Tag: customer satisfaction

The FTE Labor vs. Managed Services Decision | Sherpas in Blue Shirts

Industry buzz says companies can realize more value via outsourcing by moving away from the FTE or contract labor model and opting instead for managed services. The FTE model is dead, they say. But don’t believe everything you hear.

The managed services model in outsourcing sounds great. It beckons with reduced costs and the benefit of service levels. You can buy it “as a service” in a predictable fashion and perhaps even pay for it on a usage basis.

Sounds wonderful.

But let’s take a deeper look. The perception of value in managed services is countered with limitations. Because the service must remain stable, the service description can’t change. What it provided yesterday is the same as what it will provide tomorrow. But there’s a sting in that stability.

In volatile environments — where there are significant shifts in process and what the provider is doing — the service description becomes volatile. For example, application development environments, as well as application maintenance environments, are inherently unstable. The result of this instability in a managed services deal will be an unhappy customer, either because the service no longer fits their needs or because it is necessary to issue a change control — which often leads to the service provider changing the pricing structure to accommodate the change in service. Even small changes over time build up to great frustration.

Where volatile environments and change are part of the equation, the idea of having predictable pricing through managed services is just an illusion and the customer buys something that doesn’t exist. Even worse, the customer may be locked in to the managed services contract and thus feel like a hostage.

The situation isn’t good from a provider’s perspective either, as it has to deal with an increasingly unhappy customer base.

The more change that the buyer requires in the managed services model, the more the buyer and provider get out of alignment and can become adversarial.

The FTE or contract labor model is much more flexible in reallocating resources to address changing circumstances. But that doesn’t mean that there isn’t a vital place for managed services in outsourcing.

When making the decision, buyers need to keep in mind that managed services are best suited for areas that have a stable and predictable service in terms of functionality. Companies that inappropriately apply managed services to environments that are too volatile will become very frustrated.

Thus we believe the stories of the death of the FTE service model have been exaggerated. It’s not dead and it’s unlikely to die or completely replace the FTE model because it meets a very fundamental need.

What’s Differentiating about TCS and Cognizant? | Sherpas in Blue Shirts

It’s earnings season for the outsourcing industry. So far, we’re seeing mixed results: modest growth in most companies (including Accenture, IBM, Infosys and Wipro ) and strong growth in a few. Notably, Cognizant and TCS are pulling away from the pack. Or as my old running coach would say, they are showing the competition a clean pair of heels.

But it’s not just the results of the recent quarter; this is the pattern for several quarters, and we’ve come to expect strong performance from both Cognizant and TCS. This is evident in organic growth in their existing accounts as well as in new client logos. On the surface, they look the same as everyone else in the industry in that they have very similar offer sets. But there are four notably different aspects about these two providers.

1. Early industry orientation

Cognizant and TCS are out-executing other service providers, because they have a much more mature industry orientation than their competitors. They were early to build an industry focus, and this had a significant impact. Where others such as Infosys and Wipro are still refining their industry orientations today, Cognizant and TCS are harvesting the benefits of in-depth relationships and relevance from having had an industry focus for several years.

While other providers are still building out their industry capabilities, Cognizant and TCS have fully formed industry units that are already perceived as more relevant and having the capabilities to be more impactful. With this differentiation, they have a big head start that is a wide gap not easy for for others to fill quickly.

2. Industry selection

Cognizant and TCS made wise decisions to focus on the largest industry verticals: financial services and healthcare. Both of these verticals are large and have been high-growth areas, experiencing a lot of substantial disruption, which results in a wealth of opportunities for market shifts.

In addition, these two industries tend to reward providers that specialize in them and punish those that don’t. They like to think of themselves as industries apart and prefer to buy from people who are dedicated to them more so than to other industries.

3. They invest more in their clients 

Although Cognizant and TCS take different approaches to client investment, both of these high-growth firms have more people on site at their clients than their peer competitors, and these resources are often in addition to the contractually guaranteed numbers. In other words, they have more people building client relationships, uncovering new opportunities and building a deeper understanding of how their clients’ businesses work. In a virtuous cycle, greater investments in client-side resources lead to greater intimacy, which in turn leads to more work, which in turn leads to greater client understanding and greater intimacy.

4. They listen effectively

Like the rest of the industry, Cognizant and TCS are still adjusting to the new market reality where business stakeholders play an increasingly stronger role than CIOs in driving new spend on technology. But both of these providers are taking a more humble sales approach for this market; instead of pushing offerings, they are listening to and engaging with business stakeholders about their emerging needs. They are performing better than their competitors in this regard. As a result, they can identify opportunities their competitors miss and, where they are in competition, appear far more credible and relevant.

The net result of the above four aspects is a very positive differentiation in the minds of their customers, so these providers often are the first choice of a customer when thinking of new work.

Like the clean heels of a fleet-of-foot racer, Cognizant and TCS’ adaptation to the new empowered business stakeholders’ approach to buying, together with their longstanding in-depth investment in industry capabilities, enables them to run straighter and encounter fewer obstructions in their market races.

Wipro’s New HR Policy Changes Highlight Major Issues Indian Providers Better Tackle…Fast | Sherpas in Blue Shirts

This past weekend Wipro announced it was adding employee attrition and customer satisfaction to the criteria upon which its senior management will be evaluated, and the metrics will be linked to quarterly compensation. This move clearly exposes that the employee satisfaction (and hence retention) and client satisfaction issues arising from Indian IT providers’ tremendous growth and their offshore-based business model are increasing and becoming more visible. (See a related blog by my colleague Jimit Arora) And with so much at stake, they must address the problems, and they must do it now.

Why the urgency? Several reasons, given the inextricable connection between client and customer satisfaction. First, the Indian IT providers’ model of hiring low cost resources and continuing to expand the bottom of their resource pyramid has its own challenges. While they have developed sufficient standardized processes and have very solid training programs to keep churning out “good enough” people to perform client work requiring technology competence, they cannot satisfactorily add critical business value through IT if they stick with hiring associates freshly graduated from college.

Second, constant hiring takes a toll on the system in terms of cost, process flows, and efficient collaboration. Third, because many providers cannot create a career growth path for such a large volume of experienced resources, they actually cause attrition in order to hire the requisite “fresh hands” staff.

Obviously, Wipro’s addition of employee satisfaction (attrition) and client satisfaction being linked to senior management compensation comes with its share of challenges. An employee’s experience in an organization depends on a wide range of parameters including compensation (industry driven), work quality (varies based on the client engagement), feelings toward team members (reasonably independent of the quality of the boss), growth opportunities, work environment, etc. Additionally, how will client satisfaction be measured, e.g., through surveys, general interaction, volume growth, pricing improvement, etc.? Moreover, how much impact does a senior executive have on the kind of people assigned to a given project, and what if an employee is assigned to a project that he/she simply does not want to work on?

Despite these challenges, there is a silver lining in that although these providers have disrupted the IT service market, they now realize their limitations and the need to retool their model and perform more “business value” work. Clearly this change will not happen overnight and will take consistent effort and strategic execution. But it can and must happen. However, we should not expect offshore providers to mimic the resourcing pyramid of MNCs even (and when) they provide business driven higher IT value. They have changed the game of IT service and they will surely attempt to do it again in higher business value services. As the low hanging client fruit is more or less taken, the next phase of growth in the cut-throat IT services market will be led by innovation and client satisfaction. And happy provider employees are the best path for these outcomes.


See related article on IT Business Edge, Outsourcing’s Shift from Arbitrage to Innovation.

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