deal architect

Accenture and the Meidum Pyramid

Growing up at PW, we watched with envy (our at least our partners did) as Andersen Consulting (then Accenture) grew the leverage base – number of staff that reported up to a partner. 1 to 6 grew to 1 to 20 or better. Then they added a layer of Associate Partner and grew the leverage even more. The Pyramid kept growing stronger. Every other firm jumped in with similar structures. And recently offshore firms have taken the model to another level with their huge campuses filled with recent graduates.

So, when I saw this Accenture announcement they were trimming executive ranks, it hit me the winds of global change have been eroding the pyramid for years now. Clients really value the middle layer of staffing, and will reluctantly take the “school bus” at the bottom along with it. But senior executives who cannot show value are tough to park on client accounts and you do not need too many of them to manage staff or real estate or IT in a world of shared services.

So, you end up with the Meidum pyramid. May be odd looking, but far more aligned with the realities of today.

Inhibitors to outsourcing

Phil Fersht shared with me results of a survey AMR did with Global Services Media. In the section where they asked respondents about inhibitors to outsourcing, the answers were somewhat surprising.

“While companies are tackling severe economic conditions, priorities clearly get focused on critical management decisions surrounding business focus, ensuring company stability through the volatility and uncertainty. The upheaval of moving complex process over to third-party providers and offshore locations is a challenge we have documented many times at AMR. “

The other problem I see is long transition periods outsourcers quote. 6-9 months are not unusual. Not only does that upfront investment in duplicate labor kill ROI, it also gives the provider a long grace period where SLAs do not kick in. After thousands of such transitions outsourcers have done, you think we would move to more normal of a 2-3 month transition.

"Don’t sign long-term outsourcing deals"

Glad Gartner is giving advice we have been providing our clients for a while now.  That with clouds and SaaS reducing the time to provision and making bite-size the unit of procurement,  the practice of locked in 5+ year contracts and 9 month procurement cycles will go the way of the dodo.

Till they do, though we recommend clients fight for benchmarking clauses, and to benchmark vendors not just against traditional competitors - but against disruptive market entrants from cloud, SaaS and newer offshore markets. We also add – negotiate early termination clauses aggressively. Make sure they amortize down with the contract term.

Ironically, we have to tell clients not to rely too much on Gartner for IT (or Hackett for BPO) or other “industry leading” benchmarks. We find they lag disruptive trends in markets and are actually defensive of status quo.

Who is the next SAP?

is a question I periodically get asked by systems integrators and offshore firms as they look for the next billion dollar practice area.

Not sure they can count on Google to be that

Peter Lorant of Google is quoted as saying

“I’ve had conversations with some system integrators that went along the lines of ‘we know that you’re toxic for the business, but we have to do it anyway because our customers are asking us to do this.' Funnily enough I never heard from them again.”

“There’s going to be a full frontal assault on changing that with the new cloud-based paradigm, because you’ve got to focus on simplicity and the user."

BTW – no reason you cannot still build a billion dollar practice around that – just with a very different mindset than your SAP practice.

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.

AMR Outsourcing Survey

Phil Fersht invites readers to participate in a survey AMR Research is conducting on ITO and BPO. Depending on whether you are a buyer, vendor or advisor there are different sets of questions - but Phil assures me they take no more than 10 minutes. Participants get a free copy of the results when they are compiled.

SaaS and outsourcers

I was talking to Zach Nelson, CEO of NetSuite recently and he commented "People think of SaaS as changing the software industry. Our impact will be even more profound on the outsourcing industry".

I agree.

Outsourcers have to get used to smaller, more iterative projects around his products and those from salesforce, Workday and others - a big adjustment from their SAP and Oracle practices. But even more dramatically they will have to adjust to up-time, responsiveness, ease of upgrade, price and other benchmarks emerging from cloud world.

Then I read Phil Fersht of AMR Research and he disagrees:

"What concerns me with SaaS delivery is the lack of provisions for compliance, business continuity, security and privacy of data.  Moreover, there is often a far-reduced level of control over data and processing, for which a well-crafted outsourcing contract caters.  Outsourcing goes to great lengths to stipulate where data resides, how it is protected, who has access, which measures are in place to accommodate political or natural disasters, and how data management complies with regulations.  In addition, outsourcing providers are SAS 70 compliant, but are all SaaS providers?" 

"With SaaS, companies can sign up, flip a switch, and they’re up and running with zero upfront investment.  Does this mean they are going to invest nearly as much attention on governing these processes?  My experience so far is no.  Companies move into SaaS because it is cheap and easy, and often overlook the internal business transformation then need to go through to manage these processes effectively in an outsourced environment. "

So where's the reality? Somewhere between Zach's optimism and Phil's cynicism.

Yes, SaaS vendors will increasingly go through more tire-kicking from customer due diligence teams. Actually it's already happening. If you ask Marc Benioff he will tell you what some of the largest companies in the world have done to crawl through nooks and crannies of his data centers. In SaaS deals I have been involved in, attorneys are already fighting over SAS70, data portability, privacy, IP issues.

And Phil has an overly rosy view of what outsourcers sign up for. Their standard force majeure (for disasters) language is typically weak. In many cases, all they have to do is declare it, and that basically buys them a few weeks of service degradation. You have to amend their language to say they will do x and y and z in a disaster. The credits for not meeting SLAs in many outsourcing contracts would barely buy you a cup of coffee at Starbucks. The termination fees in many outsourcing contracts would by themselves pay for several years of NetSuite, salesforce, Workday contracts.

The good news in all this is buyers should use clouds to benchmark outsourcing arrangements. And what we have learned from outsourcing due diligence and failures (and there are plenty of those) to benchmark clouds. And get the best of both worlds in economics, performance, security, scalability and many other dimensions.  

The (Cloud) Bastards say, Welcome

In the Pulitzer prize winning "The Soul Of A New Machine", Tracy Kidder wrote of an ad that Data General produced but never ran. It read:

"They Say IBM's Entry Into Minicomputers Will Legitimize The Market. The Bastards Say, Welcome"

As the IBM led “Open Cloud Manifesto” is unveiled (I wrote about it on Friday), it is time to honor pioneers who have been delivering cloud based services, in some cases for a decade now. Larry Dignan identifies several in his post – salesforce.com, Google, amazon, 3Tera, Oracle.  He does not mention others like Zoho, SuccessFactors, NetSuite and several others.

In a salute to those pioneers I have invited several incumbent cloud vendors and industry watchers to contribute to a guest series I will be running over the next few weeks: What they have learned in delivering cloud services, not just white papers, at price points that IBM and most in the list of vendors supporting its manifesto will struggle mightily to come close to.

"They are the eggmen... I am the walrus..."

So I caught up with a friend and we were discussing how the outsourcing world had changed over the last 20 years.

He said he missed the independence of being a partner in a local office. Now all proposals and staffing decisions were driven by configurators which only analysts at corporate could understand or defend. So many fudge factors in unexpected cells in the work estimation spreadsheets.

I know, I said I know about them baby walruses

What? he asked

Oh, you know models with layers and layers of fat...

coo-coo-ca-choo..