How to Transition from Outsourcing to Insourcing – By Prabhakar Ranjan

As big corporations begin to make staff and budget adjustments in this difficult economy, many have chosen to create in-house teams to provide services they had previously outsourced. Because the tasks are so diverse, from a customer service call center to an information technology team, the transition from outsourcing to insourcing can be difficult. Here are the six key steps in making the most efficient switch.

1. Make sure that the company has the proper transition management oversight. Establish a solid strategy to bring the in-house team from its starting point to steady operation; these periods typically last from six months to a year. A key decision during this time is when to best create the supervisory body that will oversee the entire transition.

2. Review the provider contracts the company may already have and determine when those partnerships can be legally terminate. Ensure the providers are aware that the company is ending the contract in order to recreate those services in-house, rather than giving them over to a new provider. That way the relationship can be preserved in case of future need.

3. Evaluate the existing Human Resources department and make any necessary changes to streamline its efficiency, preparing the staffing team to recruit suitable candidates for the new positions.

4. Stemming from the third step, take the time to define the new roles the company will create. Whether the hiring is being done for 50 or 500 jobs, the task will need more oversight and involvement than the Human Resources department can provide. It is recommended to consult a sourcing advisory service firm to offer information on job roles and responsibilities.

5. Following the completion of these job descriptions, the next step is to find the most suitable candidates for the roles. Within the company, some important questions should be answered by the leader. For example, do you plan to grandfather your provider’s personnel into the company, or do you intend to replace them with new employees? If you decide to fill all of the roles with current in-house staff instead, are they fully prepared for their new responsibilities?

6. The last step in creating a successful changeover from outsourcing to insourcing is one must maintain throughout the entire process: regularly staying in touch with all the company’s stakeholders. As investors in the organization, stakeholders deserve to be involved in every element of the transition, as they may be able to provide valuable advice in addition to financial support.

While shifting the company’s services is a complex and arduous process, ensuring that it is completed successfully will serve as an investment in the company’s future.

 

By Prabhakar Ranjan

(A Sourcing Guru since Nov 2011)

IT Outsourcing Trends in 2012 – By Virendra Jibhe

Some of the major trends to watch out for this year in the area of IT Outsourcing:

Increased use of Cloud Services

Cloud-based delivery of services provide benefits like

• Reduced cost
• Scaling Up or Down Capacity quickly and easily, etc

Many players have already established plans to exploit the Cloud.

And as the IT infrastructure is being strengthened further, more and more players will demand the use of Cloud services.

Smaller deals 

There are a few Big /Mega deals being made. Instead, the companies are now engaging in smaller deals which are focused on specific areas. Thus, rather than one large provider responsible for a multifaceted engagement, companies rely on multiple smaller vendors to handle the work. This gives the companies a way to cut costs and also have greater flexibility to tap the market for different skills as needs arise. Also, the companies get greater visibility with their providers as compared to what they might have with only 1 major Vendor.

Pricing to remain flat in spite of pressures on Vendors

Pricing is expected to remain at the 2010/11 levels, but not lower.

The exchange rate fluctuations will put increased pressure on Vendors. As the outsourcing activity is set to grow, there will be increased hiring & higher wages will be offered.

But the global competitive scenario will keep vendors from hiking the Prices of their services.

Outsourcing destinations

Outsourcing to Philippines is increasing. The rising economies of Brazil, Russia, and China are expected to surge as the Outsourcing Hotspots.

Hosting FIFA world cup & Olympics will produce higher visibility for Brazil, which can make it a preferred near shore outsourcing destination.

With designated “hub” cities, cloud server farms, and more, China is set to become a major outsourcing player. The fostering of outsourcing and technology services is a key strategic initiative and a vital element in its current five-year plan for development.

Global Outlook

Europe

Outsourcing market in Europe is seeing modest growth. There is uncertainty prevailing there driven largely by the troubled overall macroeconomic outlook for the eurozone.

Unites States

The US outsourcing market is recovering, with the Financial Services segment in the lead.

But with the U.S. in a presidential election year, there is an increased focus on limiting off-shoring and passing anti-off-shoring legislation. Now, with unemployment remaining high and candidacies in full swing, the topic is once again coming to the forefront.

Constantly growing demand for IT specialists will lead to gradual transformation of the offshore outsourcing services – from being an instrument of cost saving to another way to find the right people for a project. This is good for all participants of the process – customers, engineers and end-users, who eventually get better software applications.

By Virendra Jibhe

(A Sourcing Guru since Nov 2011)

Why a dedicated VMO team should run the resource tracking – By Nikhil Pundlik

Our recent study has told us that in many enterprises across the globe, the CIO has assumed the sole responsibility for managing IT vendors. As a CIO , does not generally have the time to deal with day-to-day vendor management activities, the reality is that work gets delegated to individual departments, technology platform owners and project managers – who in turn co-ordinate with the administration and the legal staff along with the procurement team to initiate and then complete the sourcing contracts.

What this has resulted into is a lack of central database for sourcing / procurement needs.  A lot of the Project Managers & Tower / Technology platform owners tend to treat sourcing as they would “buy toilet paper from a super market”. Sourcing should be a centralized strategic approach – but individuals running it at different levels takes away a lot of control – not only over just prices and contracts ( thereby increasing maverick spend) but also over governance & overall relationship.

In my experience, I have seen how a dedicated VMO team can mitigate all these risks and reap benefits – not only for the clients, but also for the vendors. A VMO team can run a lot of vendor management operations for the Client – but one important function that needs to be run solely by the VMO team is Resource Tracking.

When VMO starts owning the resource tracking process – that means that the project managers, individual departments and technology platform owners are going through the VMO team to place their resource requests. The most important benefits of this are

• There is now a centralized repository for all contracts & resource requests issued
• The Legal & the Admin team can maintain templates – which the VMO can then use to standardize the process even further
• Reports can be sent out to the respective Project Managers, when their resources on-board are nearing their contract end dates – so the project managers can in-turn churn out extension requests. This not only gives the projects managers visibility, but also gives the Vendors sufficient lead times – reducing the time-to-fill cycles.
• Reports can be sent out the Admin team – when a resource is going to onboard so that all the admin activities (like providing a machine to the user, allocating a seat, creating his windows logon / email ids, providing access rights, issuing RFIDs etc )  being well in advance – such that the resource gets productive from day one.
• There have been instances when a resource gets onboarded without valid paperwork signed. Sometimes , this gets delayed so much that the resource eventually offboard and all is forgotten – until the billing /audit arrives when the project managers are unable to find valid singed SOWs to justify the billing / spending. With a  dedicated VMO team in place, they run a check on all resources once a week – and publish reports to various stake holders – making them aware of any such abnormalities so they can initiate the process of getting the paperwork signed off in time.
• A centralized database means we have a list of vendors and resource names – along with their skill sets. This can reduce maverick spends by strategically partnering with a preferred vendor  to get the best rates – once they know  that there is enough demand for “economies of scale” and we know that we don’t need to look for niche vendors if a preferred vendor has most skills to match.
• Any information required for the top-level management – like number of resources engaged, splits by vendor / onsite and offshore – and any such splices and dices of data are readily available at a press of a button.
• Once all the contracts start going through he VMO , the VMO can then route the contracts based on the contract value – For example, all contracts upwards of $100,000 would be routed to the CIO for signature , and all between $50,000 & $100,000  would be routed to the Senior Directors / VPs and so on and so forth.
• A Centralized database means a centralized rate card. The project managers can then query this single database to find out different vendors that provide the requested skill set, and can choose among the best rates.
• It also helps in determining what resource requests have been places which had been budgeted for in the Annual Operating Plan – and which resource requests have been ad-hoc. That gives a good measure for the signing authorities to accept or reject such ad-hoc resource requests – based on the urgency and the contract value.

There are much more benefits of having a VMO team run the resource tracking process – some tangible, some intangible.

I would really like to know your thoughts on the same. Please contact me at – nikhil.p@spluspl.com

By Nikhil Pundlik

(A Sourcing Guru since Mar 2008)

Vendor Selection Process – By Shailesh Nambiar

Analyzing the business requirements:

The first step is to assign a team who will be working on the project. Definition of the product is an important step while analyzing the business requirements. It is also essential to understand the business and technical requirements of the vendor and then document the requirement for approval.

Searching for vendor:

Compile a List of Possible Vendors according to the business requirement. Select Vendors to Request More Information From. RFI helps you create a Request for Information document, by listing all of the information that suppliers need to give to you, to tell you about their business.

RFP and RFQ:

The RFP or RFQ should have the following sections such as Submission Detail, Introduction and Executive Summary, Business Overview & Background, Detailed Specifications Assumptions & Constraints, Terms and Conditions.

Proposal evaluation and Vendor selection:

Preliminary Review is done of all the vendor proposals. The business and client requirement are recorded and on that basis priority is assigned and accordingly the vendor is selected.

Contract Negotiation:

The contract negotiation handles issues such as cost, timeframe, and whether there are any special considerations to take into account. We should know the difference between what you need and what you want and define if there are any time constraints and benchmarks.  Assess Potential Liabilities and Risks.

By Shailesh Nambiar

(A Sourcing Guru since May 2011)

Vendor Management Office – By Nikhil Pundlik

Need for Vendor Management Program

As more and more of our IT applications development / infrastructure is outsourced to various vendors, We need to realize the importance of a formal vendor management program. A tool which can help us to measure the performance and efficiency of various vendors is absolutely necessary if we desire to manage out outsourcing relationships successfully. Setting up a Strategic Vendor Management program helps us to clearly define and understand the relationships we have with our vendors so that we know how to measure, and in turn, optimize various specifics of the engagements. The foundation of any new vendor management processes always starts with defining metrics (measuring points/areas) and then accumulating various vendor data to set up those measures and metrics.

A Legacy Vendor management system.

Instead of a web-based vendor management system, many organizations use non-web based manual VMO systems. However as the number of relationships and vendors increase, handling data gets very tough as information regarding vendors was gets very fragmented.  It resides in file cabinets, Excel spreadsheets, Word documents, Access databases, etc.  There is no consistency in the way the information is stored and it becomes a challenge to extract information about vendors when required. The process of managing a vendor relationship is not clear as role and responsibilities are not understood and the information required of vendors to effectively manage the relationship is not known.

What are the advantages/benefits in moving to the web-based app?

The web-based application completely redefines the way we view vendor management.  With the system, we are able to combine all vendors, contracts, software, and services into one database and build logical relationships between them.  Since vendor management is a distributed function in most organizations, it was critical that the system should be understood and used by individuals throughout various business lines.  The web-based application’s ease of use simplifies the process of tracking vendor information and managing on-going vendor activities such as contract expirations, watch lists, and vendor reviews.

Does the web-based Vendor Management application help with presenting information to the auditors/regulators?

In most cases, Regulators place a very high level of importance on an organization’s ability to display that vendors are being managed effectively.  The web-based application is the tracking system for all vendor information.  With the system, we can easily communicate to auditors and regulators the risk of each vendor and the due diligence activities performed.  The reports we generate using the system allows the organizations to quickly respond to audits and examinations and provide comprehensive and current information in a usable format.

Who can use the application and how often?

The application can be used by a number of employees depending on the rights of usage given to each employee.  It is originally employed as an organizational priority with senior level management support.  The system provides the organization with a holistic view of the documentation and activities surrounding vendors, contracts, software, and services.  Vendor management is an on-going process that requires a methodical and diligent approach.  The organization can use the system as frequently as on a daily basis or depending on how the data is gathered from different vendors  to manage and maintain a successful vendor management relationships.

By Nikhil Pundlik

(Sourcing Guru since Mar 2008)

Vendor Relationship Management – By Mihir Sakhle

VRM basically means Vendor Relationship Management. The concept behind VRM is to ‘provide customers with tools for engaging with vendors in ways that work well for both parties independently’.

In today’s business, Vendors play a very important role in the effectiveness & success of your business organization. Vendor management practices can be widely used to build a mutually strong relationship with your vendor/s which in turn will strengthen your company’s overall growth & performance in the long run. If the Vendor management practices aren’t used properly in the first place then it may affect the organization in a bad way which effects will result in your business. Thus vendor management is necessary in the sense that it proves helpful in nurturing the relationship with the vendor which cannot be directly measured against the company’s bottom line. A well managed vendor relationship will result in increased customer satisfaction, better quality of work, & better service from the vendor & also the reduced cost which often proves beneficial for the company financially in the long run. And even if any problem occurs in the middle of the project or you get stuck somewhere not knowing what to do, then a well managed vendor will be very helpful in resolving your issue & providing you with the appropriate remedies. This is where the VRM tool comes in the picture.
VRM tool provides customers to manage their relationship burden with vendors & other organizations. They relieve CRM of the perceived need to “target,” “capture,” “acquire,” “lock in,” “direct,” “own,” “manage,” & otherwise take the lead of relationships with customers
Vendor relationship management is well managed by the Vendor Management System(VMS) or the Vendor Management Office(VMO). The VMS acts as a web based application through which both the vendors & customers are able to engage with each other independently.
The VRM is exactly like the reciprocal of CRM-Customer Relationship Management.
VMS is mostly a software program which helps in distributing the vendors evenly throughout the organizations & facilitates their effectiveness towards the organization. Every member of the organization can use this tool independently & access the tool as & when needed & make the changes in the data.
Most VMO organizations make use of this Scorecard tool which helps them to get their communications & stats among the organization clearly. It helps in setting a clear line of sight between the objectives of the company & their desired results based on the goals set by the company in the first place.
The Scorecard helps in maintaining a clear line of sight between all the aspects of the organization i.e. Finance, Administration, Support/Maintenance, Solutions or the Core part, Customer & so on.
The Scorecard tool is usually used in a project & is very helpful in determining all the various aspects of the projects which go in making a successful well driven project.

By Mihir Sakhle

(A Sourcing Guru since Jun 2011)

Early Contract Renewal – By Tina Nebhnani

Renegotiating / Renewal of contracts are considered as a win-win scenario for both client and vendor. Considering today’s outsourcing environment, it is not a choice but a necessity. In long term (three years or more) relationships client’s business and technology needs keeps changing. Therefore it is advisable that both sides are flexible enough to modify the agreement over the life of the contract.
Clients view renegotiating / renewal of existing contracts as a highly effective strategy to revise / align scope, pricing and build a mutually beneficial relationship with vendor.

CLIENT CONSIDER FOLLOWING BEFORE RENEGOTIATING / RENEWING CONTRACT

Pricing model

• Discrepancy between current market pricing and contract rates

Operating model

• How effective is the current delivery model (near shore, offshore, onshore)
• Rate of delivery failure

 Scope of service

• Meets existing business needs
• Ability to meeting future / revised business needs

Quality of service and risk

• Review quality of services / deliverables as per SLA
• Identify risks not covered in SLA

Contract terms

• Flexibility provided as per terms mentioned in contract
• List of terms that are no longer relevant
• Incorporating new terms based on lessons learned / industry good practice

Will insourcing or switching providers be trading one set of problems for another?

.

KEY REASON TO RENOGOTIATE / RENEW CONTRACTS

Expand / change in scope because of new offering / needs

Change / Clarity in pricing

• Fluctuating market conditions that may result in a client paying prices that are higher than current market rates
• Move from time and materials to a fixed-price model or vice versa
• Move to a pricing model that better represents a long-term relationship
• Adjust pricing because of added scope

Realign both parties interests and strengthen relationship

Technological innovations (such as grid and cloud computing) that may affect the effectiveness of an outsourcing agreement

Clarify contract terms

• Regulatory changes (such as new privacy and security policies)
• Clarify some terms, considering the relationship grew deeper and more collaborative than original envisioned
• Restructure contract to allow for continuous growth without having to renegotiate the contract every time
• Establish new billing metrics regarding what constitutes an added resource cost (ARC)

Unsatisfactory service levels and quality issues

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QUALITIES IN VENDOR THAT TRIGGER EARLY RENEWAL

1. Flexibility
2. Feeling of partnership and One team
3. Honesty / Integrity
4. Customer focus
5. Overall performance

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CLIENT ADVANTAGES: RENEGOTIATING / RENEWING

1. Delivery aligned with business needs
2. Avoid new vendor selection process
3. No transition disruptions
4. Delivery challenges are addressed
5. Align cost with the market price
6. Liberty to revise / add new terms in the contract

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CLIENT RISKS: MIGRATING TO NEW VENDOR

1. Service disruption
2. Transition costs
3. Loss of knowledgeable resources
4. Complexity in managing multiple providers

By Tina Nebhnani

(A Sourcing Guru since Oct 2009)