By Thomas D. Vetterani , Vice President, CompuCom Systems, Inc.
For many organizations, 2009 was a year of tremendous uncertainty. However, despite the global downturn, the IT offshoring and outsourcing industry has continued to grow, albeit at a slower pace. From a competitive landscape, the recession’s main effect has been the fierce competition among the hundreds of IT service providers that handle a variety of tasks for global corporations. As the year ended, a new leadership pack emerged from the fray, threatening to erode the off-shoring franchise of many Tier-1 and Tier-2 suppliers in countries such as India, China, the Philippines and beyond. These new players have redefined many traditional management practices, and changed the complexion of services provided together with the delivery model itself. By focusing on the quality of services delivered rather than the usual focus on pure cost per hire, they have deepened the relationships with their clients and gained more control over outsourcing strategies.
The New Delivery Model
Historically, staff augmentation is the most widely adopted model for delivering offshore services, but in this new world order, it is losing ground to a more robust managed-services model. Under the delivery model, providers agree to deliver a specified capability or functionality with a desired level of service, or Service Level Agreement (SLA) for a given price. For example, they contract to provide data center support for a year within certain volume and uptime parameters or to support production operations with clear, mutually agreed upon SLAs. Clearly, this model requires a higher level of trust, as clients relinquish more control to providers. Clients benefit by locking in the services they need without having to manage variable resource requirements at the offshore venue tightly.
This new generation of service provider leverages state-of-the-art tools and proactively manages the data center, networks and other high value technologies, against the covenants and agreements struck with their clients. That’s why these providers consistently outrank the Tier 1 providers, and have the highest rankings for overall client satisfaction and employee retention.
Recent industry surveys conducted by leading benchmarking and analyst firms point to the four most important practices that clients look for in leading service providers:
• Provide new alternatives and delivery models for services
• Greater ability and flexibility to supply business expertise
• Innovation and successful talent management
• Well-defined metrics for judging results
In addition, the studies show that client organizations that rely primarily on managed-service rather than staff augmentation model, reap great advantages: the best and most efficient work, the highest satisfaction levels, and the lowest attrition rates among their suppliers’ employees.
We expect that these practices will become more important and widespread as clients push the offshore outsourcing providers to achieve higher performance levels and provide more sophisticated offerings.
Metrics and Transparency
The highest levels of satisfaction and performance are reported by companies that focus their offshoring performance metrics on a limited number of goals. In the past, most looked at cost-related metrics that failed to frame their strategic objectives and achieve long-term, continuous improvement. Today, strategic partnerships between clients and service providers have moved away from such legacy reporting systems, which reinforce the micromanagement aspects of the old staff augmentation model.
More modern measurements focus on three to five goals, such as maturing the offshore delivery model, minimizing time-consuming handoffs between onshore and offshore units, improving quality and client satisfaction, or improving time to market for new products and services. By concentrating on fewer metrics and identifying issues that affect goals directly, clients can communicate more effectively with their service providers and expedite whatever course corrections are necessary.
The most effective way of influencing and improving a provider’s performance is to create a climate of greater transparency and then focus on outliers, where performance is either lagging or above average. According to a leading industry analyst firm, creating transparency gets about half the job done. Once organizations start publishing comparative scores across all providers, efforts increased, and performance scores improved across all service providers – clearly an effective organizational result.
The Bottom Line
The rules of the game in IT offshoring and outsourcing are in motion. Many executives think that in the post-recession environment, a new ‘normal’ marked by constant pressure to lower costs and improve services, will take hold. Structural changes are occurring in the offshore sector. Companies showing early success in this transformation are increasingly moving beyond the traditional focus on lower-cost and routine work to high value-added integrated services. This new offshore model will involve highly skilled workers performing a range of strategic tasks against SLA’s, and new organizational entities that place greater value on strategic partnerships, managing talent, and delivering strong business value.