policies for investments (remeber the 1991 deregulation and the gradual expiry of license raj), strong regulatory & legal system (IRDA, RBI, TRAI, NASSCOM, you name it all strong) etc. Among all these positives juxtapose the abject poverty with more than 25% of population living below poverty line (BPL) with a Gini Index of 36.8 (not really bad is it..but then this was in 2004 and it had a rising trend...also this is a sample and knowing fully well we have no basis to anchor on this number!), 86th rank as the most corrupt country, the infrastructure (social/Physical/Infrastructure) in shambles, pending cases that comes for hearing after the petitioner dies (remember Lakhubhai Pathak and NRI who has the famous Masala, pappad business who died before his corruption suit against the Govt. of India was filed), largest stock market in Asia with ~ 5000 companies listed and actively traded in the market, etc. You bet this is country of paradoxes....


Now why is this country so mystical. Look at it this way there are great academicians (remember the number of Indian Profs have taught you in your PG courses in US/AUS/UK/etc.), Nobel laureates (Chadrashekahr, Raman, Venkatraman Ramakrishnan), CEOs (Vikram Pandit, Indra Nooyi), relegious leaders (Buddha, Mahaveer, Dalai Lama, Vivekanand), environmentalisits (Pachuri), Sociologist (Amartya Sen), poets (tagore), activist (Gandhi) endless names...all eminent people who have played on the World platform and recognized for their endeavors that shaped and changed the world, but how much impact did they have on India? Have you ever considered why? sometimes it make me believe they are all mystics of India!

I'm sure we may not have answers to it...these are profound questions not worth bickering...

But lets look at what is required to set-up and run a successfull business in India...what wualifies me to say this...well I'm entitled to my perspectives as I've set-up and run a business for a MNC in this very market...but unsuccessfullat that...Well I've walked the talk (shall I say my inflated overambition busted by the reality of the markets) by set-up a business, accepted a sales target and trying to meet these numbers in a year in this market...

Lets simply see what it takes an MNC to set-up and run a successfull India market:


1. Setup a separate LE with following mandate: RoI focused, Separate brand (avoiding brand dilution of Accenture), engineered cost/price/margin structures to meet market requirements, focused team and differentiated operating model.
2. Define sharp Go-To-Market-Initiatives for key growth areas (Government, Banking, Communications, etc.) in collaboration with partners (Hardware, OEMs, etc.) in the market.
3. Provide Autonomy to India team: Empower the India team to run the business enterprisingly and enable decentralized decision making.
4. Remember three golden rules to foster business in Indian market: Cost, Cost and Cost.
5. Be conscientious of India market paradoxes and don’t set unrealistic growth goals.

I participated in an Idea competetion with my above perspectives before my CEO visited India and lost in the competition...so dont take my perspectives too seriously :-) ....

Are you leading with a mind on your brain?

I read an interesting neuroscience research on how socail nature of humans define the high-performance in workplace....http://www.strategy-business.com/article/09306?gko=5df7f

I tend to agree part of the reasearch in my real-life experience. We often feel utter dispair in working in some environments where SCARF: Scare, Certainity, Autonomy, Relatedness and Fairness was absolutely lacking in one or more of these factors. We feel restless till we get out of the environment and it was quiet pleasing to realize that the author has put a well defined structure to understand why we feel so and why we avoid getting into such work environments....


However, What made me wonder is that if there is tolerance levels for each individuals to handle the lack of SCARF factors?

In my view and insight it is "YES". Some individuals have higher tolerance levels to handle lack of SCARF factors in work environment. I guess they probably do the following to survive longer in the environment:

1. Ignorance is bliss: They are highly people oriented and lack sharp cognitive skills that allows them to carry on longer in such environment purely due to lack of choices.
2. The Ventilator: They find equal minded people and socialize more to share their work woes with similar collegues and jointly vent out the frustration, which eventually allows them to sustain the lack of SCARF factor longer.
3. Fatalist: People accept that as their destiny and continue to work in such environments.

What do you think?

Viewing outsourcing deal through the Contract lens - Transaction cost perspective...

I was reading an interesting article from Olivier E Williamson, who won the 2009 Nobel prize for economics....Just curious if it was due to Obamanomics (the obama factor you see...the guy who won Noble peace prize for 2009 for just being what he will be (did)/should be (do) than what he is)....He has viewed the entire transaction cost economics from the contract lens...there are few powerful insights that he shared and it reverberated with my current thinking and challenges that I'm facing at work on day-day basis...


1. Contract refrative index theory (This term is copyrighted, dont steal or quote this term ;-): Contracts tries to capture ideal transaction cost, but often the real/hidden transaction costs are visible when it is actually implemented.
How is it relevant to IT outsourcing Industry: Simple you may present great solution and contract it with client, but if you do not have the experience/acumen to see through the real/hiddent transcation costs that may emerge during implementation, you will end up losing the game. maybe not in short-term but long-term.
2. Hostage Theory: All contracts are made for mutual gains and at the same time it should also capture/share losses if the other party terminates.
How is it relevant to IT Outsourcing: Simple no matter how you structure a deal, if either party are not willing to share losses as equally as gains it will be an unsustainable deal (meaning we cant execute the deal without heartburns and with degree of fairness that will leave the client and supplier happy).
3. Incomplete contracts: No contract out there is completely complet in the realm of bounded rationality. In reality there are so many factors to be considered, that it is impractical to nail it down on contracts
How does it apply to IT outsourcing contracts: Common guys (I mean lawyers) just wake up, dont think you have protected your client (i mean in terms of lawyer, the cupplier and the client) from every feasible uncertainity. We are all humans and our rationality is bounded in utopian world but predictably irrational in real world.

So what does it make my position on lawyers/contracts and analysis of why Indian Pure play firms are more successfull in some areas that large outsourcing vendors who have presence in India...I still stick to my view that lawyers overcomplicate things and loose focus that business transactions sometimes have to be based on trust and good intentions....An optimist view not a pessimist view....Have an open mind for the predictably irrational!

Closing an outsourcing deal - Whats your view - An Optimist or pessimist?

Closing an outsourcing deal is one of the most challenging aspect I've ever witnessed...no matter the size of the deal...this is not just in services firm but in product firms too especially if it is a MNC in developed market jurisdiction!

Why is this so complex? I understood that this has got to do with the legalities and these damn lawyers...they make it so complex on the T&C that it is next to impossible to close a deal...By the time you close the deal we loose our breath and lose any interest in celebrating the win....

Lets look at a comparitive view of a large multinational view to contracting vis-a-vis a typical Indian pure play view to closing a deal:

Multinational view: I call it the pessimist view
1. It follows Murphys law, everything will go wrong in engagement and hence cover your ass as much as you can
2. Excessive mitigation and covering of positions through tight verbiage by the service providers on every possible risk there is...

Pure play view: I call it the Optimist view
1. Business done based on trust, assume everything will go right in engagement
2. Very loose verbiage and cover positions on very big ticket items on the contract that potentially exposes service provider to uncovered risks that leads to significant financial/legal/brand impact.

Who gains from all this: a Lawyer or third-party administrator who makes money out of extensive negotiations between client and service provider. Both the client and service provider loose critical time and money negotiating the contract.

Both client and service provider become so desperate to close the deal, the contract hardly matters and the points of disagreements sound ridiculos as they may have such low probability of materializing in reality...

What has been your view?

Do you often overvalue your experience, skills, knowledge, etc?

I strongly believe we overvalue our experience, knowledge, skills...rather simply anything that can be defined as measure of success in society :-)...I do that often and to some extent knew it too whenever I encountered my frailities. I got a rude awakening to it when I read the book Irrationally predictable" and some of the works of Daniel Kahnemean and Taversky....

But, why do we do this and how do we avoid it? Lets answer the first part of the question:

1. To gain social acceptance.
2. To prove to the people we know and sometimes want to know to build a superior perception of us.
3. To get an expected treatment of ourselves or to achive the higher gaols we set upon ourselves in society, workplace and so on....

How can we avoid it?
1. Accepting the fact that our measures of success is relative. Its all a matter of anchoring ourselves to the right individuals/groups and our position/status quo in a society is relative.
2. Constantly, reminding ourselves that the workings of this world is far more complex than that appears on the surface or at our levels of understanding.
3. Reading more and more about topics that we know we know too little about!

How do we handle such people at work?
1. Pamper their ego: Just give it to them...let them reach the self-realization on their levels! Atleast, you please their ego and let him/her be happier in their own perceptions :-)
2. Probe them to discover if they really know what they think they cliam to know....
3. Netural approach, just listen to them. Most of the time you are never entitled to your opinions or maybe the other person is a poor listenet!
4. Remind them that one knows far less than what one thinks and if possibel quote them to "predictably irrational" and works of Daniel Kahneman :-)...
5. Prove to them you know much more than them...hee hee...you bet this is something that will please your ego!!!

We may choose a combination of options...not really restricted to one...Whats your view?