Contract signing is a major milestone in outsourcing engagement but things exists only on paper. Transition phase, from incumbent vendor or internal IT staff, sets the tone of the relationship. Your governance processes, performance measurement and reporting mechanisms are established during the transition phase.

The selected vendor is tasked to perform detailed knowledge transfer on client’s application, environment and operating processes. Tremendous time and commitment is required to plan and execute any outsourcing or managed service transition without significantly impacting the business.

Smooth transition also results in building mutual trust and respect that leads to stronger long term relationship. The quality of resources and processes brought to the table during this stage is a good indicator of how your vendor’s service delivery quality will shape up.

A poor service transition can result in a false start to a relationship and will require significant effort to make amends.  Following are the reasons for the transition failure:

• Poor due diligence and project planning
• Failure to understand the scope by the service provider
• Poor rebadging and Onboarding process
• Lack of access to client SMEs
• Aggressive Go-Live date
• Poor transition governance
• Unclear exit criteria
• Lack of tools, skill, prior transition experience
  

Effective planning, due diligence and proper communication across all the stakeholder’s is the key ingredient for the transition’s success. Recommendations to make the transition phase successful

• Switch from people dependent model to process dependent model
• Always perform the risk analysis and define the risk mitigation measures
• Involve all stakeholders in transition to create the right level of attention. Treat the transition as a “normal” change program with high impact
• Be open to all unanticipated challenges that arise in outsourcing engagements. Both the parties should bring challenges faced by each other and be supportive to each other

A well executed service transition a strong exhibition of vendor capability and resourcefulness and goes long way in building enduring partnerships.

Considering an alternate vendor is now becoming a norm for older deals (3-7 years) or ones that were not signed through structured competitive vendor selection process. The service delivery and pricing models have evolved over a period of time. Also the clients outsourcing for the second time are more aware of what they want from their vendors and have developed capabilities to manage vendors over a period of time.

 

A lot depends on the engagement scope and client's priority - however any good deals signed will have some variation of these aspects

• Flexibility of skills on a set forecast
• Productive hours instead of FTE concepts
• Focus on relationship management, governance and transparency
• Greater involvement with offshore teams - recognition and rewards
• Credits and penalty on performance
• Infusing CoEs and Vendor innovation
• Pay for performance/Outcome based models
• Retaining key incumbent vendor employees  

 

Switching to new vendors also comes with realization that the relation with the incumbent is beyond mending. A lot of focus is made to implement the lessons learned from broken deal and to start new relationship at the right note. Clients also focus on streamlining internal processes that would result in making the vendor more effective and efficient.

 

In the times of economic turbulence and financial crisis many organizations start  evaluating options to outsource for the first time or expand on their existing sourcing strategy.

In today’s competitive market, vendors are constantly evolving their delivery and pricing models to differentiate themselves. The final vendor you select depends on the context of your outsourcing engagement.  If you only evaluate vendors of similar size and competency then you choose to limit your options. 

Companies are realizing the initial vendor mix has a major impact on how their final outsourcing engagement gets structured.  It is important to understand the capabilities and values-adds that the vendor can bring to table.
In our vendor selection process, we recommend considering a diverse group of vendors from the following big buckets:

• Global player
• Tier 1 giants
• Tier 1 Contenders
• Indian Pure Plays

 At the end of the day, the fit and not the size will determine the success of your outsourcing engagement. The supplier selection process should be designed to find the best partner and not to preclude the right fit solely on size considerations.

Over the past few years many companies are exploring global sourcing to reduce overall spend, conserve capital and increase efficiency.  Some of the first time outsourcers face challenges and frustrations associated with managing outsourcing and shared services engagements. It is not too late - and certainly not too early - to establish long term relationship with your strategic vendor.

Outsourcing and offshoring changes the responsibility for executing IT services from the internal IT department to external service providers. Your strategic partner should not only provide solutions for the most pressing business problems but also contribute by sharing their ideas, insights, industry knowledge and technical expertise.

The first step is to identify potential IT vendors with whom you should have a closer partnership. Next, invest time and resources on developing long-term agreements and shared sense of partnership and respect. Successful outsourcers leverage their vendor’s capabilities and realize maximum value from the initiatives.

A marathon mindset is required to build partnership approach:

• Look for a value beyond labor arbitrage or rate negotiations with vendors
• Build better vendor governance frameworks grounded in process and supported by tools
• Review strategic vendor’s new capability and how it aligns with company’s roadmap
• Share information with vendors: business plans, priorities, or technology road map
• Be explicit about expectations and provide regular feedback
• Explore ways your vendor can put more skin in the game and drive innovation
• Communicate incremental benefits to the internal team

Building higher-value relationships is a two-way street. We need to establish a strong foundation of trust and closer relationships that will deliver greater impact than mere transactional relationships.

“It is difficult to train for a marathon; but it is even more difficult to not be able to train for a marathon”.

In the earlier days of outsourcing much importance was given to cost savings and meeting SLAs. Now a vendor meeting these criteria would have a par game at best.  

In today’s maturing global sourcing environments the clients and suppliers are taking the game to the next level. The clients need to continually explore ways to deliver cost savings, enable innovations and create business value. They are developing long term relationship with their strategic suppliers to achieve this intent.

It is important that you select a supplier who has a good game, but it’s even more vital that the supplier works on improving it. They should have skills to stay on the green but when required navigate the hazards well also.

Once you have the right player onboard you should have means to monitor and manage the performance. Increasingly, mature clients measure their suppliers on the overall outsourcing engagement objectives. These cover both hard and soft metrics and key performance indicators:

• Financial Management: Plan vs. Spend, Blend rates, On/offshore ratio
• Resources and skills: Attrition, Experience level, Capacity Planning and Leakage
• Service Management: Uptime, SLA performance
• Solution Management: Percentage on time, Percentage under budget
•  Value adds: Innovation, Center of excellence utilized

In a relationship management driven approach, clients are also measured on how their internal processes contribute towards making the supplier's delivery more effective.

The outsourcing engagements should focus on creating a win-win relationship. Take the relationship as it is and invest time and energy to make it better and get the score below par.  

“Play the ball as it lies, play the course as you find it, and if you cannot do either, do what is fair”.

An RFP process is used to procure products and services by soliciting competitive proposals from vendors. Through this process vendors are screened and evaluated on basis of best value solutions. They compete with other qualified vendors to win potential client business.
In this high stakes game even small oversight can result in vendors being eliminated early in the evaluation process. Some of the common mistakes made by vendors are:

1.    Not grasp client’s scope or requirement
2.    Not adhere to specific requests in the RFP documents

      a.    Not responding to evaluation criteria and RFP objectives

      b.    Missing the timelines or procedural details

3.    Improper solution or sizing: Not review and analyze the provided annexure
4.    Pricing not competitive or too aggressive

Vendors can increase their chances of being short selected for next stage if they have better understanding for client’s requirements and RFP context. The RFP process may allow for clarifications/ questions/ client interface. If used judiciously, this can validate solution assumptions and relevant offerings.

RFP submission and evaluation are time bound and hence it becomes imperative that your solution and its benefits are well articulated. Vendor can get better conversion rate for RFPs if they focus on the following:    
1.    Make your response pointed and concise:

      a.    Volume of information is not equivalent with quality of response

      b.    Tailor your solutions: Do not use much of boiler plate information

2.    Highlight your differentiators and value adds
3.    Proof read your response: Spell checks do not catch errors in language and grammar
4.    Add an executive summary to give a succinct view of your solution
5.    Be aware of your  competition: Tweak your solution based on other vendors in the field

The client wants to select a partner(s) who can work with them for a longer period of time. Your RFP response should position you as a vendor of choice.

Most of our clients visit their vendors at least once a year (scope re-baselining/ annual planning). More proactive ones make at least 1 additional visits spread 6 month from the earlier visit. Second visit is more focused around operational or capability issues. Here the other client team members accompany the vendor relationship managers (ADM, testing etc).  At times there is single visit but meeting is split by tracks. This all depends upon the years of relationship with vendor.

In earlier phase of relationship we recommend one visit every 6 months. Also we recommend to include a few new members (who were not directly involved in vendor selection process), as this gives them firsthand experience of vendor capabilities.This also gives offshore delivery team an opportunity to showcase their progress and acts as a good bonding experience. Reward and recognition play a big time in this integration.  

Once there is sufficient trust and transparency in partnership annual visits also work very well along with monthly rhythms, relationship scorecards and governance meets.

The demand side is steady - growth and expansion of the overall IT service sector is here to stay. Recent surveys, analyst reports and leadership meets have confirmed this trend. The clients are more mature and are looking at increased capabilities and breadth of service from their vendor partners.

Global vendors and tier one pure plays are restructuring themselves to be even more competitive. Acquisitions, leadership rejigs and investment into future have been flavor of the season.

In this evolving competitive scenario how do Tier 2 vendors stay relevant
* Are they serious contenders or relegated to "Niche Provider" / alternate vendor tags
* Do they have strong differentiators
* Is this backed by strong strategy and leadership
* Can they give big boys sleepless nights by delivering outrageous value

Or are they consider themselves just another acquisition target?

I would really love to hear your thoughts and insights on this discussion

Infosys (NASDAQ: INFY) defines, designs and delivers IT-enabled business solutions that help Global 2000 companies win in a Flat World. These solutions focus on providing strategic differentiation and operational superiority to clients. With Infosys, clients are assured of a transparent business partner, world-class processes, speed of execution and the power to stretch their IT budget by leveraging the Global Delivery Model that Infosys pioneered. Infosys has over 1,22,000 employees in over 50 offices worldwide. Infosys is part of the NASDAQ-100 Index and The Global Dow.

Consolidated results under IFRS for the quarter ended September 30, 2010

• Revenues were $1,496 million for the quarter ended September 30, 2010; QoQ growth was 10.2%; YoY growth was 29.6%
• Net income after tax was $374 million for the quarter ended September 30, 2010; QoQ growth was 14.7%; YoY growth was 18.0%
• Earnings per American Depositary Share (ADS) was 0.65 for the quarter ended September 30, 2010; QoQ growth was 14.0%; YoY growth was 16.1%
• 27 clients were added during the quarter by Infosys and its subsidiaries
• Gross addition of 14,264 employees (net addition of 7,646) for the quarter by Infosys and its subsidiaries
• 1,22,468 employees as on September 30, 2010 for Infosys and its subsidiaries
• Declared an interim dividend of `10 per ADS and a 30th year special dividend of `30 per ADS (equivalent to an interim dividend of $0.22 and 30th year special dividend of $0.67 per ADS, at the prevailing exchange rate of `44.50 per US$). The record date for the payment of dividend is October 22, 2010.

Business outlook

The company’s outlook (consolidated) for the quarter ending December 31, 2010 and for the fiscal year ending March 31, 2011, under International Financial Reporting Standards (IFRS), is as follows:

Quarter ending December 31, 2010

• Revenues are expected to be in the range of $1,547 million and $1,562 million; YoY growth of 25.6% to 26.8%
• Earnings per American Depositary Share(EPADS) is expected to be in the range of $0.66 and $0.67; YoY growth of 11.9% to 13.6%
  Fiscal year ending March 31, 2011##
• Revenues are expected to be in the range of $5.95 billion and $6.00 billion; YoY growth of 24.0% to 25.0%
• Earnings per American Depositary Share(EPADS) is expected to be in the range of $2.54 and $2.58;YoY growth of 10.4% to 12.2%

Fiscal year ending March 31, 2011

• Revenues are expected to be in the range of $5.95 billion and $6.00 billion; YoY growth of 24.0% to 25.0%
• Earnings per American Depositary Share(EPADS) is expected to be in the range of $2.54 and $2.58;YoY growth of 10.4% to 12.2%

http://www.infosys.com/investors/reports-filings/quarterly-results/2010-2011/Q2/Documents/IFRS-USD-press-release.pdf

Financial Highlights:

• Diluted earnings per share of $2.82, up 18 percent; 31 consecutive quarters of EPS growth, 13 of last 15 at double digits;
• Full-year 2010 EPS expectations raised to at least $11.40;
• Net income of $3.6 billion, up 12 percent;
• Net margin of 14.8 percent, up 1.1 points;
• Revenue of $24.3 billion, up 3 percent as reported, 4 percent adjusting for currency;
• Growth markets revenue up 16 percent, 13 percent adjusting for currency;
• BRIC countries revenue up 29 percent, 26 percent adjusting for currency;
• Business analytics revenue up 14 percent;
• Systems and Technology revenue up 10 percent, 11 percent adjusting for currency;
• System z mainframe revenue up 15 percent; MIPS up 54 percent;
• Software revenue excluding divested PLM operations, up 4 percent, 6 percent adjusting for currency; up 1 percent including divested PLM operations;
• Services revenue up 2 percent, as reported and adjusting for currency;
• Services backlog of $134 billion, up $5 billion quarter to quarter, down $2 billion adjusting for currency, and flat year over year.

http://www-03.ibm.com/press/us/en/pressrelease/32782.wss