Established Outsourcing Providers Lose Market Share in the DACH Region

The latest findings from a report on "Sourcing trends and Supplier positioning in Germany, Austria and Switzerland" by the market research firm Pierre Audoin Consultants (PAC) state that sales from IT outsourcing services will have increased by approximately EUR 4.5 billion in the DACH region (German- speaking nations) in 2010 compared to 2005.

Key Highlights of the Report

The top 5 providers account for nearly 45 percent of the market in Germany; and 70 percent in Austria. The remainder of the market is highly fragmented, with the number of outsourcing providers approaching 100 in the DACH region alone

• In the overall DACH region, IBM ranks first, closely followed by T-Systems. HP, Siemens SIS and Atos Origin
• In the Swiss market, IBM leads with a market share of nearly 19 percent, followed by Swisscom IT Services, HP and T-Systems. Accenture and CSC rank 5th and 6th
• In Austria, Siemens SIS - with a market share of 23 percent - is clearly ahead of its major competitors, IBM, Raiffeisen Informatik, HP, and T-Systems
• In Germany - by far the biggest market - T-Systems ranks first, with a market share of almost 13 percent, closely followed by IBM. HP, Siemens SIS, Atos Origin and Fujitsu are the challengers
• Infosys, an Indian player, has made it into the top 20 outsourcing providers in the DACH region. In Switzerland, the company even ranks 7th
• HP has gained quite some share in all markets after taking over EDS
• IBM has maintained its positioning in Austria and Germany since 2005, while slightly losing market share in Switzerland
• Swisscom IT Services has improved its position in its home market, Switzerland
• Capgemini’s market position has remained largely unchanged over the period in question
• Accenture, Computacenter or Wincor Nixdorf in Germany have gained market share
• In Switzerland as many as four India-based players (Infosys, TCS, Mahindra Satyamand Wipro) are among the top 20 outsourcing providers

https://www.pac-online.com/pac/pac/live/pac_world/global/press_corner/press_releases/index.html?lenya.usecase=show-rapport&document=pac_sitsi_reports/press_release/DE_Outsourcing_Program_SuppPos_EN_PR1008&xsl=press_release

Even after the frequent reinforcements of the fundamental principles that are inevitable for outsourcing success, most buyers and providers fall short of realizing 100% outsourcing success. What makes it happen? Here is a quick overview:

SLA’s – Are they realistic?

The buyer needs to find out whether the SLA’s laid in the contract are really attainable in the buyer organization or are they just wishful thinking? Often as it happens in most of the standard practices followed by the buyer, there are generic SLA’s in every contract of his. However rarerly or occasionally does the buyer performs a benchmarking exercise of the contractual SLA’s with his organization. A benchmarking exercise will enable the buyer to see which SLA’s are actually pertinent to the contract and which are not. Removing the redundant SLA’s and limiting the contract to valid SLA’s fine-tunes the overall scope of the contract and makes it easier for both the buyer and his provider to interpret and to implement them.

Pricing Model - kinks in a garden hose

The pricing model agreed with the provider is a key determinant of outsourcing relationship success.  However a rigid pricing model can act as a kink in a garden hose and can obstruct the desired flow of services. Consider the following example:

A UK based firm entered into a contract with one of the established application development firm.  The pricing model agreed upon was more like “as-is scenario” but failed to consider “what-if scenario”. As the buyer’s business grew after the contract was signed, it had new set of requirements with changing business needs. It expected its current provider to meet those needs. But the provider didn’t dedicate money and resources to provide added value. The reason - the pricing model in the outsourcing relationship was not configured to motivate the provider to deliver such services.

A good pricing model should be flexible and be adaptive to evolving needs of both the buyer his supplier.  It should also act as a mean of addressing operational and relationship issues. For instance, the earlier buyer and his provider could have negotiated a pricing model, which involved buyer paying a base rate to the provider for the standard services and a differential rate for value-added, ad hoc services with some of the value-added funding in advance and remaining/ or add-on year over year. This kind of pricing model ensures transparency in its cost elements. Hence, the buyer gets the level of services he wants with the added benefit of getting decreased prices over subsequent years for the standard services; and the service provider gets increased revenues with increased scope and minimized financial risk when the scope changes.

More to be continued in our next blog…

Remember the saying? Don't fix what's not broken? Well, when it comes to Outsourcing, that saying certainly applies but only partially. That's because Outsourcing may not be needed to fix a broken process or methodogy at your company, but it may be needed to save operational costs. So although something is not broken, the need has changed where a lower-cost option may be necessary for your business to be viable.

Having said that, companies considering outsourcing still need to know what they should outsource and why they are considering outsourcing before they go about outsourcing. That's because knowing your goals will help determine the success or failure your outsourcing venture.

More than 50% of outsourcing projects are deemed a failure because they either never achieve what they set out to or because they weren't fully defined and given the correct care, before and after.

So here are the why, what, hows to keep in mind when considering outsourcing:

• The Why: Why are you outsourcing? Are you outsourcing to get speed to market? Or is it that you need scalability and additional expertise that is not currently available in-house? Is it because you need globalization? Or is it simply just a cost savings initiative?
  
  
• The What: Are you outsourcing a particular department? Or is it that you are only outsourcing certain tasks from within one department. Is it a complete outsourced business unit? Is it an additional line of business that you will begin offering prospective customers and instead of developing it in-house, you are outsourcing it and buying it just to resell? 
  
  
• The How: How will you handle the day to day management of the outsourced relationship? How will you ensure communication channels remain open and processes are followed? Do you have service level agreements (SLA's) to manage performance? Will supplier provide monthly reports?
   
  

Once these are understood, understand one more thing. Outsourcing negotiations are important but have you negotiated a good deal which helps your vendor remain viable and still allows you to meet your financial objectives? Remember, you don't want your vendor going out of business because you were a tough negotiator.
 
The above reasons make it almost imperative that you have a third-party Outsourcing Advisor to help you with your project. These Third-Party Outsourcing Advisors can help you not only create a good relationship but also manage it and provide oversight to it over the long-term.
 
Outsourcing Advisors create a more level playing field between the outsourcing client and the outsourcing vendor. They also focus on keeping your company's interests at the forefront while keeping both parties honest. 

Continuing our previous blog about finding the best Outsourcing Advisor for your company..........

• References matter: Choosing an Outsourcing Advisor without checking their references is not very advisable. In this day and age of the plethora of choices available, finding the right candidate needs to be validated with the success achieved by that person in earlier situations.Talking directly to the Outsourcing Advisors previous clients is important because they would be the ones to verify if the advisor in question has what you need.
  
  
• Include toolbox review: Experienced sourcing advisors bring with them tried methodologies, processes, and tools which help them help you. So ask your Outsourcing Advisor about the tools in his or her toolbox. How developed are they, which tools are used in what stage of the process, etc. etc. are all good questions to ask.Will the Outsourcing advisor stick to only those tools or will they also bring creativity and flexibility by adding new tools to fit your needs?
  
  
• Ensure impartiality: It doesn't need to be said but if we don't say it, we'd be remiss. You know that your Outsourcing Advisor must also truly be an INDEPENDENT third-party.That means that he/she should have NO conflict of interest when it comes to the vendors that he or she is proposing for your consideration. Since the Outsourcing Advisor is there to meet  your goals, he/she should not become too close to the vendors being considered for the work and should always be working towards your interests. 

In summary, the best sourcing advisor is one who understands and works to create a win-win between both parties. While ensuring that they meet your goals, they should still be able to facilitate good relationships with the vendors in questions, be able to resolve risks and be able to constructively find solutons that allow both parties to succeed. The minute the relationship becomes one-sided or favorable to only one side, the entire project may be in jeopardy.

If you are seeking an Outsourcing Advisory, we hope you will check out our Outsourcing Advisory services! 

There's a lot of dialog about outsourcing and selecting outsourced partners but little if any dialog takes place around the need to retain an Outsourcing Advisor who can help with the entire Outsourcing setup and management. When companies decide to outsource, selecting an outsourcing advisory firm (like ours - :)) is critical to the success of the process.

So what does an outsourcing advisor do?

Well, outsourcing relationships are complex and especially when the team tasked with finding the right partner has never done this type of due diligence before. Vendors are of course going to want contracts put in place that are favorable to them. Companies sometimes don't even know the questions to ask when dealing with an outsourced vendor. That's when an independent third-party can help.

However choosing the right sourcing advisor may be difficult. Do you go for the big-dogs or do you go for a smaller company? Advantages and disadvantages of choosing the right sourcing advisor range from not being cost-effective, lacking experience, lacking depth of knowledge, or being such a big dog that your firm doesn't receive the adequate hand-holding necessary.

Here are some guidelines to follow when evaluating Sourcing Advisors:

• Big versus small: Big names may sound attractive but sometimes smaller firms, albeit one's with experience, can be a better choice. A big name advisor may charge you a lot of money and may not always fit your needs. A smaller boutique firm on the other hand may be more affordable and may work with you closer to help you achieve your goals. Smaller firms may not have the depth of knowledge though so do your due-diligenceand look at small and large firms to select the best fit for your company.
  
  
• Define your goals: You need to define your goals before you bring in a sourcing advisor so that your goals are the reason for the project and not the other way around. You may need to save money or you may want to focus on core internal skills, outsourcing simply to leverage external expertise or it may be a combination of those two and other goals. Whatever they may be, get them defined up front so that your goals are known to the advisor before you select one.
  
  
• Get the right individual assigned to your project: So it's not just important to hire the right firm. You need to also make sure that the person/persons assigned to you fit your needs and the "synergy" so to speak is there between them and your team. It's important to have chemistry between the advisor and the internal project team because without that, the team may end up at odds with the internal advisor making things rough when the external teams come into the picture.Most importantly, make sure that the company doesn't assign a rookie who has never led a project similar to yours. 

Continue reading the guidelines in our next week's blog.....choosing an Outsourcing Advisor Part II

Vendor Management Office or VMO, as many put it across is a framework for managing and governing your outsourcing vendors and to ensure that your desired business outcomes are achieved through your outsourcing efforts. However certain factors when not taken care of can hinder your efforts in setting up an agile and flexible vendor governance framework. Let’s look at the most prominent ones:

SLA Maze – Often SLAs are too many, generic, and are not properly spelt out that makes it difficult for both client and the vendor to understand and execute them.

Communication Barrier – Most of the times we only see top-down communication that involves senior management and executives. Bottom-up communication that generally involves technical team responsible for execution and delivery is either missing or given a secondary treatment. Thus organizations fail to have a two sided view of their contracts.

What about Qualitative Outcomes? – KRAs/ KPIs (Key Result Areas/ Key Performance Indicators) are employed to assess vendor performance, these metrics measure and track quantitative outcomes of the outsourcing contract but leave the qualitative facet of the contract that are important to your organization. Qualitative outcomes such as customer/ employee satisfaction, stakeholder expectation, client-vendor expectation mismatch, long term relationship with the vendor are indispensable for the maximum contract value realization.

Endless Meetings – Does carrying on innumerable, lengthy meetings yield the expected results? Not always. Most often the result of these meetings is ever piling cumbersome status reports that further complicate the overall project and load the project personnel.

Lack of a single consistent tool for measuring the Vendor performance – Manual or partially automated processes do not fully monitor the vendor performance and lack an ongoing vendor review. They demand considerable time of project personnel in feeding data and extracting and interpreting results.

Proof of Concept - More often than not clients seek value, but fail to ask for a proof firsthand, a demo of the system/ infrastructure/ application at the client premises with the help of client “people and data” is not always run by the vendor beforehand.

Vendor Selection and Negotiation - Negotiate with the top two. After evaluating multiple vendors, carry out contract negotiations with the final two, and not just the final one. This increases competition and chances of getting a vendor with the top choice.

Keeping Compliance out of Contract – Client often overlook whether the offered product by his vendor is compliant to all legislations and regulations. Once the product is implemented at the client end, any compliance risk and cost of non compliance may have to be borne by the client and can affect the product performance.

Infrequent Vendor Evaluations – Most organizations carry out vendor evaluations at randomly defined periods. The period may be monthly, quarterly, annually or at the start, somewhere middle, and the end of contract. More frequent evaluations may result in weekly or monthly evaluations. Lack of well thought out ongoing evaluations leads to overlooking performance inefficiencies and required improvement areas.

Don’t buy Solution, buy Features – A solution is a broad-based term. Often 70% of the solution is generalized and 50% is customized to the client needs. However this may lead to a client paying for the features which are not of use to him.

Most of the outsourcing contracts are in troubled waters right from the start of the contract. In spite of lengthy vendor selection, contract negotiation process, and abundant contract agreement clauses, they don’t achieve the expected business objectives both from the client and vendor side. What makes these outsourcing contracts fail? Some of the main problems facing failed relationships are:

Unclear Expectations on Client front

Client lacks a clear picture in mind as to what are the business objectives that are to be achieved through this contract. The contract outcome is measured in terms of service level agreements which are quantitative and rigid and does not consider the qualitative aspects. They leave other important parameters for measuring the real value such as business process optimization, risk mitigation, change management plan, innovation etc. In addition, processes followed for contract implementation are not clearly defined and mapped out.

Poor Cultural Fit

Cultural incompatibility between the vendor and the client is another major factor for the relationship failure. The corporate culture of both the client and the vendor might not be similar in aspects related to decision making, risk appetite, and way of communicating. One company may be risk-minded and a slow decision maker while the other can be agile and accustomed to making proactive decisions. The cultural differences are escalated to contract implementation differences due to different approaches followed by each of these companies.

Information Exchange Barrier

Vendor and the client do not proactively share necessary information with each other. Client does not disclose all relevant information to enable the vendor to accurately assess the business requirements at the start. Both parties share information reactively and not openly, proactively.  

Communication Barrier

Multiple official and unofficial communications drive any kind of work. The end result does not depend as much on the official communications than on the unofficial ones. The unofficial communications help assure that the task requirements are accurately conveyed to the concerned people. In failed outsourcing contracts, all of these unofficial relationships are given an afterthought. People don’t communicate very well and all communication flows through relatively few authorized channels. Hence rather than people constantly interacting with others who better understand the work, directions are passed down a chain of people who don’t understand them. The end result is costly mistakes. The more complicated the web of unofficial communications, the bigger the adverse impact on outsourcing will be.

Poor Working Relationship

The partners do not have a trusting working relationship where they understand each other's expectations and motivations, and can engage in good dialogue.

Deal Inflexibility

Vendor lacks flexibility and is unable to meet client's changing needs. The parties' interests were aligned at the beginning of the contract but became misaligned as the client's business environment or needs changed. Vendor is not committed to the ongoing change management effort necessary for success and wants the client to adjust the solution rather than incorporating requisite changes.

Poor Governance Structure

Governance problems are cited as the reason for failure for 80 per cent of outsourcing contracts. Most relationships fail because they lack “effective vendor governance structure” for managing the ongoing relationship and ensuring that the outsourcing efforts meet both the vendor’s and client’s goals. The reporting structures followed are ineffective with “information overload” and "frequently missed" performance items. Senior management spends most time reading reports without giving attention to items that matter most.

Poor Vendor Performance

The vendor fairs poorly against the agreed service level agreements. Certain services/solutions that the vendor initially committed didn't actually happen; or the vendor in one or more instances did not treat some of the important aspects of the contract in an honest, up-front manner.

The bottom line is

An outsourcing relationship should be built on mutually beneficial goals and with a highly effective vendor management and vendor governance structure that facilitates collaboration, visibility, and realigned interests. Otherwise, the relationship health will suffer and the relationship will ultimately fail. The partners should establish a structure for open communication and should create rules for having regular discussions about the relationship, its progress, issues faced and resolution procedures. By dealing with issues before they become problems, the likelihood of relationship success rises dramatically.

Seeking an outsourcing partner is not easy. Navigating through the cultural, geographic, and timezone issues, not to mention the time necessary to do the appropriate due-diligence from selection to negotiating the best contract is all time consuming work.

Here are two key reasons we believe you need an oursourcing advisor to help you:

1. Reducing the time to market: Outsourcing partner selection can be a long drawn out process, sometimes taking 12 to 14 months from start to finish. Your team may not have the time or the expertise in dealing with vendors in a foreign country. They may also not have the market knowledge or the experience in negotiating an outsourcing contract of such a magnitude. An outsourcing advisor can help cut through the government red-tape, bring in prior experience, and also help negotiate a contract that is more in tune with local market rates. A sourcing advisor in essence, levels the playing field due to market knowledge in this domain.
   
   
2. Ongoing contract management:Once negotiated, many contracts become obsolete within the first year or two due to multiple reasons but primarily due to changing scope, new skill set requirements, etc. An outsourcing advisor can make sure that contracts are kept up to date with continuous review and updates to ensure that you benefit from ongoing, recurring savings on your outsourcing investment.

A sourcing advisor who hand-holds you through that process can bring in significant value in many ways, including monetary savings in the long run. Contact us today to see how we can help you benefit from our outsourcing advisory services.

When it comes to evaluating offshoring options, most companies are rarely clear as to what to outsource. Outsourcing opportunities include improving business process, reducing cost, implementing better technology processes or solutions, and also evaluating overall business goals to reduce all non-core activities.

A lot of outsourcing projects fail because companies fail to set out with clear objectives and goals. The perfect company profile that can benefit from outsourcing is one that is a mid-sized company that has a small staff of individuals and that heavily relies on freelancers and project based resources to get projects done as they come up. These companies are trying to do it all, from software buying decisions to procuring hardware, infrastructure setup, and implementing different solutions to handle different needs.

These companies are hard-pressed to find qualified people at affordable cost. So they end up spending hundreds of thousands of dollars buying solutions that are mixed and matched but that are not clearly planned or strategized for long-term use.
So how can such companies benefit from outsourcing?

Well, they can hire an outsourced consultant who can review current spend, current processes, and identify areas where there is an opportunity to handle the work remotely. A qualified and experienced consultant would provide a comprehensive plan which includes short-term and long-term benefits or improvement of process and the bottom-line.

 Using the consultant’s recommendations, companies can begin to see an improvement in the bottom-line through the reduction of hardware and software expenditures as well as through better throughput and efficiency of processes.

So when should you begin looking for an Outsourcing Advisor to help your company evaluate outsourcing options and benefits.

Many companies are going through internal evaluations constantly in an effort to increase efficiency, decrease cost, and increase revenue. At some point, they come to the realization that outsourcing may be the best way to gain new skills and processes or create more efficiency.

An advisory team made up of outsourcing experts can help companies facing the following challenges:

When you are spending too much time running your business rather than growing the business:

Is everything an emergency? Are you fighting fires every day because something didn't get done or didn't get done properly? When you become so embroiled in the day to day operations that you don't have time for strategic planning and growth, an outsourcing advisory team can come handy.

When you are growing too fast and unable to handle the growth:

This is a good problem to have. But when a company is growing and it doesn't have the capability to handle the current work load, quality and delivery suffers. That's when an advisory firm can come into review current operations and offer options for growth through an outsourced model. They can provide solutions that are all encompassing; from technology to infrastructure support and from training employees to the creation of more streamlined processes.


When you are in need of a ready team and infrastructure before bringing in the clients

So you're a startup and want to create an empire. There are so many decisions to make as you go independent and start putting people, process, and technology in place to make your business successful. But wait, perhaps you don't have to do all that.  You can retain an outsourcing advisory team who can help you set up all the necessary infrastructure in place so that all you have to focus on is getting the clients rather than worry about internal operational issues.

Outsourcing advisors are important when a company seeks growth and viability in this competitive global marketplace. Check out our advisory services to see how we can help you streamline operations, increase revenue, and increase strategic growth.