Tag: misalignment

Challenger’s Advantage | Sherpas in Blue Shirts

Every morning in Africa a gazelle wakes up knowing that it must outrun the fastest lion. Every lion wakes up knowing it must outrun the slowest gazelle. So when the sun comes up in Africa, you’d better be running. We see this happening in the services world — as cloud and as-a-service models move into mainstream adoption and trump labor arbitrage, everybody is running and the hunters become the hunted.

It’s clear that the services world is changing due to the new technologies and models. Historically the dominant players in one era failed to make the transition and become dominant players in the next era. Established dominant hunters do not know how to behave or succeed as game; the emergence of a super predator disrupts the natural order.

The dominant providers really struggle with making the change. They talk about it. Their senior executives recognize the need. They have structured their business to perfection to facilitate the incumbent model. It’s very difficult and very unusual for them to successfully transition to a new model. We see this time and time again.

Here’s a real-world example. I was on an airplane and headed home after a meeting with senior executives of a major IT provider. At the meeting they laid out their commitment and strategy to cloud and as-a-service models and the massive investments they made and are facilitating to make to facilitate this transition.

On the airplane I sat next to another executive from the same company. He was returning from a trip to South America where he advised clients about future technology. He spent most of the trip spouting scorn and ridiculing that the new cloud technologies are not appropriate to run enterprise-class applications and stating confidently that they would never replace or threaten the existing order.

Think of the confusion and conflict customers face when they hear dueling and contradictory positions coming from the same company. They are much more likely to adopt a provider that is completely aligned with the new models. This is why, historically, challengers succeed.

A similar situation occurred when I returned from a provider conference where top execs laid out their grand vision. But less than a week later Everest Group observed the provider working in a client account and the account team espoused exactly the opposite of what the senior leaders said.

We see similar behavior within Indian firms. They make the most money when they deliver work from a low-cost location (ideally a tier-3 city) with the most junior people (the freshers). That’s the heart of the pyramid, the heart of their factory model and it achieves the highest margin a service provider can make. Incumbent providers with factory models have high turnover as they constantly push to the next generation of junior people coming in.

They do this even though they know their customers want less turnover and more work delivered onsite at the client or at least in country as they want more customer intimacy. So their needs and commercial interests are unaligned.

We see providers’ executives making big announcements about more people delivering services in country and on site. But what their salespeople say and what the management and operations people do is the opposite.

In the above examples, providers’ employees did not buy in to the new models. And this is but one of a thousand different points of alignment that needed to happen. The incentive structure, organization structure and underlying technology enablement must change. And the hearts and minds of employees need to change.

Customers aren’t stupid. And they do change providers. We’ve seen a big jump in challenger models across the board in outsourcing. Increasingly the challenger has an advantage over the incumbent. They’d better be running.


Photo credit: Flickr

The KISS Advantage | Sherpas in Blue Shirts

There has been a lot of talk in the services industry around new pricing vehicles: non-linear pricing, outcome-based pricing, pricing for results and gainsharing, for example. All these new pricing models whipped up by providers have something in common: they’re complex. I’ve been in this industry since 1983. Here’s one of the important things I’ve learned over the years: complicated pricing breaks down.

I’ve looked at function-point pricing and all kinds of algorithms. The complexities don’t stand up well.

That’s why cloud pricing is so compelling— it deals with pricing complexities by bundling components and customers pay for the service based on consumption and a few key metrics. It’s simple. It’s this simplicity that gives the cloud model so much power.

Simplicity is also what made labor arbitrage pricing so powerful. It’s based on a body and an increment of time in India versus the United States. You can have an FTE on an hourly or daily basis. It eliminates a lot of moving parts. The service pricing is easy to understand.

The acid test for pricing models

Here is my acid test for whether a pricing model is simple enough: You must be able to tell it to your mother, and your mother has to be able to tell it to her friends, and when you hear it from her friends, you must recognize what you’re hearing.

This acid test for simplicity is important. In a customer organization people have to explain the pricing model to other people, and it has to survive multiple layers of people telling and retelling it clear down to the users. Nothing complicated will survive that. The pricing must make sense to the people who use the service based on that pricing model. Otherwise, there will be misunderstandings and misalignment and eventually the structure will break down.

Bottom line: New pricing models are often too complex, very painful to break down. My advice is to remember the well-known KISS Principle — Keep it simple, Stupid.

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.

It’s Not You, It’s Not Me – Recognizing When You and Your Service Provider Have Grown Apart | Sherpas in Blue Shirts

I am an avid golfer, and it consumes more of my thought, time, and finances than I am willing to quantify. The first round of golf I ever played was during the summer between eighth and ninth grade, and I was hooked. When I started high school, I immediately joined the golf team – although I must admit I was the last man selected for The B Team, as I was absolutely terrible at the game.

On the first day of practice, I met Harry, a member of the country club at which my high school golf team was allowed to practice and play. As a passionate golfer himself, Harry volunteered as an assistant coach for the team and took me under his wing. For two years, he taught me the basics of the game based on Ben Hogan’s Five Lessons: The Modern Fundamentals of Golf. In addition to the swing, he instructed me on things like etiquette and golf course management. With his guidance, I was a bogey golfer within a year of first picking up a club.

I was reminded of Harry during a recent client engagement. This organization has a managed services agreement for IT services with a service provider that has lasted nearly a decade. During that time, the client grew quickly through organic growth and acquisition (nearly doubling in size every two years), dramatically increased its geographic footprint, and went public. By the end of the most recent outsourcing contract term, it had become one of the largest companies in its industry in the United States.

During this same time, the IT service provider remained focused on serving the client’s industry. But as few clients in the sector were as large as our mutual client, the provider found more success growing its business with small- to medium-sized firms. Many of these new accounts looked more like our mutual client a decade ago, small and private with simple IT needs more necessity than anything else.

Our mutual client, however, has grown to the point of using IT as an enabler. It is using technology to standardize processes and drive efficiencies, benefit from scale and centralized technical design, and leverage new cloud-based solutions to take advantage of new IT economics. With the service provider consistently investing in capabilities for a different type of client than this one has become, both parties need to take a step back to understand each other’s direction. There’s nothing wrong with either organization, it’s just time for a recalibration of sorts.

I probably could not have experienced the growth I had without Harry’s expertise, but at some point his focus no longer correlated with my needs and I made the tough decision to part ways. That did not make him a bad instructor or me a bad student. There were other students who could better benefit from Harry’s time, and there were other instructors from whom I could learn more.

The situation is similar for my client and its IT service provider. Identifying that the organizations have grown apart is a crucial first step in deciding how to move forward. This may be an excellent opportunity for the service provider to invest in new capabilities it can leverage for its existing client base, allowing this particular client to continue to leverage the service provider’s industry expertise. Or, the client may be better served to go through a potentially challenging transition to a service provider that is a better fit for its current needs. Understanding your IT service provider’s already-made investments and its investment plans is a good way to assess fit with your organization.

Einstein’s Definition of Insanity and Its Applicability to the Healthcare Solutions Industry | Sherpas in Blue Shirts

Starting with the premise that all providers and all clients in the healthcare industry enter into large, multi-year arrangements with honesty, fairness, and a desire for a successful engagement…why do only a small handful come in on time, on budget, and with measurable outcomes? I think Albert Einstein’s famous statement, “The definition of insanity is doing the same thing over and over and expecting different results,” is, unfortunately, applicable here.

In financial and clinical implementations, ITO/BPO engagements, ADM solutions, clinical transformations, and clinical trial deployments over the past several decades, the providers and clients have been doing essentially the same thing, again and again, and in most cases the engagements have ranged from lackluster to volatile. Yet with all the increasing governmental requirements, major advances in personal and mobile technologies, and demands from patients, customers, physicians and clinicians – and let’s not forget escalating competition – we need to stop the insanity to ensure the problems of the past aren’t continually replicated in the next generation of healthcare solutions.

For healthcare industry improvement or transformation initiatives to succeed, we need methodologies. We need qualified staff to help guide and manage the projects over a multi-year period. And we need to deal with unplanned turnover, inflexible contracts that don’t allow for any change in the client’s strategic direction, ever-shrinking budgets, and the client’s desire to finally have measurable outcomes. So, assuming both sides want to deal in an environment of honesty and candor, and both parties have strong resources, why do we continue to fail? One single word – misalignment.

Misalignment occurs between clients and providers due to differences in objectives, priorities, and performance. For example, if the provider thinks the major objectives are cost and capital expense avoidance, and the client thinks improved service quality, skills and innovation, and time to delivery are the critical success factors, we have misalignment. And the result is relationship tension that can ultimately derail the engagement. Yes, in a perfect world each party knows the other’s objectives. But we don’t live in a perfect world, and so this doesn’t happen often. Combine that issue with the changing landscape the client deals with over a multi-year engagement, e.g., acquisitions, new product offerings, strategic changes in direction, etc., and the relationship can explode quickly. And even if the two parties agree on the business objectives, it does not mean they both give them the same priorities. For example, I know of one particular instance in which the client wanted significant focus on innovation and meeting strategic objectives, while the supplier felt it was doing its job by using low-rate resources. Without understanding these types of gaps, how can we fix the misalignment? We can’t!

We’ve heard similar discussions before, and each fix had a methodology or clever name. But few were implemented, and even fewer were successful. The result is continuation of Einstein’s definition of insanity. As we deal with next generation solutions for the healthcare industry, let’s get sane and change the results by viewing large, complex or strategic engagements from a holistic point of view.

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