Pros and Cons of Onshore, Nearshore and Offshore

When any company decides to outsource, one of the important decisions they need to make is where they wish to outsource. Some of the points to keep in mind while making this decision are:

• Cost Saving
• Cultural Difference
• Language Barriers
• Skill / Domain Expertise
• Manageability

Onshore:

In this, company outsources its operations in same country (or region).

As the services are outsourced to same location / region company faces no cultural, legal or language barriers; managing the work and even facility visit for monitoring is very easy and inexpensive. This option is preferred when company wishes to outsource highly sensitive service or product development to protect intellectual property.

On the flip side this option is not cost effective; also in some cases lack of required skillset also poses a problem and increases cost.

Nearshore:

In this, company outsources its operations to a country (or region) nearby.

As services are outsourced to nearby location, company faces minimum / negligible cultural, legal or language barriers;  managing the work and conducting frequent facility visits are easy and compared to offshore less expensive.

Though this option is more cost effective compared to onshore, it is not in par with cost saving offered by offshore. Not all nearshore destinations have developed skillset required by the companies; this may pose a problem when niche skillset is required.

Offshore:

In this, company outsources its operations to another country (or region) faraway.

As the services are outsources to faraway location, company has to overcome cultural, legal and language barriers; monitoring and managing work requires expensive trips .

On the good side, offshore locations have vast talent pool which can be hired at less cost. Some offshoring destinations which have been in this industry for considerable period of time have developed process and expertise to execute huge outsourcing projects and offer client in house system as part if the deal.

Another option which has gained momentum recently is opening captive centers in offshore locations. This offers companies to offshore work along with flexibility of selecting their own resources; implementing their work culture and ethics etc.

How to have Successful Vendor Management

A vendor plays an important role in the success of any organization irrespective of their size and type. Although the management of vendors or suppliers is a very difficult and complex task it has to be done for the benefit of the firm. It is a very important thing to keep an easy going and frequent communication with the vendors. By doing this, a lot of cost could be saved and inefficiencies could be curbed which would then result in better customer service.

Vendor management not only involves the vendor to supply to you at low prices or better service but also maintaining a healthy relationship with them and retaining them. The first step in a successful outsourcing project is to implement a quality assurance program. A well-managed list of vendors helps the organization get a competitive edge as well as a cost advantage. There are no two vendors who are the same. Every company has their own set of unique needs and requirements. Choosing the vendor would be on the basis of your company’s culture and the quantity of orders your firm would need. Any organization would have two options with it – keeping an in house vendor management or getting it outsourced.

Organizing a vendor is a task in itself. The following things should be considered:

• What kind of services or technology is each vendor providing?
• Are any of the vendors overlapping the other?
• Is there any way of consolidating different vendors by any common supplier?

The organization should be clear of what they want. Vendor selection process can be a confusing and complicated process .They need to do their research on the “deal breakers” and “negotiable” as they call them before beginning the actual search. The company should put the most essential or crucial thing under the deal breaker category and the ones that are not essential in the negotiable category.  Having the things categorized or segregated for vendor selection process will save some headaches to the managers.

It is very important to know the target output that an organization needs, while making the list of vendors. This estimation of the output would give an idea about the weekly or monthly delivery schedule for a vendor. Also, the organization must learn from their past experiences with the vendors. They should keep in mind the good things as well as the blunders done by the vendors in the past. Communication is the most vital part in any supplier or vendor management process. There is a chance to lower the possibilities of misunderstandings and problems of any other kind if the vendor is informed as to what is expected out of him prior the deal itself.

It is not an easy process or task to have a good vendor management system in place. It cannot be achieved in a day or month but a long and continuous process. This involves the organization to maintain a good n healthy relation with the vendor and also by having a constant check on its own supply. Thus, if all the above things are done and taken care by an organization it’ll be able to achieve a good vendor management and be successful.

IT Outsourcing, Challenges during takeoff

 An organization may outsource IT work for many reasons. The most important event is the transition period.

Based on the size of the organization and the scope of IT outsourcing, the quantum of preparatory work will be different. But the process involved in preparation is same.

Simple, three step process

1. Setup the TM team.  The Transition Management team. It is essential to have a small team, from IT department as well as the concerned user department. The team members must be capable of transferring the required data to the new IT sourcing team. Must also work on a dedicated basis, to ensure timely roll out.
2. Draw out the transition plan. Use WBS (Work Breakdown Structure) for best results.  Ensure that the plan that is drawn is an integrated one.  Using the WBS, it will be easier to ensure that all steps are on paper.  It may involve, data transfer, status report hand over, shifting of full servers (if servers are being outsourced to a data center) etc, depending on what activity is being outsourced. Accordingly, the WBS may be a big tree with lot of details. It is essential to expand to fully till the leaf, to get best results during transition.
   The plan should be clear and specify a simple matrix giving activities in the proper sequence and the person responsible. The activity list itself should ensure that all dependencies are taken into account.
3. Implementation. Once the plan is ready, implementation will be a cake walk. On the day of transition, a brief shut down of the old systems / process / servers is done, data transferred and then ported to the new structure. Usually this is done during off days to have least disturbance, or if not avoidable, a couple of days break is taken and then a catch up is done to come on line (ERP Implementation).

With all of the above points, to deliver a well organized transition you might take note of this helpful note – Plan your work. Work your plan.

Types of BI (Business Intelligence) Tools

The advent of Information Technology has transformed the way in which organizations maintain their data. From the old warehouses storing heaps of files to the digital warehouses we have come long way. Every organization understands the importance of information in this fiercely competitive world. The challenge is how an organization can bring all the data together to extract information that would be useful for it.

BI (Business Intelligence) helps organizations organize and analyze its data to make better decisions. This could include internal data from various departments as well as data from external sources, such as competitors, social media channels or even macroeconomic information.

As more and more organizations are capturing information in the digital format, their need for using BI to manage and analyze these data is increasing. Over the past few decades, companies that have deployed Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and other applications are now sitting on a mountain of data that can be analyzed. In addition, the growth of the Web has increased the demand for tools that can analyze large data sets.

So since we all agree on the importance of BI Tools, next question is how to identify the best BI tool for your organization. There are broadly three categories of BI Tools:

• Data Management: First step for better decision making is good database. Data management tools help you clean the data and organize it in structured formats that can be used to generate useful information for analysis. This process is normally referred to as ETL (Extract, Transform and Load), where the tools extract data from various distributed sources, transforms it into a standard format and loads the final data into the centralized target system
• Data Discovery/Data Mining: These systems surf through the entire heap of data and tries to identify meaningful patterns and trends that can provide a direction to decision making
• Reporting Tools: It’s a known fact that most of the time the users of the data are not the IT Staff but the Business users. Thus it becomes extremely important that only the useful information is presented to them in a non-technical user-friendly way. For e.g. Dashboards/scorecards providing the overview of company’s performance and a snapshot of key indicators with graphical representation would help a manager identify the areas for improvement and take necessary steps at right time.

Most of the BI Tools in the market would be a combination of all the above and provide an end to end solution. The choice of the software would usually depend upon the target users, size of the organization, existing sources of data, etc. Thus an organization must choose the BI Tools that best suits its current and future needs.

– Harsh Saraogi

Early Contract Renewal

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

1)       Pricing model

• Discrepancy between current market pricing and contract rates

2)       Operating model

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

3)       Scope of service

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

4)       Quality of service and risk

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

5)       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

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

 

KEY REASON TO RENOGOTIATE / RENEW CONTRACTS

1)       Expand / change in scope because of new offering / needs

2)       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

3)       Realign both parties interests and strengthen relationship

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

5)        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)

6)       Unsatisfactory service levels and quality issues

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

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

CLIENT RISKS: MIGRATING TO NEW VENDOR

1)       Service disruption

2)       Transition costs

3)       Loss of knowledgeable resources

4)       Complexity in managing multiple providers

Cloud computing to take over IT

Cloud computing is the new age technology that has emerged. This technology is not only user-friendly but also big time savior  The biggest advantage of this is the availability and access of one’s data anywhere and anytime. This technology is on a wide use especially by the corporate world.

According to an analysis statistics say the IT department in the corporate world will shrink by 75% by the next decade. The only reason behind this diminishing size is the increasing use of cloud technology which is also proved to be quite economical. Thus IT departments would take over the role of advising rather than developing software. This will result in the smaller sized IT teams who would be focusing on making IT easier to use.

The cloud computing technology taking over the IT department would not only affect the work flow of the IT department but it would also impact the other departments of the firm. These impacts can be listed as follows:

• Helps the CIO’s increase their roles in the frim – The changes would help the CIO’s increase their roles and use their management skills in all the other departments like HR, Supply chain, etc.
• Changes in the other IT roles – Around 80% of the people in the IT department would experience a lot of changes in their roles and responsibilities. Also these employees would be expected to better their skills as per the changing business requirements. Thus the traditional IT roles like a developer, datacentre admins or network admins will no longer exists in the IT work flow. All these would be replaced by all cloud services like supplier of the software etc.
• IT department will only act as an advisory board – With the changing business requirements the IT department needs professionals with good negotiation skills, salesmen skills, financial and contract management skills which could be used to tackle the suppliers. Thus they help the other departments buy the IT systems they need.
• Emergence of new IT roles – The emerging new technology of cloud has replaced a lot of traditional roles. The organizations need more of the service managers in their IT team which will help the firm obtain the right systems according to the requirement of each department.
• Retraining for the IT department – The firm will help the employees to develop their collaborative skills so that they can survive in the new environment. The CIO’s suggested that there should be a long term workflow decided upon which would help the organization recruit the desired employees with the same management and collaborative skills for the same. As also they suggested that the existing employees are trained.

Thus with an indulgence in Cloud technology and a few other changes in the present system as mentioned above, an organization with a handful of trained professionals and a small sized IT department can achieve huge profits.

Renegotiating IT Outsourcing Contracts

Need

Outsourcing an activity is done when there is a value addition in doing so, viz;

• Better service quality
• Cost benefit  and Manpower benefit
• Lesser tension in performing the particular activity

Outsourcing an activity does not absolve the parent organization / person from the ultimate responsibility of delivery in terms of quality & timeliness.

Hence any organization should keep the above points in mind before outsourcing.

Initial Parameters

Each Organization will have its own reasons for outsourcing. The call will have to be taken by IT, before outsourcing.

Midterm Review of operations / service delivery

Any outsourcing cannot be for eternity.  The initial contract will have to specify clearly the terms of reference for delivery and also the review period. It is better to review all aspects of delivery, so that, any new parameter that may have come up during the intervening period, can also be taken up. It is also essential to have midterm review to have a clear idea of the performance, so that necessary course corrections can be done.

Re-Negotiation

After the first phase of execution, it will be time for re-negotiation. This is the time when both the parties should have an independent internal review, taking into account their own interests and future business.

Some points can be:

• Is outsourcing still required for the activity under consideration?
• Are there others in the market, which are better in terms of delivery capability? Can the activity be outsourced to more than one vendor for safety purposes
• Is the vendor using the latest technology?
• Delivery capability check is very essential, as personnel and other required resources keep changing
• Are there any new technical requirements that have cropped up during the intervening period?
• Due to the previous experience can the delivery time be improved?
• Delivery measurement – are the objectives of the company’s being met & aligned with
• Cost evaluation –
  • What is the market rate?  Is it down or up
  • Even if there is a down turn, one should not negotiate very hard, as that may reduce the minimum margin that the vendor is operating. This will affect service delivery.  It is better to do some internal, simple calculation to find out whether the vendor quote is within reasonable limits.
  • The client’s scope might have increased. Provision will have to be made for the same
  • All these will ultimately result in cost. The customer will have to be forthright in negotiating the cost without compromising the delivery objectives.
  • Has the vendor developed any other capability that may be useful to the client? This may give an advantage to the current vendor

Summary

• The client should put in writing the clear objectives of its outsourcing
• Evaluate new contracts based on the above points
• Decide the best vendor, taking into account its own delivery interest
• The usual L1 logic of tenders MAY not apply here, as the outsourcing department is ultimately answerable to its own customer departments for quality, quantity & timeliness

Investment Capital increase in Small Business

Nowadays business of any kind or type i.e. small or large, national or international (Local or overseas) needs an IT department in it. IT has become a vital and an integral part of any business. In order to compete in this big world of business small businesses have started giving more importance to their IT department. So to do so, they have started increasing their budget for the IT department since the beginning of this year.

The strategy that the business has adapted is to increase the budget and improve the technology and train the present employees on the same rather than recruiting new ones. In short they are increasing the percentage of the budget by almost 20% and reducing the recruitment by almost 5%.

Statically, if the budget for a firm with 1000 IT employees was increased it wouldn’t make much of a difference but on the other hand if the same would be done to a firm with 250 IT employees it would have made a hell lot of difference.

These businesses are investing this big chunk of money towards the hardware which the employees can use and use it to benefit the work they do and in turn help the business make profits. The 2 most important things that they are investing on are tablets and cloud computing. Using these 2 very essential things would help the company provide a more balanced and flawless managed and cloud service providers. The usage of cloud computing and hosted IT services has helped a lot of small business in the past few months and its usage is expected to increase due to its efficiency and easy accessibility. Also there are statistics that over more than 70% of the small businesses are using Server Virtualization.

Tablets being the new trending gadget in the field of technology, its use are accounted for giving more flexibility in work. Ever since its launch its use has been growing. Nowadays almost every second person at work place has a tablet. Having this is a lot more beneficial than predicted. It helps employees get handy with their work. It is much lighter than any laptop so the employee can carry it with great ease wherever he wants and get work done on the go. Thus, all the small businesses are encouraging its employees to have one tablet, if not everyone but at least the higher officials.

Thus the small businesses are focusing on optimization of the resources with the tools and technologies to help their business grow better and faster.

Governance in IT Outsourcing

Today companies are revamping / refining their IT strategies to gain maximum advantage from an outsourcing deal. This improvement also includes governance aspect. Ideal governance model consist of three pillars namely Service Level Agreement (SLA), Status Meeting between both client and vendor and Innovation.

Service Level Agreement (SLA): Being a quantifiable feature this pillar plays major part in evaluating vendor client relationship. SLAs are generally agreed upon metric that client wishes to measure. Vendor from his end ensures all defined targets are achieved by generating and sharing regular status reports.

Status Meeting: Frequent meeting among various team members and stakeholder helps track various activities and resolve issues; if any.

Innovation: This aspect of governance is most desired by client. However, there is no set parameter on how this will be achieved (by vendor) or how it will be measured (by client). Generally introducing innovation in an outsourcing relationship poses a small challenge as both vendor and client spend considerable amount of energy and time on service transition. Once steady state is achieved they try to implement SLA terms and monitor everything is working fine via status meeting. By the time they realize that innovation is still pending lot of time has passed.

There is no question that above mentioned is foundation of almost all governance model and does serve its purpose. However, after sometime this model becomes static and if it is not revised as and when needed may causes stagnation. Other issue with traditional model is that it does not cover the finer aspects of vendor and client relationship (Like: Communication by both sides, general outlook of resources towards this partnership etc.)

Senior players know that once cost reduction is achieved by outsourcing relationship they need to focus of other aspects like governance to gain maximum advantage. Governance model needs to be customized as per client’s needs and should be revised / revamped regularly so that stagnation is never reached.

For robust governance it is essential that client:

• Update / introduce new SLA to generate relevant reports. This helps to define action to increase productivity and efficiency
• Open communication between client and vendor
• Know what innovation they can expect from vendor and in what time frame. This helps to set up expectation and mile stones from both sides

Outsourcing in Uncertain times

Economies of the west are facing a high level of uncertainty. Rising unemployment in the United States, the biggest market for Indian IT vendors, has led the US government to impose sanctions on outsourcing. Also, the businesses are looking for measures to stay afloat in such uncertain economic conditions, cost cutting being the most sought after. And one of the biggest impact of cost-cutting is the reduction in IT spend and thus outsourcing.

But does cutting costs on outsourcing contracts really help the business?

The answer is No.

Lets us take a look at how outsourcing can really help when business is low and companies need to stay lean.

Outsourcing lowers costs

Outsourcing makes fixed costs into variable costs. The concern of the resource count and facilities moves to the vendor. Thus the consumer can now move its costs to investments.

This shift improves the consumer’s corporate balance sheet. In tough times, the switch enables the consumer’s overall financial statement to look much better. In good times, however, the step to variable costs puts the company’s financial picture in better condition, making the company more appealing to its investors.

Outsourcing offers process expertise in non-core areas

Outsourcing enables the pool of experts to supervise the non-core functions. Process expertise is crucial when the business is facing tough conditions or expanding rapidly. In tough conditions the business must invest in their core operations rather than worry about the services offered by information technology. Also, when the business is expanding it has to concentrate more on improving the core competencies. Thus, in such scenarios it is best to outsource the IT functions to the experts.

Outsourcing enables risk sharing

The business risk is shared with the IT vendor through an outsourcing contract. The consumer need not have to invest heavily in hiring and training of human capital only to fire them when things turn bad.

When times are uncertain, companies

• need to adjust their risk profile,
• need to cut their costs,
• restructure their balance sheets and
• should still have flexibility

Outsourcing makes all those things possible.