Tag: outsourcing

Lessons from IBM | Sherpas in Blue Shirts

Have you noticed how few service providers have the ability maintain a market leader role when the market changes to favor new technologies, or new service models? It’s very difficult to make this shift, and I’ve seen very few companies achieve the shift – let alone do it three times. Just one. Wow!

If we look back at the service provider landscape in the early 1990s in the classic outsourcing space, the leaders in the service industry were Accenture, CSC, EDS, IBM, and Perot.

Then the growth opportunities shifted to the labor arbitrage model in the late 1990s and early 2000s. Suddenly the group of leaders changed to Accenture, Cognizant, IBM, Infosys, and Wipro.

Now as we move away from those classic leaders and shift to the new models (SaaS, BPaaS, platforms, and consumption-based), there are three leaders: ADP, IBM, and Salesforce.

Lessons from IBM

Looking back at the market leaders over the years, some have disappeared, as the figure above illustrates. EDS is now owned by HP, Perot is owned by Dell, and ACS is owned by Xerox. What stands out in the graph is that only one company has been able to consistently shift when the market shifts – IBM.

How have they managed to do this? Here are some lessons we can learn from Big Blue.

  1. Be willing to divest. IBM has been absolutely ruthless and relentless in forcing itself to divest businesses that constrain the firm and prevent them from successfully moving into the markets.
  2. I blogged about the noise in social media earlier this year about IBM’s potential layoffs and explained it was a reskilling issue. I think this is yet another example of the firm having the discipline to take the medicine and do the things that allow it to succeed and maintain a leadership position.
  3. Buy, don’t build. IBM’s approach to entering new markets is often through acquisitions. The firm is quite willing to learn from others and leverage an existing business. IBM recognizes that business models are different, and it’s very difficult to build a new business model inside of the old one. Therefore, they buy new companies.
  4. Protect new businesses. After acquiring a company, IBM protects that business. They incubate them and allow them to grow. In the last two years, IBM launched two new divisions: analytics (Watson) and cloud. The firm pulls those businesses out of the rest of the company and connects the R&D to Big Blue’s customers in a tight loop. It also protects these businesses from IBM’s mainstream businesses, which would tend to prey on them and inhibit their progress.

These four strategies have enabled IBM to maintain market leadership despite market shifts. They stand out as lessons for other firms seeking to stay relevant and stay in leadership positions in the market.


Photo credit: Flickr

Monkey Poop & the INR 500 Shoe Shine: Lessons in Value for Outsourcing? | Sherpas in Blue Shirts

“Sir, sir – a monkey pooped on your shoe!” was the first thing that brought my attention to the large, wet mound on my casual walking shoe.

Not a convenient development when walking around Connaught Place in New Delhi.

Interestingly, the next thing I heard was “Shoe shine – only 500.”

Despite the jet lag, I was able to immediately recognize the scam. The fact that the same person who pointed out the poop before I noticed it also happened to have a shoe shine kit was a pretty good clue. Never did see the accused monkey, although I strongly suspect it was actually the person who I begrudgingly paid INR 500 for that shoe clean-up and shine!

I filed it away as a humorous lesson and forgot about it until mentioning it some colleagues in our India office the next week. They were aghast and surprised that I would pay so much for the shoe service (about US$10 at the time, and 20% of the value of the shoes – which I had never previously considered deserving of a shine). From their perspective, I had paid far above market value (10-15 times the market rate) and should have negotiated the price down. From my perspective, I had no idea of the market price and just wanted the issue fixed quickly despite knowing the painful truth that the source of the problem was also the solution to the problem.

I was recently reflecting on this for reasons completely unknown to me (er, might have come about while changing a baby diaper…you get the idea). I was struck by the fact that my colleagues, the shoe shiner, and I all had different thoughts upon the value exchange. In an effort to demonstrate exactly how much I over-analyze life, I distilled this to three lessons.

1. Value is relative

The shoe shine from my perspective cost US$10 and allowed me to get back to enjoying the sights and sounds of Delhi. Frustrating, but well worth the money from a functional perspective that had nothing to do with the shoes themselves, but rather to remove a nuisance and enable me to do other things. From my colleagues’ perspective, it was 10x the market rate. From my experience, it was about 2X the market rate (US$5) in the U.S., so I did not mind the rate too much. If I had been asked to pay 10X the U.S. rate or US$50, I would have resisted and likely gone ballistic. For the shoe shiner, ignoring raw material costs of the poop, it was tremendous profit and a highly valuable exchange.

Depending upon one’s perspective, the financial price of a value exchange and the utility from the value are viewed differently.

No wonder we struggle to put a price to value in outsourcing!

2. Attribution of value creation is contextual

Although the shoe shiner definitely helped solve the issue and did so quickly, I could not be pleased with the value received; the context of the need for the services completely undermined his shoe shining contribution.

If this had not been a scam and I accidentally stepped into something and a shoe shiner happened to be nearby and solved the issue, then I would have thanked him profusely and happily paid the INR 500. However, instead of thanking him, I left grumbling and scowling because of the context in how the value was created for me.

In other words, if you cause the problem, your perceived value in solving the problem is less than if you solve problems created by others.

3. Perception of value is as much about experience as results

After starting to reflect on this, I pulled out these old shoes (see photo), which I have not worn much in recent years. Ironically, they look pretty good. In fact, I believe the leather is softer and better looking than when I first bought them. They have also avoided collecting as much dust as before the unplanned shoe shine.

In other words, they benefited from the shoe shine and it appears to have been a decent shoe shine.

But I can’t give the shoe shiner any credit for this because the experience was such a turn-off.

So, solve the problem, but also ensure the experience of problem resolution is appreciated by the recipient.

Outsourcing is fundamentally a service provided by one complex organization to another complex organization. The situation is ripe with many factors (mis-communications, mis-aligned stakeholders, budget pressures, turnover, etc.) to limit the chance for perceived value exchange between organizations. Although we need to ensure the work completed creates value, we should not forgot that how we treat each other and manage our interactions can completely undermine the appreciation of value. If you solve a problem, don’t expect credit if you created the problem – solve problems beyond your scope. If you solve a problem, don’t expect much credit if the experience is suboptimal – own the problem and the service experience.

Is the Services Industry in Decline? | Sherpas in Blue Shirts

Information Services Group (ISG) publishes a quarterly “ISG Outsourcing Index,” which is widely read in the services industry. Q1 2015 wasn’t a pretty picture. The Americas saw a modest 10 percent gain in ACV, and India/South Asia showed strong. But the rest of the world took a bullet, so to speak; EMEA’s ACV declined by 25 percent, Asia Pacific by 45 percent, and Australia/New Zealand had one of the weakest quarters in a decade. So the modest gains are dramatically offset by large losses elsewhere. This is further evidence of what I’ve been blogging about for some time – the industry is at an inflection point and preparing to shift. Let’s look at where the shift is headed.

But, first, a word of caution. We at Everest Group stopped publishing our index based on publicly announced deals many years ago because we found the data was inherently flawed. If all you use is publicly announced deals, you’re only looking at the large transactions and only some of those because many deals are not published. The next-generation deals and smaller deals are typically not announced. So the data is inherently noisy. Having said that, there is some value to looking at what’s happening in publicly announced deals. As such, the ISG Outsourcing Index is as good as any.

Four themes in today’s market 

The services industry is now in a mature state. As such, it has four major characteristics or themes in what’s happening:

  1. Affected by economic cycles
  2. Brownfield deals
  3. Pricing pressures
  4. Shift toward smaller transactions

Cyclical impact. As a mature industry, the services business is affected by the cyclical economy to a much larger degree than it has been in the last 15 years. To wit, where we have a growing economy in North America, the industry has share increases; where there are struggling economies in the rest of the world, the industry has share and ACV decreases.

Brownfield deals. The services world now is largely defined as brownfield deals in that the majority of activity is recompeting existing scope rather than capturing new scope. In this world, awards are smaller transactions for shorter durations.

Pricing pressures. In a recent blog post, I detailed the pricing pressures now hitting service providers and resulting in a major downward spiral and pricing wars. The ISG data also reported the downward-pricing situation. Brownfield deals also exacerbate this situation as they’re hinged on winning recompetes with existing customers, which are intent on driving prices down.

Shift toward smaller transactions. In addition to the brownfield impact there is an uneasiness in the market due to customers’ desire to break up current deals and shift to next-generation models that are automation based, as-a-service or digital. We see this movement clearly as we look at the unannounced deals that we track at Everest Group. Our observation is that these unannounced deals are taking share but with small ACV awards.

This phenomenon is particularly prevalent in the infrastructure martketplace, where there has been a secular shift from large, bundled, asset-heavy transactions to asset-light, unbundled transactions with shorter duration. The emerging markets of cloud computing and as-a-service accelerate this movement. Finally, we see tangible evidence of enterprises preparing to make large-scale shifts to cloud by adopting shorter, more flexible transaction structures for their legacy infrastructure and applications.

Bottom line

The industry faces the prospect of a maturing market impacted by economic cycles, pricing pressures, brownfield focus, and customers shifting to new models. The good news is that the new models and technologies are growth areas for the industry. However, these deals are smaller and are not usually announced deals and therefore don’t show up in the ISG Index.

Seven Steps to Successful Sole Sourcing | Sherpas in Blue Shirts

Sole sourcing can deliver multiple benefits, including reduced cost- and time-to-decision, elimination of the need to manage a large portfolio of providers, and likelihood of reaping greater value from a closer relationship with a single services delivery partner. Yet the sole-source process can quickly unravel if not carefully designed and managed by the buyer, even (or perhaps, especially) when a strong relationship between the buyer and provider already exists.

Several factors are critical to sole sourcing success. 

Deepen the relationship

While mutual respect, aligned interests, commitment, and trust are critical in any outsourcing relationship, they assume greater importance in a sole-source situation. Why? Buyers look to sole source to achieve collaborative, insights-based solutions, rather than merely receiving a table stakes collection of transactions. Buyers achieve this by openly sharing their desired outcomes and concerns, and building an outcomes-focused, value-oriented foundation during the solutioning and negotiation process. This depth of relationship must be nurtured throughout the tenure of the engagement. This applies whether looking to transform the relationship or simply update it. Alignment of both organizations to the objectives is key to a successful sole-source.

Engage senior leadership

Senior leadership from both the buyer and supplier need to set the initial goals for the relationship as they deepen it, and then continue to reinforce the desired outcomes to their teams throughout the sole sourcing process. Institutionalizing these objectives will ensure that they become the parameters that guide behavior in all interactions. This takes significant and persistent effort at all levels, and will require some spot coaching to realign team members who fall back to the old ways of doing things.

Get approvals early and often

Given their role as stewards of an enterprise’s activities, boards of directors may balk at the idea of sole sourcing. To avoid delays and additional fact gathering expenses – and even the requirement to tender an RFP to multiple providers – the buyer should present the opportunity to its board as early as possible in the process. The buyer must understand the concerns the board might have around the value of a competitive process, and address them through external benchmarking, leveraging current market information about suppliers and services, and a thorough understanding of the value of the current relationship. An early confirmation from the board that this is worth considering will avoid wasting time, resources, money, and momentum.  

Don’t boil the ocean

As one of the key advantages of sole sourcing is time-to-execution of the agreement, buyers need to focus on three factors during the sourcing process: a strong, solid, and accurate business case that is easily explained to the organization; confidence (through benchmarking and external validation) that the service provider, scope, and pricing are market-competitive and aligned to the desired outcomes; and a robust contract that focuses negotiations on the most relevant terms.

Develop a robust business case

To attain buy-in from senior leadership, the board, and the overall organization, the buyer’s business case must include: a baseline to demonstrate the full current service delivery costs; projections for the contract duration; dynamic modeling for real-time solutioning; an accounting of direct cost, business, and strategic benefits; and multi-dimensional risk measures. The business case must include a comparison to a competitive process, ensuring that the organization understands the value of the sole-source. And while it must cover all these bases, the resulting information must be presented in a clear, simple, direct, and compelling manner.

Compare to ensure value

The onus is on the buyer to ensure that the scope, pricing, and value are reasonable. As the buyer, you need to know what you want from the provider’s services, and how they’ll help you achieve your goals. After analyzing all through a market-comparative lens, you should work hand-in-hand with the provider to set specific (and quantifiable!) solution targets, making it clear that under-achieved goals may re-open a multi-provider sourcing process.

Focus the contract and negotiations on truly important factors

By taking ownership of the engagement process to set specific milestones and goals, the buyer maintains control of the decision and problem solving involved in reaching the goal, and eliminates any ambiguities relating to timing, scope, responsibilities, metrics, and targets. But a bit of buyer beware: Everest Group has identified 31 relevant contractual terms that sourcing negotiations should address.

For more specifics on attaining sole-sourcing success, please read our paper, “Sole Source Outsourcing – Ensuring a Successful Outcome.”

How can we engage?

Please let us know how we can help you on your journey.

Contact Us

  • Please review our Privacy Notice and check the box below to consent to the use of Personal Data that you provide.