deal architect

Talent Sourcing – fool me twice, shame on me

McKinsey says we are already critically short of “data scientists” even as the hype about Big Data takes off. IBM goes even further and says we are short talent in every aspect of what Cognizant calls the SMAC stack (social, mobile, analytics and cloud). Around the world.

If it feels like deja vu all over again, you would be right. In the late 90s, in the run up to Y2K, there were supposed shortages in ERP, testing, COBOL, Assembler skills. And wages and consultant rates rose. In the dot.com boom which continued even after Y2K, hustling became an art form. There were eCommerce, marketplace, Java teams which had to be “hired within 24 hours,  or a competing client would get them”

Expect more of that this time around, but let’s be smarter:

a) Most outsourcers do not have the SMAC talent themselves. How many can show resumes in the social space – with Yammer or Radian6 experience? In reverse, how many are positioning their Lotus Notes and collaboration experience as “social”? In mobile, the majority of the million+ apps in the iOS and Android marketplaces did NOT come from the major outsourcers. They came mostly from mom and pop shops. When it comes to analytics, sure they can show they have had some HANA training, but how many of their staff have even rudimentary pattern recognition skills?  When it comes to cloud, how many of them have cloud data centers which could compete with Amazon? How many have shared service centers which could compete with NetSuite when it comes to apps management? What really makes them cloud qualified? We need more disciplined sourcing – buy qualified teams, not the brand name. Even better buy smaller qualified teams and more IP and automation to do the job.

b) Most companies are far more outsourced than they were 12-15 years ago. Dangerously so, in many cases. Not many will do what Randy Mott, CIO at GM has announced – move from 90% outsourced to 90% insourced. He is also prepared to do it in big chunks - he has already announced plans to transfer 3,000 staff back from HP.  But if companies feel they need to outsource the newer skillsets, they should be at least be looking at bringing some of the more mature skillsets in-house. At the HCL event last week, I heard there is $ 190 billion in “re-bid” IT outsourcing coming up in the next 3 years. Should not internal IT and HR be invited to also “bid”?

c) Insourcing is easier said than done. The basics of recruiting and employee development have deteriorated in most companies. Jason Corsello, who heads strategy at Cornerstone OnDemand, which recently released its own survey results on the talent shortage, summarizes some of the challenges:

• Too much emphasis is spent finding the next “rock star” instead of building the stars themselves
• Companies are doing a terrible job giving employees feedback
• Employees aren’t getting the necessary development and training. Programs today aren’t built for the 21^st century leveraging modern technology (mobile, social, etc.)
• Very few employees actually get career development guidance or establish career goals.

The skills shortage will likely vary by staff category and country. If we are not careful though, we better get ready for another round of hustling and employee discontent.

You know how the expression goes: Fool me twice, shame on me.

Whither Outsourcing Advisory Services?

Phil Fersht has a sarcastic post on the Insight HCL event we both attended on Tuesday.

To start with I think he is a bit too tough on HCL.  I thought they did a fairly good job with  the event logistics and the customer showcasing – enough for me to include those items in my “Best of 2012 events” post.

Now on the composition of the advisers in the audience – I sent him an email to verify which bucket he put me in :)

My own observation was how long many of those advisers have been in the outsourcing industry – either at providers like EDS or advisory firms like TPI. While that grey hair protects their clients interests in some respects, not sure they are aware of all the disruptions happening in adjacent markets that they could be leveraging to their client’s benefit.

As I wrote on that day  “Over the last few years, I have cataloged on my blogs what Salesforce and Workday have been delivering in massive efficiencies in application management and upgrades, and what Amazon and other cloud infrastructure providers have been doing to redefine the data center. “ 

There is much  more in my books and blogs about disruptions and innovations which could, in fact,  should have already made its way into the IT outsourcing world.

HCL mentioned they are well positioned for the $ 190 billion in “re-bid” business (that is currently being serviced by competitors like IBM, Accenture, Infosys etc) coming up in the next 3 years. Since  those customers will likely use many of the advisers in the audience, I think there will be churn in providers and maybe a 5-10% improvement in economics and performance SLAs.

The sad truth is the impact could be far, far more dramatic.

The “Static” Outsourcing Market

“Is it just us, or does the outsourcing sector evolve much slower than other tech sectors?” asked a client recently.

“Yes and No” I replied.

“Many companies sign multi-year contracts, then renew with incumbents so there is a definite feel of status quo. But I have worked with several clients over the last decade and we have looked at over a hundred infrastructure, application management, IT strategy and other services vendors. And my books have plenty of ink on Accelerance, Appirio, Amazon Web Services, Baker Tilly, Best Buy’s Geek Squad, Cognizant, Epam, Foxconn, HCL’s Product Engineering Group, Rural Sourcing Inc….

“Gosh, I have never heard of most of them” said he.

“Don’t worry. Neither have the outsourcers. Foxconn has over a million employees in China and most services firms have not heard of them. Geek Squad does almost $ 2 billion a year in desktop and device support and most outosurcers don’t consider them competition. When you talk to Indian firms about rural sourcing they start talking about second-tier cities in India”

“So, what should we be doing differently?”

“ Start with three things:

• Tear up any preferred vendor list you may have for outsourcing. Ignore Magic Quadrants. Encourage your teams to include new, qualified firms for each opportunity
• Review every incumbent contract to see what the early termination clause says
• Delete any auto-renew clauses you may have in your contracts”

He responded “that’s easy for you to say :)”

But I also think I detected the look of a frog who realizes the water around him is starting to boil.

Van Halen will have some good advice for him at Sapphire

“Might as well, Jump!”

More on service as software

I have written about how appirio, a salesforce and Google focused systems integrator is packaging service as software.

Zach Nelson, at NetSuite, lays out the same challenge to resellers

“VARs are going to have to change their business model or go out of business. They have a math problem they need to solve. Great Plains has licence up front of $529k. Then the VAR gets one to three times as much to implement, so that’s up to $1.59 million. NetSuite you pay $176k subscription per year. If I charge you that, can I charge you $1.59 million for services? No way. So the challenge for VARs becomes how I reduce the cost by 10x.”

His suggestion – like appirio – deliver more condensed and highly leveragable services as software. (Update: Zach reminded me NetSuite has been using the term "service as software" for a while now) 

BTW – he does not touch on BPO, but that market is ripe for a huge re-think also as I wrote here

Speedy or Sensible Sourcing?

Stephanie Overby at CIO Magazine writes about “speedy sourcing” - a new approach for choosing a service provider and sealing a deal in three months or less.

New?

I helped a client in 2002 which desperately needed to get an application outsourcing deal done in 2 months. We looked at several US, European and Indian firms, visited several for due diligence, and got best and final offers from the short listed vendors. In 2 intense months. Opened my eyes to speedy sourcing.

But 7 years later and many transactions later I have adapted my firm’s approach. Speed still matters – but speed can also just take clients down old cow paths.

Frankly, a few more wrinkles (without making the process much longer in elapsed time) add a lot more value to a client

• I recommend a “paperless’ sourcing process. Emphasize more of human touch – interviews of key staff, many more reference calls, more vendor oral presentations (customized to client scenarios, not canned ones – and ideally delivered by the outsourcer delivery not the marketing/sales team), due diligence visits (where I have the vendors simulate “a day in the life of the client’s support”), more face to face negotiation sessions and legal reviews. Cut out the written RFP. Or have a very short one. All these steps can be done quickly – with appropriate planning and logistics coordination.
• Showcase all kinds of choices to the client. If offshore, have them also look at alternatives to India – E. Europe, Philippines, rural etc. If looking at infrastructure outsourcing, look at utility and cloud providers. If application outsourcing look at SaaS and BPO options. Outsourcing is a “life event” – for 3,5, 7 years – shame on the client if their sourcing is not willing to look at coming market disruptions in that planning horizon. Shame on the sourcing adviser if it cannot quickly organize disparate vendors to participate in that discovery process. (BTW - most sourcing advisers are siloed and only know vendors in specific categories and frankly suffer from “Stockholm Syndrome”. Their narrow focus hurts many clients)
• Have the client look at life post-sourcing. What happens if the companies grows through acquisitions? What happens is the bottom falls out? Will your outsourcer truly turn your fixed costs to variable? Exit/Change control strategies. Governance. I find too many clients let their procurement folks and attorneys worry about this items during negotiations when it should be part of the learning/sourcing process.

Speed is important. Sensible even more so.

Nasscom's optimism

An attendee at Nasscom's Leadership Forum in Mumbai last week shared with me a copy of  its Strategic Review of the Indian IT-BPO sector for 2009.

It expects India's IT and BPO exports to go up 32% in 2009 in rupee terms. There is currency impact given the rupee's devaluation, but even net of that it would be impressive in this global economy.

Couple of larger Indian firms I have talked to in last month say their growth projections are nowhere near that rosy so not sure how Nasscom is presenting the "sum of the parts" as so high.

Also, the attendee told me attendance at the marquis event appeared to be down roughly 25% from the previous year. A data point which makes Nasscom's forecast stand out even more.

Readers, thoughts on the growth projection?

NASSCOM - a missed opportunity?

So, I am looking at the agenda for Nasscom's upcoming Leadership Summit - its annual event in Mumbai and I see the speaker list is mostly vendors and "influencers". From past visits, I can assure you it is a great place to meet offshore vendors not just from India but E. Europe, Egypt and other countries. But I had hoped, now in its 18th year, the flagship event would have evolved to have a more balanced buyer presence and perspective.

Probably more concerning, given the talk about "transparency" I do not see any sessions on the agenda with the name Satyam anywhere on it. Or the post-terrorism Mumbai. Or the rupee devaluation and lowered inflation pressures in India. I am sure these topics will dominate the conversation in the hallways, but should they not also be part of the conference agenda?

Finally, while Nasscom has its own blog on the event, bloggers are noticeably absent in the agenda (with the exception of my friend Ray Wang of Forrester who is also a prolific blogger - but I am positive he is there because of the brand he represents). Ironic given the global blog and Twitter coverage in the last few months about Mumbai and Satyam. I am not saying Nasscom should fly global bloggers in -  but there are plenty of Indian bloggers and very active Indian participants in SAP's community SDN. 

The Nasscom blog has a post titled "India to be safe haven for sourcing". I hope the conference has a little less emphasis on marketing and a bit more on introspection. I will request some friends who are going to "report" the mood of the event.

Is the whole Indian outsourcing market under a cloud?

Over the last week I have been asked a few times - are the problems at Satyam an exception or are they representative of the whole Indian outsourcing vendor sector?

My answer - a periodic review of vendors is always healthy, but most of the other larger Indian firms are set up and run differently than Satyam was.

TCS is part of the Tata family - India's largest conglomerate with assets in virtually every industry and every country in the world. In this global economy, nothing is rock-solid, but Tata comes close. Infosys has traditionally received kudos and awards for its financial reporting transparency and professional management.  Cognizant is a US firm, spun out of Dun and Bradstreet, and run professionally from the start. Wipro, for practical purposes is a private firm with the CEO and family owing the majority of the stock. Some companies do not like dealing with private firms - not enough financial transparency. But that is a vastly different issue than mispresentation of financials.

Of course, there are plenty of smaller Indian outsourcing firms which are family or otherwise tighly controlled and may not have seen rigorous scrutiny from regulators or auditors.  I expect this is going to be a subject of intense discussion at the annual Nasscom conference coming up in Mumbai February 11-13. 

As they say sunshine is the best disinfectant there is. So this increased spotlight is healthy. But we need to be careful and not get paranoid about extrapolating Satyam's issues to the whole industry.

The only good thing about the Satyam saga...

...is it did not happen last year.

As I wrote earlier, the Satyam meltdown will have its customers scampering. But the offshoring market has cooled down substantially. As I wrote a few weeks ago

"the rupee has depreciated (so the firms make more in dollars), the India labor market has cooled off substantially, and much of the work in a recession is sustaining, not enhancing. Add to that at least some nervousness about India about the recent attacks in Mumbai..."

So, yes there will supply side disruption, but nothing like it would have been in a much more torrid market a year or two ago.

Update: NY Times talks about how it will benefit Satyam's competitors. Of course there will be disruption to exisiting Satyam customers, but overall at $ 2 billion in revenue, it is less than 5% of IBM's outsourcing revenues, and .5% of the global outsourcing market. Looked at from a macro perspective it is a blip - and customers should be wary of vendors opportunistically using it in price discussions.

"A sad day for India Inc."

said a competitor of Satyam in an email to me. No gloating - just coming to terms with what the meltdown and negative press meant even to his firm. A Satyam employee, in an understatement, emailed me he was "shocked beyond words".

Plenty of conversations today about Satyam including one with Brian Sommer he blogged about here. My focus, all day, has been around what it means to Satyam customers.

In an ideal scenario someone could buy Satyam, promise stability to its employees and most customers would adjust to life under the new owner. But given the lack of transparency on what is real at Satyam, and given the lawyers circling, the entity as a whole is in a word - toxic. So the next logical scenario  is a carve-up - with firms buying up selected technology or geographic practices. This is what happened in the post-Enron Arthur Andersen shut down process. But the most likely scenario - various firms will just selectively pick off employees at Satyam, and hope they can help acquire its customers  - a potentially cheaper way to get to that revenue potential.

The dominant scenario, if it transpires, translates to a nightmare for Satyam customers. While their  attorneys should be able to free them for any multi-year contracts  (by arguing, for example, Satyam may be technically insolvent - many MSAs have an out clause for that and other changes in vendor status), it's not a simple case of calling up TCS or Accenture and asking them to take over the contract. Knowledge transfer from Satyam employees will take weeks if not months - while traumatized Satyam employees search for their personal safe harbors. Also, from my experience, Satyam priced many of its contracts aggressively - so moving away may mean an unplanned budget increase or service level reduction.

It is a sad day for India Inc. Even sadder day for Satyam customers. But no point crying - they need to kick start a contingency process to somehow retain their Satyam talent and service level or rapidly transition away from it.