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.
Ho-hum - another $ 4 billion outsourcing announcement. Shell outsources various infrastructure components to EDS, AT&T and T-Systems.
But look closer. First big international win for AT&T. T-Systems supporting data centers around globe. Another sign the telcos are becoming global. And EDS not doing the data center stuff - long its core competence. Roughly $ 800 million a year for major IT infrastructure for a $ 400 billion revenue run rate company. The benchmark of .2% of revenues will make most peer CIOs salivate.
But look again. Under their cover and program management, these 3 vendors will have hundreds of other vendors, contracts, SAP instances, etc. Unless Shell has re-defined the governance and vendor management game book, expect the age-old finger pointing. And margins that come from the tiered technology supply chain. So the deskside, messaging and mobile support for its 150,000 users will average by my estimates over $ 100 a user a month. The higher price of staying with the more traditional on-premise, Microsoft centric technology.
So in some ways, a new day. In other ways, just another Monday.
Brian Sommer summarizes what he learned in a recent meeting focused around services procurement. I think he is far too generous about the sophistication in procurement practices around services.
This comment is particularly telling "No consistent definition exists for professional services or consulting. Sourcing executives find it tough to apply a single set of practices that apply to the full breadth of services that companies procure."
Just around IT services (as against legal or architectural services) there are distinct markets around contracting/staff supplementation, systems integration, application management outsourcing (and offshoring), infrastructure outsourcing, and BPO. The players are different (look at the different ways different offshore markets are evolving), the things to look for are vastly different (ITIL and utility models in infrastructure outsourcing versus time tracking around contractors), the price points are widely different. And markets are morphing as everything gets delivered "as a service" - so software, hardware, telecom companies all offer variants of IT services.
No single sourcing process or sourcing technology can handle it all. Or should be expected to handle a services market which totals spend of over $ 500 billion a year.
I know I am being critical of my own clients in saying so, but like I wrote here, I wish more procurement folks would treat IT spend, not just IT services, as very different from MRO or other direct spend, not just try to find homogeneous "solutions" . Lots of empty calories in the spend.
The good news is there are plenty of disruptive vendors and business practices and tools waiting to be leveraged. But they are often at sub-categories and niches of markets. Tough to discover them if you seek a "single set of practices".
I am summarizing feedback I received from last week's Nasscom Leadership Conference in Mumbai which I had planned to attend but could not. The feedback is from several buyer executives (who prefer to not be named); Malcolm Frank, SVP of Marketing and Strategy at Cognizant; Harish Jagtiani, President of Intermark, which represents Ovum, Dow Jones and other research/media firms in India and from published notes from Ed Caso, Senior Analyst covering IT Services at Wachovia Bank and Bruce Richardson, Chief Research Officer at AMR Research.
a) Offshore world "not coming to an end"
Was Ed's assessment - he found the mood much more positive than he expected given the state of the US economy and the dollar weakness impact on rates. Harish reports most Indian vendors are increasing their marketing staff and "large deal teams" to chase bigger opportunities. There is life beyond the US market. There were several British buyer organizations at the conference. Malcolm reports the German finance sector in particular is bright. The Indian market, long ignored by most of the offshore providers, is starting to be attractive in particular in pharma, auto and finance. China and rest of Asia are growing markets. The Middle East, flush with the rise in oil prices, is a significant opportunity. Egypt's trade reps were visible at the conference and several Indian firms are looking at partnerships to use their Arabic skills in that market.
b) "Hangover from the party"
Much more sober mood after the go-go years earlier in decade , said Malcolm who is a regular at the conference. Bruce summarized "while we were happy to escape from New England winter, we couldn't help feeling that maybe we brought some of the Arctic air with us..."
c) Big Western firms - "the elephant in the room"
While IBM and Accenture report their largest labor pools are now in India, they and other western firms like EDS (with a major presence in India with its MphasiS acquisition) and Cap Gemini (with its Kanbay acquisition) were not as well represented at the conference. One possible explanation - Nasscom continues to be an "old boy" network and the early founders of Indian firms still get the best speaking slots. But as Malcolm points out the "progress Accenture and IBM have made in just last couple of years, has everyone's attention".
d) Supply side concerns persist
Buyer input - Indian firms still are not taking the staff turnover and wage inflation issues seriously enough. The strategy of hiring from secondary and tertiary cities is not making much of impact - at least not in high quality resources. As I have written before, the strategy of hiring mostly out of engineering schools and training them takes too long to produce truly productive resources, especially with vertical or process knowledge. More buyers want diversification beyond India. They would prefer to go through an existing Indian or Western firm, rather than find a new offshore player in China or E. Europe. Another complained the customer account management layer in Indian firms continues to be poor and another talent area which needs focus.
e) Lots of Innovation talk, but not much to show yet
Buzzword at the conference, but little real progress. One speaker at the conference exhorted the industry to start thinking of products, not just services - like the new Tata Nano. A buyer wanted more presence around emerging technologies. The majority of Indian firms do better as markets mature around more defined software segments from ERP to SOA. Another buyer said very few non-Indians are moving to India on tours of duty. Till that happens, India will struggle to truly create "innovative" offerings. Harish points out that Som Mittal is taking over as Nasscom President - the first senior IT executive to run that job. He ran HP's development centers in India and may bring a broader infrastructure and non-software focus to the industry.
Thanks to all my "analysts" who contributed to this post. As I mentioned last week, if Indian firms can deliver from a distance, we can similarly analyze them from a distance, sans jet lag -)
I have seen this study quoted in CIO magazine, WSJ and a couple of blogs. It is by 2 professors at U. of British Columbia and one at the Paris School of Economics. And it focuses on the impact of distance on services purchasing.
A major conclusion "The calculations reveal that, from the point of view of a London service purchaser, workers in Oxford can be paid 99% to 373% more than workers in Bangalore in productivity-adjusted wages and yet still be more attractive, once service-delivery costs are taken into account. This is because the Bangalore workers are 100 times more distant from London than the Oxford workers."
Do readers in London agree that employers would pay as much as 4 or 5X for local technical or process talent what they could pay in Bangalore?
Also since Bay area is just about the same distance away as Bangalore (a little over 5,000 miles from London), would they pay that much of premium for say, local web 2.0 talent which the Bay area has a sizable pool of talent around?
Over 2 years ago I wrote What offshore vendors can learn from Southwest Airlines
One of the things I recommend was emulating Southwest use of hedges: "Insulate your clients from the wage inflation and staff turnover – that’s your version of the fuel hedge." I should have also included currency hedges.
Well, with oil over $ 90 a barrel, Southwest hedges at $ 51 are another sign of an extremely well run operation. With the dollar so weak, currency and wage inflation are a double whammy affecting offshore, particularly Indian, vendors.
None of the other airlines appear to have learned from Southwest , as this article points out. Many offshore vendors did not hedge either - can you imagine how much fun they would have with a $ 40 per barrel fuel cost advantage?
"The big beer companies spill more beer than I brew each year" - the ads with Jim Koch of Samuel Adams from the 90s kept flashing as I made my way last week with a client on planes, trains and automobiles through a whirlwind tour of Central and Eastern Europe. While the average distance between each location was 250 miles, each brings it own rich history and sights and sounds. And beers. Like Egger. Urquell, Ursus, the 12% Zlaty Bazant, Zywiec
Never heard of them? Well, then you probably have not heard of outsourcing towns and vendors in many of these countries. Because they brew less than the bigger Western and Indian services firms spill each year. Sure if you want to rapidly scale to 500 resources they cannot deliver. No alphabet soup of CMM, ISO etc certifications. But they offer their own charm. Like easier travel and time zone access for European clients. EU IP protection in many of these markets. Multi-lingual support. The opportunity to enjoy the rich history and sights and sounds. And importantly, energy. Most of these countries and their citizens cannot wait to make up for the retarded progress during the Communist experiment.
And in our flat world, just as SABMiler and Heineken and others have been buying local breweries (each one of the brands above is owned by a global major), expect IBM and TCS and EDS to keep expanding their own footprint in these markets.
Na zdravie. Enjoy the growing bounty.
Nick Carr and I agree on the concept of utility computing and how it should manifest itself in software and hardware as services. I disagree with him (like here) about the time to market. While utility/SaaS computing is the focus in his forthcoming book The Big Switch, I see tortoise like speed in the way larger outsourcers are deploying those models.
So he sees an industry milestone when Cap Gemini announces an initiative around Google apps. Cap briefed a few Enterprise Irregulars today, and I was eager to see how a major outsourcer has embraced utility/SaaS concepts. But I heard little of that. They emphasized it was less of a cost play, more of a collaboration play especially to bring "disenfranchised" employees on the shop floor and elsewhere for who no one licensed MS Office tools for. More about "innovation" in their desktop support practice, and expansion to handle PDAs and other devices beyond PCs.
Google Apps provide a bunch of functionality, hosting, storage all for $ 50 a user a year. Outsourcers like Cap charge that much a month for help desk, desk side type services. I was hoping Cap would tell me how Google has inspired them to change their own delivery model. But there was little of that. Like I have written about EDS before - little overt change in their own business model.
Two of the biggest spend categories in technology are in outsourcing services and in telecomm services. Vendors in both categories do not really innovate much but instead pounce on innovations in software, hardware to sustain their large revenue streams. Till that changes, Nick's vision will remain a stretch goal for the industry.
Update: Dennis Howlett perspective. And Michael Krigsman. And Phil Wainewright. The 4 of us are the EIs Cap presented to.
In my visits with European clients the last couple of weeks it has repeatedly struck me that US services firms should have their salespeople move to London and Paris and Frankfurt for the next year or so - and sell "offshore services" delivered from the US. The weak dollar creates a huge opportunity. But only if the services are delivered remotely - resist the temptation to deliver on-site and run up large travel bills (and gulp at the flip effect of the massively weak dollar). And if firms (and their European colleagues) resist the opportunity to use it to merely increase margins.
Businessweek recently ranked the US as 21st in a survey of global outsourcing hubs. Viewed from a European client perspective, that is way low. I would put it (along with Canada) in the top 5 countries to consider for various ITO and BPO.
Yes, that would be Calcutta, W. Virginia...
I was reading Brown-Wilson's list of 50 Leading Outsourcing vendors and it hit me how much choice buyers do have when it comes to IT and BP Outsourcing. A quick tally of outsourcing transactions I have been involved in the last 3 years showed my clients had in their "long lists" 26 of the vendors in the Brown-Wilson list, and probably another 50 which do not show there.
If you are a CIO looking for IT infrastructure services, if you are a CFO looking for F&A BPO services, if you are a ISV CTO looking for product engineering services in India, or in E. Europe - each vertical, geography, service line has so many large and boutique providers.
Of course, you can have analysis paralysis. I presented to one client a long list and analysis on 30 vendors and someone in the audience asked "who else should we looking at?"
I cannot wait for similar market fragmentation as we move to SaaS in the software market and disruptive players in telecoms and hardware services in the cloud. As I wrote - often players from out of left field.
Vive le difference!
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