lost in translation: unique issues in tech vendor
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Lost in TranslationLost in Translation
Unique issues in tech vendor outsourcing
Vinnie Mirchandani
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Speaker ProfileSpeaker Profile• Ex Gartner analyst, PwC consultanty• Founder of Deal Architect, advisory firm which helps
buyers (corporations and vendors) in technology sourcing and negotiationssourcing and negotiations
• Over $ 5 billion in technology transaction experience• Writes two technology blogs – Deal Architect and
N Fl N R i hi h k ithNew Florence, New Renaissance which keep up with technology trends around world
• Exposure to number of global sourcing locations and g gissues
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30+ years of outsourcing has t ht f thitaught us a few things Whichgeography?
Inputs from multiple sourcesHR, legal, PR, others?
BCP, I.P protection, HR practices,
S i Communi- Detailed C V d D P tf li1 2 3 4 5 6 7
g g p yWhich vendor types?
Which roles tooutsource:
g HR practices, reference calls
Planning Sourcingstrategy
Communications Strategy
Detailed Require-ments
ComposeRFP
Vendor Duediligence
PortfolioRefinement
P G V d8 9 11 12 1310
outsource:Maintenance?QA?Innovation?
Processmanage-
ment
Govern-ance
models
Detailed Negotiations
Impactanalysis
Statementsof work
Vendormanage-
ment
Onsite, offsite,offshore transition plans
Rates, SLAs,Staff levels, staff mix
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Vendor CTO versus Corporate CIO O t iCIO Outsourcing
• 5 years versus 30+ years outsourcing experiencey y g p• Tech vertical less than 5% of total outsourcing• Still grudging acceptance by vendor CTOs, vendor
procurement/contracting maturity weak captives stillprocurement/contracting maturity weak – captives still preferred model
• Supplier/location decisions often driven by VC l ti hi “ t i ti ” f t t f lrelationships or “repatriation” factors, not formal
evaluations• Niche, but geographically broader supplier baseg g y• More willing to look at newer talent models like
communities
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Tech talent poolsp• Till recently, tech sector has
lagged its customers in use of global labor poolsglobal labor pools
– GE and 70/70/70 – Several banks with thousands of head
count offshore• Changing rapidly• Changing rapidly
– Most startups last few years have had global delivery baked in to business plans
– IBM Accenture Oracle – 3 of the biggestIBM, Accenture, Oracle 3 of the biggest employers in India now
• But preference for captives– In most sectors, outsourced global
resources far exceed captive resourcesresources far exceed captive resources– In tech, reverse e.g. Oracle bought out
outsource contracts after PeopleSoft acquisition
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Captives – the justifications and the realitiesand the realities
• Product is lifeblood– True, but focus on core, not context. Plenty of
development testing maintenance activities can bedevelopment, testing, maintenance activities can be outsourced
– Captives often run by executives whose prime qualification is they are repatriating to offshore location
• IP Risks of Outsourcing– Lots of contractual, tactical risk mitigation techniques g
have emerged• Large outsource margins
– Undocumented cost of slower ramp ups and recruiting challenges at captives
– Staff Productivity at captives often lags those of outsourcers Captives are also prime raiding ground foroutsourcers Captives are also prime raiding ground for product centric outsourcers
• Cultural differences with services firms– True of larger outsource firms, but specialists focused
on ISVs like Symphony and CSS are typically much more culturally aligned
• Most outsourcers leverage India which has• Most outsourcers leverage India which has turnover, inflation issues
– Plenty of E. European, China and S. American choices emerging
– Major outsourcers themselves hedging India bets
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Outsourcing – also hard work
• In spite of scale, economics an issue– Size, repetition economies not passed through, p p g– Reluctant automation
• Vendor Management not a core competence for most companies
– Takes governance, service level management and legal skill setsand legal skill sets
– Concern of getting “lost” in outsourcer’s list of customers
• Staffing inconsistency– Junior staff, typically lack of functional/process
skills rapid turnover in some marketsskills, rapid turnover in some markets– Core competence often IT support, not product
development• Outsourcing market itself in considerable
churnU ili i S S f i l ffi– Utility computing, SaaS, fractional staffing, service “productizing” expectations
– Global diversification a challenge for most outsourcers – considerable upheavals
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Too global for most vendors?1 S CType 1 – US Centric vendors Type 2 – Large India centric vendors
Type 3 – Mid-tier Indian/US Type 4 – Other country reps
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Next gen talent sourcingg g• Hybrid Outsourcing Models
– Build/Operate/Transfer – concept not new, but newer wrinkles emergingg g
– Hire to Spec options– “Rural” Sourcing as a option to get over
hassles of time zones, travel fatigue, accents• “Micro-nationals”
– Emergence of new start-ups with key executives who are nationals of different countries around the world. They then drive local talent sourcing
• CommunitiesCommunities– Open Source successes– SAP’s SDN – over million members. Q&A
response within 30 minutes. Shai Agassi: “I wish our support channels were that effective”
• Crowdsourcing– Amazon’s “Mechanical Turk”– uTest – open testing community
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Outsourcing in tech world often gets off to bad startoften gets off to bad start
• Religious war number 1g– Captive versus outsource
• Religious war number 2– Core versus context – what toCore versus context what to
keep in-house– Maintenance, QA, Innovation?
• Religious war number 3• Religious war number 3– Country choice – the
“repatriation” influence– Vendor choice – often pollutedVendor choice often polluted
by VC/partnering considerations
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And can end up with many points f f ilof failure
Someone’s second cousin’s outsourcing
Vague Statement ofWork Inadequate
Business Continuityand other Risks
S i Communi- Detailed C V d D P tf li1 2 3 4 5 6 7
cousin s outsourcing firm
Ill defined
Work. Inadequate Legal review
and other Risks
Planning Sourcingstrategy
Communications Strategy
Detailed Require-ments
ComposeRFP
Vendor Duediligence
PortfolioRefinement
P G V d8 9 11 12 1310
Ill defined scope
Processmanage-
ment
Govern-ance
models
Detailed Negotiations
Impactanalysis
Statementsof work
Vendormanage-
ment
“Twilight Time Zone”
Disappointing Economics
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SaaS and BPO will mature d t l t t t ivendor talent strategies
• As customers push SLAs, businessAs customers push SLAs, business continuity standards on SaaS vendors
• As software vendors partnerAs software vendors partner with/compete against BPO vendors
• As cloud computing becomes moreAs cloud computing becomes more pervasive
• Tech vendors will apply similar rigor toTech vendors will apply similar rigor to their own talent/outsourcing models
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In SummaryIn Summary
• Easy to point fingers on why talentEasy to point fingers on why talent strategies and outsourcing contracts fail
• The reality is there are too many pathsThe reality is there are too many paths and choices and not enough experience in the communityy
• Tech world is trying to learn in 5 years what the corporate world has been ptrying for 30+ years