deal architect

Is outsourcing success an oxymoron?

Phil Fersht and his team wrote a pretty stern column recently : “Let’s cut to the chase here – “outsourcing”, for most buyers, is like purchasing a wedding dress – a one-time transaction followed by seven years of relationship struggles and future legal wrangles.”

I have been married 22 years and it’s so easy to find failed marriages. My wife and I instead look for the ones that have worked.

Same thing with outsourcing. Even though my new book is not about outsourcing, let me highlight 5 inspirational sections which do relate to successes in outsourcing world.

Apple/Foxconn “Apple has stayed loyal to Foxconn through multiple releases of iPods,iPhones, and iPads in spite of sweatshop accusations, employee suicides, and explosions in its Chinese facilities. Most companies like to diversify between company-owned and outsourced plants, and certainly across geographies. Apple has been willing to take the risk of putting its eggs in the Foxconn basket and taking plenty of jabs from China bashers (although Foxconn has recently been looking at a significant diversification to Brazil)…Over 200 million iOS devices sold to date, most assembled by Foxconn, justify the loyalty”

Boeing/HCL “There were several advantages of having HCL across the board working with all its partners for the 787 development for Boeing. First off, it minimized compatibility issues that come from integration of multiple subsystems. It also made sure that HCL cross-leveraged the knowledge and learning on the 787 program across suppliers to speed up the development process.”

Facebook/Prineville Data center “It has spent two years developing everything that goes inside its data centers—from the servers to the battery cabinets to back up the servers—to be as green and cheap as possible. For example, Facebook uses fewer batteries thanks to its designs, and to illustrate how integrated the whole computer operation is, the house fans and the fans on the servers are coupled together. Motion-sensitive LED lighting is also used inside. The result is a data center with a power usage
effectiveness ratio of 1.07. That compares to an EPA-defined industry
best practice of 1.5..”

Flextronics/Workday “Flextronics would drive the development road map for Workday.In turn, Flextronics would draw upon the years of HR experience the Workday team had to shape and standardize its processes. It was a model software development partnership. The proposal from Workday saved us more than 40 percent over the life of the (global HR) project, with even larger savings in the first year. By going with Workday we were able to reduce our team size by more than 60 percent.”

Cognizant/Internal Staff  “Sukumar,(the CIO) on the other hand, is obsessed with what he calls “social design,” and his quest to deliver 500 percent productivity on Cognizant projects. “Think of avalanches. A snowball starts small, but then gathers mass and gradually turns into a massive avalanche. That is the basic inspiration behind Social Design. What we do individually should (positively) impact hundreds and thousands of others””

Now wait just a minute.

Let me also lay out likely objections to these examples

Foxconn is not an outsourcer Yes, technically it is a contract manufacturer but if with million+ employees it is not an outsourcer, not sure what is

The Boeing 787 was delayed by years. But the use of HCL to test across its supply chain is a big innovation. Also, HCL’s fees involve another innovation – a portion is contingent on the 787’s success.

Facebook is not a data center outsourcer. True, but if it can build a world class data center, should not outsourcers?

Workday is not a systems integrator. Maybe that’s why they only proposed a fraction of staff and effort of the competing SI.

Why do internal efficiencies at Cognizant matter? 500% productivity improvement is impressive no matter where.

What happened to NASSCOM?

For a while, the annual Leadership Forum in Mumbai was the IT equivalent of a pilgrimage to Mecca – you had to go at least once in your career. But, last week’s event came and went without a whimper.

It has been evolving in the vendors who show up. Used to mostly be Indian vendors – this year the sponsors had names like Accenture, Atos, CSC and Steria. The audience is global – Chinese, Irish, New Zealanders networking with customers accustomed to global delivery. Mercifully, there are many more non-stops to India from most places in the world.

What has not evolved much is the content at the event. Each year, the underlying theme is how great outsourcing is, how innovative, without acknowledging that real innovation is happening at places like Amazon and GE and salesforce.com, not in the outsourcing world. Indian politicians pitch how wonderful the country is, but avoiding substantive discussion on infrastructure or inflationary issues.  In that sense, the gathering is incestuous, and risks losing its stature in industry events.

Nasscom could learn from two of its leading members, Cognizant and HCL . Both run events,  Community and Unstructure  that are unafraid to drift in innovative directions. More importantly, they allow customers plenty to time to mingle and relax, without being bombarded by constant selling. It’s tough to stay awake in an outsourcing pitch even when Larry Ellison is coming up next – it certainly is when you are jetlagged and have had a couple of Kingfishers!  

A brave new world of services

I recently saw an SAP announcement around its Next-Gen services and got excited. Turns out it is services around its newer products (SAP HANA platform and business analytics, mobility and on-demand).

That’s certainly one definition of Next-Gen. I was hoping to hear about new delivery models, new providers and new business models. While my next book does not focus specifically on services, I saw many examples from various chapters which suggest tectonic changes coming in the next few years> Here is a selection:

Influenced by Apple:  “The more than 600,000 (as of November 2011 and growing) applications in the Apple App Store range from the sublime to the silly. But the sheer size of the marketplace is a formidable Apple asset. The head of iOS development, Scott Forstall, has commented that Apple has, in the iOS App Store, “created the best economy in software in the history of the planet.”” What’s remarkable here is the majority of the apps come from entrepreneurs and small businesses, not the IBMs or the Deloittes.

Influenced by Facebook: “Dell’s Data Center Solutions business says it will design and build servers based on the Open Compute Project specification. Presumably so will HP’s. Dell owns Perot and HP owns EDS, and those outsourcers currently run data centers for many corporations—and they are nowhere as efficient as what Facebook has built. So, the ripple effect of this on the industry could be tremendous, as even IBM, Accenture, and other outsourcers will be forced to benchmark against the open standards Facebook is sharing.”

Influenced by Cisco: “More impressively, Cognizant has rolled telepresence out to major clients. That helps overcome at least some of the consultant travel costs and other issues (we mentioned earlier in the chapter). Clients were generally skeptical at first, especially if they had previously used traditional videoconferencing, which was characterized by high cost, frequently dropped calls, and video and audio quality that ranged from poor to mediocre. But they have been much more accepting of telepresence, which delivers a vastly superior user experience. Two areas with high payback have been during transition and training. “

Influenced by Boeing: "Under this umbrella agreement with the Boeing Company, HCL worked as the engineering services partner of choice with multiple sub-tier companies on the 787 program. HCL’s services were utilized by these airborne systems suppliers across all the major design elements of the 787 such as common core systems, open systems architecture and e-enabled architecture. “

Influenced by Best Buy: Its after-sales service with over 18,000 employees in its Geek Squad, and investments like the Remote Service Project. The project allows Best Buy to identify backlogs at stores and re-assign the work [to another] store remotely. “we can level out the work across the enterprise, but above all, deliver a great experience for the customer and maximize the up time of the capability of the product that they’ve sourced from us.”

Influenced by Contract Manufacturers: I am constantly surprised to see outsourcers and service providers who have never heard of Foxconn or Flextronics. “Foxconn, the largest electronics contract manufacturer in the world with over a million employees in China, assembles iPads and other devices for Apple” “Given labor dynamics in China, Foxconn is exploring a diversification with sizable investment in Brazil. Even more significantly, it is looking to robots to do simple and routine work such as spraying, welding and assembling. The company currently has 10,000 robots and the number will be increased to 300,000 next year and 1 million in three years.” “Both Flextronics and Jabil also provide a wide range of warranty and repair services for their customer products. Then there other Taiwanese players like Pegatron, a spinoff from Asus and Quanta.”

Influenced by regulators: Gina Staudacher, tax partner at Baker Tilly, commenting about investments in global innovation projects: “When we work with clients to monetize tax credits globally—we utilize a ‘concept through final completion’ approach to consider all potential project costs that may be eligible for R&D credit inclusion from a global perspective. Hence, consulting fees incurred in a foreign country may not be eligible for inclusion in the US R&D tax credit programs, however, such costs and payments may be eligible in the foreign jurisdiction wherein they were performed or where payment was made.”

Note: the book is going through the publisher’s edits and the text above is subject to change.

HCL Unstructure – an eclectic event

You know you are not in Kansas anymore when the morning keynote begins with Malcolm Gladwell and the state of oncology circa 1955, and the evening keynote by President Bill Clinton makes you ponder what astrophysics will teach circa 2055 with new planetary discoveries and neutrinos speedier than light. And sandwiched in between are the CEO of American Electric Power who explains the challenge of balancing newer fossil fuel sources with wind, solar and other alternative fuels, and the CEO of Tibco presents a cameo of his latest book ‘The two second advantage” and many other varied points of view.

You know this is not your typical rubber chicken circuit when the customers you sit down at lunch or share a cocktail with have titles in product engineering, R&D and IT and represent banks, medical devices, aerospace and wide range of other industries.

You know you are not going to be saturated with typical vendor marketing when there are sessions on bartending, magic, disc jockeying and an elaborate Bollywood-style Indian wedding.

I spent 24 hours at HCL’s Unstructure event and came away not too much smarter about their various services (though thanks to Sadagopan, Sandeep Kishore and Rajarshee Dutta, my hosts I met most of its senior leadership) but feeling challenged and refreshed.  And most customers I talked to felt the same and appreciated the low-key selling at the event.

Krishnan Chatterjee, Global Head of Marketing for HCL told me satisfaction scores of customers who had been to at least one of these meets was statistically better than those that had not, and those that were regulars to the event were even happier.

Less selling is more – something I have also noticed at Cognizant events. May be something for software vendors to consider at their events and reduce the demos and executive pitches they fill their agendas with.

Salesforce.com and Model Metrics

One distinctive feature of Salesforce.com from other application vendors (on-premise and SaaS) has been it has smartly encouraged for years now a group of smaller, cloud savvy systems integrators – as different from large outsourcers, Indian firms or resellers. That includes Appirio (in which Salesforce has a minority investment), Astadia, Bluewolf, Model Metrics and others.

So, I wondered if its announced acquisition of Model Metrics was a change in strategy. I asked Narinder Singh, co-founder at Appirio, and as he has blogged “Since early this year, Salesforce has aligned their entire company and all of their considerable marketing might around the social enterprise…..By adding Model’s mobile development and UI capabilities to their team, Salesforce will be able to make the social enterprise vision tangible for customers.”

In other words it extends Salesforce’s push on Chatter and acquisitions like Radian6.

Narinder adds “We are somewhat relieved to know they will be focused on driving the social enterprise and mobility for Salesforce (and therefore with us), instead of being our most worthy competitor.”

While wishing both the Appirio and the Model Metrics teams well, I hope Salesforce  customers continue to have plenty of choice and implementation costs stay close to the ground and not reach for the clouds.

Baker Tilly: a brave new world of services

It felt like deja vu all over again. My colleague Brian Sommer invited me to join a couple of other analysts, Katherine Jones and Tom Ryan  to be part of a market intelligence and strategy workshop for the consulting/advisory side of Baker Tilly, one of the largest accounting/advisory firms in the world. 

Brian did plenty such sessions for Arthur Andersen/Accenture and its clients when he was a partner there in the 80s and 90s, and I did the same while at Price Waterhouse, then Gartner.

But the world has moved on and  the two intense days we spent were a forceful reminder of how much it has changed. Brian, Katherine and Tom had done a similar session last year and they were commenting on how far BT itself has evolved in just a short few months.

Bryan Majewski, the lead BT partner, deserves plenty of credit for:

a) inviting not just his consultants but also many of his HR, marketing, alliance, quality management and audit colleagues to the session. It was a large investment which highlighted the seriousness of the firm’s commitment.

b) allowing for a very broad agenda as I describe below

While there were many breakouts and group exercises and side conversations, broadly there were 5 themes, admirably quarterbacked by Brian with his usual flair

• The SaaS/cloud marketplace – cameos and updates on many software vendors BT has alliances in place with and many others for them to consider
• Opportunities in a much wider set of mobile, social, green and other innovation marketplaces. I was impressed with the broad range of consultants I met and am looking forward to profiling some of the people I met/clients I heard about in my next book on innovation.  A sign of the out-of-the-box sessions - Tom demoed an “in-beta” gadget for the hospitality industry which brings together sensory and cloud computing.
• The changing world of vendor alliances and ecosystems. Katherine did a fine job mimicking Miss Manners in one of the sessions as the group role played profiles and personalities of many of the technology executives they will be dealing with.
• The scary new world of elevator pitches and tweets in a world of social messaging
• The competitive services landscape – again we covered a very swath of service providers BT is likely to run into – or should at least be aware of

Over and over during the sessions I heard the words “small teams” and “management consultants not just package implementers” as BT differentiators. While that may sound like an oxymoron, a comment Bryan made to the group was telling “We have to continually watch for the risk of reverting to our legacy mindsets”. Many of the consultants come with careers in Big 4 consulting firms and mega-projects.

I am less worried about that. This advisory practice is still young and not addicted to multi-billion dollar SAP practices or to milking data centers which were designed to withstand Cold War era missile strikes. There is no “innovators dilemma” holding them back

In one of the last group exercises, a team which was asked to develop a plan on how they would best allocate $ 100 million towards acquisitions or other investments told the group they could only justify spending $ 26 million at this juncture.

I left feeling good these folks would spend their clients’ money as if it was their own.  And that they would nudge their clients to also think more strategically than just becoming cloud-compliant.

Much obliged to both Bryan and Brian for inviting me to participate in the invigorating session.

Outsourcing: Gulliver’s Travels

I was struck by two lists I saw this past week. One was in an advertising section in the back of the Fortune 500 issue from the International Association of Outsourcing Professionals (IAOP) with its list of 100 outsourcing leaders (appears primarily sized based though IBM, TCS the largest Indian firm, Cognizant and others were missing). ISS, the firm ranked second on the list, which does facilities management, catering, security services etc had an ad which thanked its 522,835 employees. Yes, 522,835!

In contrast, I saw the Thiel Foundation (related to Peter Thiel the investor in PayPal, Facebook, LinkedIn and a few other not-too shabby companies) list of 20 under 20 – young entrepreneurs who qualified for fellowships of $100,000 each (the list added 4 more after the initial 20 were announced). Peruse the list - amazing what these young folks have already accomplished so early in life. What’s interesting, even controversial, about the fellowship is it requires winners to drop out of school for 2 years. Indeed, the mother of one of the winners who will leave Harvard is quoted as saying  “This is a different paradigm from what I grew up with”

Two weeks ago, at Sapphire Jim Hagemann Snabe, co-CEO of SAP hosted a group of bloggers and unsolicited, made the comment he wanted to meet with us because in the last few months he had become even more impressed with the power of individuals (as the Arab spring has shown forcefully).

The Sapphire expo floor was full of large, gargantuan booths of many of the firms in the IAOP list above. Yet, over and over again I heard questions about whether SAP would stick with its traditional larger partner firms as it rolls out its mobile ecosystem or whether it would emulate more of the Apple/Google model of entrepreneur created apps.

Outsourcing in many ways is at the crossroads. While some firms like Cognizant have been innovating and growing nicely (and this year cracked the Fortune 500 list), way too many have just become enamored with size in a world where individuals do seem to matter – and frankly have plenty of choices beyond becoming the 522,836th employee of a firm.

Welcome to a different paradigm than we all grew up with.

Innovations in service delivery

I blogged recently about The Outsourcing Famine – little innovation in “business models and global delivery models and their partnering with interesting new technologies” with exceptions in firms like Cognizant and emerging ones like appirio and Corefino.

Jon Reed highlights some innovations in the SAP services ecosystem – most again from smaller firms like cumulusIQ  which provides SAP “Knowledge-as-a-service” – a shared service of SAP expertise.

Jason Corsello of Knowledge Infusion talks about their new KI OnDemand “Its our attempt to transform our little world of HCM consulting by offering an on-demand subscription service for clients.  Think of it as a HR version of McKinsey Quarterly meets TED meets Amazon ratings meets ESPN.com (minus the news)”. KI is targeting about 50 clients and a revenue of $ 1 m from the service in the first year.

Will this transform the hundreds of billions in fees in outsourcing services with its large army and bill-by-the-hour mindset? Not any time soon, but it is good to see the innovation.

For whom the Dell toils

Sorry, Mr. Hemingway for butchering your title, and thanks Phil Fersht for the inspiration about Dell planning to spend $ 4 billion of hard earned equity to acquiring Perot Systems.

As Phil says “there isn't much overlap, there also isn't a lot of synergy.  Why should Perot customers want to buy Dell equipment all of a sudden?  Most CIOs today are looking to move away from hardware-centric IT delivery models, and onto more on-demand cloud computing models.”

As I wrote last year “Dell ,,,has not shown the ruthlessness to optimize the service chain (as it did its supply chain). What is the opportunity? To drive traditional outsourcing pricing from $ 3 a gb a month for storage to 20c that cloud computing models are showing.”

At best Perot will allow Dell to gain a toehold in verticals Perot is good at. At worst, it will distract Dell from the big services chain optimization opportunity.

CSC’s clouds

From two sources – GigaOm and in a still embargoed discussion with another vendor – I have now heard about CSC’s cloud intentions.

Some intriguing features – may be built on Cisco’s new Unified Computing platform and given CSC’s large Federal Business should emphasize security and data location visibility.

But I will continue to be cautious because there is too much traditional outsourcing talk : “pricing will be ..announced in the next few months”  and “(it will) continue providing its managed hosting business”. Likely too much customization of client proposals and offerings.

As with AT&T and EMC’s recent cloud announcements, I hope CSC does not fail many “It is not a cloud if …” filters.