deal architect

"At one point, everyone thought the Earth was flat"

No, this is not about the rumored Microsoft ad campaign around Vista. But it is time to revisit Tom Friedman's 2005 bestseller about flatness. And the fact that several Indian outsourcers used the favorable mentions in the book to significant advantage.

3 years later, IBM, Accenture and now HP with EDS have regained mindshare, if not marketshare. And have a few years lead with labor pools away from the wage inflation and staff turnover and traffic in Bangalore - in Bucharest, Beijing and Buenos Aires. The dollar weakening has hurt most of the Indian firms. Few of them used their now disappearing stratospheric market valuation to make significant acquisitions. Their traditional reluctance to make large capital investments has slowed their impact in infrastructure outsourcing. And looked at from the lens of new price points in SaaS and cloud computing models, the vendors I coined as SWITCH have become the new expensive "Big 6".

Over the last 2 decades, Indian vendors have shown the ability to morph every few years. Time for the cat to use up another of its lives. Because while the sky is not falling, the world is not flat either.

Odd

I have defended him on the Wired blog, but it really is a no-win situation for a recently named Forbes billionaire who also happens to be the CEO of the second largest Indian services firm to be talking to the media about outsourcing. Tom Friedman of NY Times was nice to Infosys in his book "The World is Flat". But not every NY Times reporter and certainly few outside are going to throw him softballs.

But instead of some bland comments, it is odd he chose to say only 5% of job losses come from outsourcing, the rest are due to tech automation. And it is even odder that he says post-primaries, the outsourcing issue will die in the US. In a recession, with the Democrats bent on making domestic economics the focus of the campaign?

Update: Bit more balanced coverage on the WSJ blog

"The Coming Death of Indian Outsourcing"

Sramana Mitra at Forbes has a provocative title and cites examples of firms that have stayed away from recruiting in India or moved away from India. No question, India has challenges as I have written here, here and more.

But she misses a fundamental economic reality. In spite of large acquisitions (EDS with MphasiS, Cap Gemini with Kanbay) and recruiting campaigns (IBM and Accenture now claim their largest labor pools are in India), the Western firms are still not delivering India savings to their customers. Their rates on incumbent contracts are still 30, 50, 100% more than even the inflating Indian rates. 

Indian firms cannot often compete with Western internal IT employee or contract/staff augmentation rates. But they are still very competitive with Western outsourcing rates.  There is plenty of room for them to chisel out chunks from IBM's $ 50 bn, EDS's 20bn a year in revenues. Let's not forget, the total India outsourcing industry is still smaller than just IBM's outsourcing revenue.

They do not do as well in IT infrastructure areas, but when it comes to application management, systems integration and BPO, many Indian firms will continue to do just fine.

Update: Phil Fersht now at AMR responds

Forrester on SAP Services firms

A reader shared with me this Forrester analysis of 16 firms with large SAP practices.

Not many major surprises in the choice of vendors they evaluated ((In SAP services evaluations I have been involved with over the last few years, I have seen proposals from all the firms in the survey other than Neoris) , though I would have included EDS and an East European player like EPAM. I would also have evaluated SAP's own (and fragmented) consulting resources since they play a role in just about every project. But, not surprised to see Accenture and IBM lead globally, and Satyam and Wipro from the Indian firms.

Four things I would have weighted more heavily in my ratings:

a) More of a focus on support and maintenance, and by extension BPO. This is a mature market and most deals I see now are post-implementation, SLA based deals which have an upgrade or implementation project component. From that lifecycle perspective firms like TCS, and the specialist Intelligroup would do stronger.

b) More of a focus on verticals. The survey focus is much more on functional components - ERP, HCM etc, whereas most implementations I see have a significant vertical emphasis, and often implementation of SAP's unique industry extensions. From that perspective, Infosys and Cognizant would do better in selected verticals.

c) Focus on upgrades. The hottest "project" in the SAP ecosystem in moving customers to ERP 6.0. It has been a slow slog for SAP to convince its customer base to move, and many are doing lateral upgrades taking minimal advantage of the services oriented features SAP offers in the version. But if that is what the market wants, SAP and its partners should be offering lots more vanilla upgrades at fixed price offerings. Many of the firms in the survey turn their noses on such small projects, but is the most immediate need in the customer base.

d) Lot more overall emphasis on economics. The 16 firms claim to have 80,000 SAP consultants and have done over 4,000 projects in just the last year (and in my estimation over 50,000 projects in the last decade). Most also have significant offshore capabilities.

This is one mature market and yet SAP and its partners still want to attach a "premium" label to these services as I wrote in The SAP Egosystem. With the report aimed at "Sourcing and Vendor Management professionals", I feel Forrester should be debunking that myth and probing rate cards, inflation rates, implementation productivity (shocking how little productivity firms are willing to share even while bragging of thousands of SAP projects in their bag) and continuous improvement on multi-year deals a lot more.

Infosys acquiring Cap Gemini?

Rumors are flying. Heard it yesterday and again today.

Historically, Infosys has been a build versus buy culture. They made a tiny Australian acquisition a few years ago. This would give Infosys a huge foothold in Europe. Allow them to diversify from a largely English speaking customer base and delivery staff. And get plenty of business process expertise to supplement their techncial skills.

Be nice to see them make a bold move. But acquiring someone three times their size, with no previous integration/digestion experience at that scale, may be too bold a move. Not to mention  the likely foodfights when a 27% margin business tries to discipline a 6% margin business.   

Take advantage of the bounty!

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!

"Phantom GDP"

I feel pretty dumb. I read this BusinessWeek article on the impact of offshoring a couple of times and still do not understand much of it.

My sense is we need to revisit econometric models for our flat world. But as we do, let's also factor not just the job and dollar flow out, but the secondary dollar (and related job flow) in. In the 80s, while it looked like we sent lots of dollars and jobs to Japan, they bought our real estate, spent money at DisneyLand and opened manufacturing plants in several southern states.

Last quarter, GE reported global revenues of $19.6 billion, up 9%, and developing markets revenues of $7 billion, up 14%. Over 20% of all airplane orders in 2006 came from Chinese and Indian airlines. (while their GDP was less than 8% of the world's)

Think at least some of that money "offshored" is not coming back to the West? Be nice to understand the flows there - and back, much better than we do today.

Globalization of Software Talent

As a follow up to my posts about SAP and Indian vendors and global talent, it was good to see this NY Times interview with Henning Kagermann. And TCS's announcement that it was planning to hire 5,000 staff in Mexico.

Henning did not mention SAP's staff and investment in E. Europe. I visited TCS's center in Budapest this week and was impressed with the "nearshore" work it is doing for several European clients. Lots of languages, lots of nationalities with only a few Indians sprinkled in. A cameo of Generation G.

Local Delivery Model

NY Times writes about the "Dabbawallas" of Mumbai, India. It is a supply chain optimization marvel.

Made me wonder what Indian firms which talk about global delivery models while struggling with wage and rate inflation and rampant staff turnover at home, could do to emulate the dabbawallas and their Six Sigma local delivery model.

No hype, just hot results day after day.  For under $ 5  a month

Labor trends in Indian firms

Gartner says the rules of technology staffing are changing radically. Against this background, staffing trends and social responsibility were on the agenda as I took a client to various large Indian firms last week. And I expected to hear typical, traditional answers.

Instead I heard from one : "The majority of our revenues come from outside India; a significant portion of our investors are non-Indian funds, we should strive to have at least a third of our employees to be non-Indian".  In a lot of ways the Indian services firms have broken gender and tribal barriers that plague that country. But while talking about "global delivery", it really has been about India delivery.

I also was pleased to see firms like Satyam report a steep decline in staff attrition rates. What gets measured gets managed. Couple of years ago I would hear excuses like "but the rest of the industry has 30% attrition - we are at least better"

The trip also confirmed that the average staff age of most Indian firms is around 27 years, and is declining as campus recruitment accelerates. My concerns, laid out in my "Day Care" post, have not hit home yet.

But, maybe the firms can get a "two-fer". As they expand staff overseas, try and hire more gray hair...as Gartner says, the old rules of staffing are, well...old.