deal architect

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.

Offshore Rate Rollbacks

Economic Times of India

"In what appears to be the first round of renegotiating their outsourcing contracts after a slower economic growth impacted their business, customers such as Best Buy, Visa and Conseco are seeking significant rate cuts from their Indian suppliers."

The article then cites cuts in the range of 3 to 7%.

That's all?

Brace yourself for X times that as companies argue 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, and more rollbacks are going to be expected.

Paul Krugman and outsourcing scale

Anshu Sharma uses the Economics Nobel Prize winner's scale concepts to explain India's success vis a vis other countries when it comes to low-cost country outsourcing.

I would agree - if you are looking for 10, 50, 100 resources a number of countries are actually more attractive when it comes to infrastructure, geographic proximity etc. But India pulls away when you are planning for a larger head count.

But scale does not explain it all. English language skills (the unique "bobblehead version") and process maturity (CMM, Six Sigma) etc are two other reasons cited by a number of customers who evaluated multiple destinations.

My recent complaint with many Indian vendors is they have actually not used the scale India provides them to provide "fuel hedges" against wage and currency inflation. It will be tough to pass along those increased rates in a recession.

If anything with the rupee depreciating, rollbacks are in order. I am sure somewhere in Paul's  economic papers,  we would  find  justification in that.

Corporate CIO vs. Vendor CTO talent sourcing

In my presentation at Software 2008, I drew contrasts between talent pools corporate CIOs leverage versus those vendor CTOs do.

If you would like a copy of my slides please email me at vmirchan AT att.net.