Thursday, April 3, 2014

The Art of Layered Multi-Sourcing

It wasn’t too long ago that the term “multi-sourcing” meant that a company elected to assign responsibility to multiple providers for side-by-side responsibility for discrete service categories.  One provider for infrastructure operations, another one for applications support services, a third for customer care, and maybe a fourth for a business process like HR or F&A.
Commonly, these strategies were directed by a “vendor management” function that reported into Supply Chain or, more commonly, into a Shared Services organization.

The prevailing logic held that this sort of sourcing strategy avoided undue reliance on any one provider, and promoted a competitive tension that kept the providers on their toes. 
This side-by-side multi-sourcing still allocated unique responsibility for individual business support functions to unique providers, it’s just that no one provider had too much of the spend.  This meant that when a major issue arose, such as severe service breakdowns, performance irregularities, or the like, a “big event” resolution was required to introduce a course correction.

Alas, that was one of the benefits of having a vendor management office – to facilitate the interventions that called the parties to the table to work through the root causes and haggle over the right resolution.
The world had order to it.  Right?

Fast-forward to the emerging trend for “layered multi-sourcing”.  I don’t know whether that term will stick, but it’s the best that I can come up with to define what I am sensing as the progressive approach that companies are taking to deal with the frustration of “big event” resolution to service issues, and to promote true best-in-class performance.
Layered multi-sourcing moves beyond the side-by-side framework.  It embraces having multiple providers of common services.  Moving a piece of work to one provider over the other will be based on factors that are determined in real-time.  Spot-pricing.  Immediate Service Quality measures.  Contextual factors.

Does the processing of a workload today need to be performed by the same service provider who did that work last week?  Not always.  Think about this in the context of shopping for a hotel room.  Most of us select a hotel “service provider” based on the terms and factors associated with the immediate need, not based on having signed a 7-year contract for access to hotel rooms.  Pricing, location, past experience, loyalty rewards, rating of other customers … these all factor into our decision to choose one over another.
Users of Uber will recognize the power of ordering up a car service based on time of need, location, rating of the driver, type of car, etc.  Corporate business support processes can be provisioned similarly.

The implications are many, but one should be obvious: companies, and their approaches towards vendor management, will be increasing the number of providers with which they deal.  This is a reversal of the trend towards having a smaller number of larger service providers.  With layered multi-sourcing, those providers with best-in-class performance can find a place at the table.
Clients win by reaping the benefits of acquiring defined services when and where and how they are needed, avoiding the big bets of committing to providers in times of uncertain demand profiles or service quality experiences.  The price: companies need to rethink their architecture for engaging more providers in different ways, and must adopt a more progressive approach to governing this model.

It’s not vendor management.  It’s service management.  And, it follows the principles of category-based strategies for provisioning the right capacity in the right place, at the right cost, to meet the needs of a dynamic business.
And the Economic Game Planning gets more complex for everyone.


Thursday, March 13, 2014

The Lost Art of Economic Game Planning

As I speak with outsourcing service providers and their Clients, I tend to look for points of similarity and difference.  That’s one way that I try to deduce the trends and find the nuances worthy of greater inspection.  I am finding that there are more points of similarity than uniqueness across the ITO and BPO provider community.
One particular characteristic that I’ve found to be prevalent is the lack of “economic game plans” for existing outsourcing arrangements.

It wasn’t too long ago that this art was central to the Account Planning techniques of most of the major service providers.  In the best of situations, the Economic Game Plan was a document that was openly shared with the Client.
The elements of the EGP aren’t especially complicated or obscure.  They include:

Ø  Volume forecasts for contracted services
Ø  Cost transformation projections to yield efficiencies
Ø  New service projections – timing, pricing, and volumes
By reviewing these metrics between and among the provider and Client, both parties were able to minimize surprises and align expectations.  It was also the forum for candidly discussing changes to volumes for future periods – enabling better cost and revenue forecasting by both parties.

Lacking these open conversations, a Client might be left wondering why the service provider is taking certain actions … whether those action are to reduce costs or promote new sources of revenue.

Conversely, if the service provider is planning and acting without the benefit of alignment with the Client, the guesswork may yield disappointing results.
I’m not quite sure why this technique has faded from the management toolkit.  There once was a day when Clients insisted on the transparency and, quite frankly, the providers rejoiced in the opportunity to receive feedback on their plans.

Without bilateral EGPs, each party is left to surmise what the other is intending.  That’s not a healthy situation, and rarely does it come to pass that both are correct.
To be fair, a few service providers tell me that this discipline is central to their management models.  But, I’m not convinced that their Clients see the situation in the same light.


Tuesday, March 4, 2014

Are Your Outsourcing Relationships "Fit for Purpose" in the Age of "As a Service"?

Continuing my theme of bridging from one blog post to the next … and being a fan of “top ten lists” … I thought that I would offer my perception on the most important questions that Supply Chain executives should be asking of their outsourcing providers.
I direct this towards Supply Chain because of the central role these executives serve in connecting business units, corporate functions, and IT when it comes to contracting for outside services. That said, the questions I offer here can be equally asked by the CIO, CHRO, CFO, or business unit executives. 

In all cases, I am addressing the central question of whether or not incumbent service providers, or prospective service providers, are conforming to the principles of “As a Service” business operations.  In my experience, a candid assessment against these criteria will challenge the incumbent ITO/BPO provider community to show well.

  1. Is capacity provisioned dynamically? Does the provider detect and respond to incremental/decremented demand through automation and in accordance with pre-determined rule sets?  If the SLAs deflect accountability due to the Client not having answered a question not yet asked … that’s not “As a Service.”
  2. Are the services multi-tenant? Is the provider serving different customers from a shared hardware/ software/staffing instance?  Hint: if you’re paying based on effort, the answer is no.
  3. Is scalability truly elastic?  Is the provider’s functionality sustained regardless of transaction volumes?  If the Client is asked to pay in advance for added capacity … including the capital assets on which the work is reliant … that’s a red flag. 
  4. Are the services modular?  Does the provider deliver the ability to scale different components based on the nature of requests each component receives?  And, can the Client substitute providers with ease (perhaps even at the level of transactional demand)?
  5. Is Meta Data – intelligence about the services delivered – part of the value to the Client? Information regarding the usage/performance of the service should enable the Client to make informed decisions about their business.  The Provider should not hold this information hostage.
  6. Are the services secure – at the level of transaction, and operating resilience?  Assurance should be proven that all transactions are kept proprietary to each designated customer.  Superficial answers around encryption should be explored thoroughly.
  7. Are there defined and automated workflow interfaces?  Defined interfaces, often referred to as APIs, should exist for interoperability with other enterprise business systems/processes.  Ideally, these APIs will be “open” to the Client’s development community (including other third-party providers).
  8. Are the services readily customizable? The Client’s business planning experts should be equipped and empowered for data modeling, UI workflows, integration with legacy systems, etc.
  9. Are there objective Service Quality commitments? Contracted services should be defined by objective measures of accuracy, performance, and effectiveness. Interoperable measures of service quality (between adjacent processes) should be actively enabled.
  10. Is the pricing based on consumption that conforms to contracted levels of quality? Customers pay for units of service consumed, but only as those meet agreed levels of quality/accuracy (ideally measured in real time).  It’s the obligation of the service provider to track this and proactively report.

As one considers the roster of incumbent service providers, I find that it’s common for many of these questions to yield a “No” answer – and lead to a decision around what to do about these facts.  Any contracts for “commodity” IT services or staff-augmentation BPO or applications support are particularly attractive for review.
A common filter that is implied through this list is:  are all of the assets related to the provision of the contracted service under the purview of the service provider?  I find that most companies fail this test, having retained capital assets or licenses for tools, thus giving the relationship a decidedly non-Service profile.

Contracting best practices are applying these criteria to progressive strategies for engaging “As a Service” partners.  Alternatively, the next stage for some incumbent relationship may be to implement a platform-based “As a Service” network of best-in-class platforms, exiting long-standing relationships that have not evolved to the point of being truly “As a Service.”
More on that approach to come …


Thursday, February 27, 2014

New Age Architects of "As a Service"

My two prior posts dealt with the reasons that yesterday’s models of outsourcing aren’t particularly well-suited for the rapidly-accelerating trend towards “As a Service” ecosystems.  To recap, I summarized my views around:
  1. Capabilities Aren’t Services
  2. Platforms of Platforms Emerging
Before I continue with the theme of how traditional outsourcing is challenged to be relevant in the markets ahead, I thought it prudent to share a conversation that occurred this week.

I was privileged to be invited to speak to a group of G-200 Shared Services leaders. I remain convinced that the role of Enterprise/Global Shared Services executive is one of the more influential and instrumental to the transformation of businesses.  The quality of executives in this group certainly reinforced my opinion.
The topic of the discussion was “what’s next for shared services?” and, specifically, the effects of technological innovations in driving the next wave of value.

I made the case for Shared Services organizations being pivotal for driving innovation in “As a Service” business operations – from the front-office through to the back-office.  Historically, Shared Services has been thought of as a back-office organizational model.
We spoke at length about “platforms of platforms” and the intractability of traditional ERP.  I offered my opinion that the three essential assets that every company should own and control going forward are:

  • Platform Strategy, including APIs
  • Data Strategy and Stewardship
  • Security Strategy and Controls
I made the case that these are the essential “core components” around which modern “As a Service” operations will be engineered.

One of the executives asked a particularly poignant question.  She asked me, “What are the critical leadership roles to achieve transformation of business operations towards the “As a Service” vision?”  Thankfully, I’ve been asked this before.

From what I am seeing in successful and progressive programs of business transformation, there are three roles that must engage and align on the shift of the business model.  This is true whether the company is addressing internal operations or new go-to-market opportunities.
First, the functional leadership must be an advocate for the new vision.  Companies that organize with Shared Services are in a better position for functional vision.  They already possess line-of-sight to process adequacy, standards, and interfaces.  For new market-facing offerings, the functional leadership is a business executive.

Secondly, the CIO must be a leader in opening consideration for new tools and utilities.  S/He must help with the ROI business case for retiring legacy assets in favor of new accelerators.
Finally (and this elicited the most conversation), Supply Chain leadership must be in the game.  In my experience, the executives responsible for managing the spend must appreciate that what they are buying, from whom, and under what terms … are all changing in the “As a Service” world.

We discussed this last point at length.  In fact, I was asked how Supply Chain can/should be educated around the implications of the new, agile, modular, operating structures that will be brought to these companies.  I promised to give that more thought, and to structure some ideas on ways to best enlighten the executives leading this critical function around the massive changes that “As a Service” brings to their world.
From what I am seeing, the companies making the most traction in adopting the essential principles of “As a Service” business models – internally and for their markets – are those with the greatest alignment among these three leadership roles.


Tuesday, February 18, 2014

Gartner Sees the Same Light

I've met with Garter's Peter Sondergaard a few times and have been struck by his ability to sift through data and conversations to uncover nuggets of relevance.  I think he's done it again.


"More and more companies, he says, are questioning the foundation of their technology architecture, and are increasingly moving away from a world dominated by SAP and Oracle to one filled with a variety of cloud service providers. He says this is driven by “maturity,” as more organizations acquire experience with cloud technologies, as well as the overwhelming pressure to be more nimble and quick."

Wednesday, February 12, 2014

Platform of Platforms

Last week’s post about how “Capabilities Aren’t Services” earned over 1,400 reads and some nice re-postings.  I think I may have touched a nerve.
So, let’s move onto observation #2 around how the Outsourcing Industry is rebooting – at least in the eyes of the buyer community.

It wasn’t too long ago that the dominant enterprise strategy for business process enablement centered on a holistic Enterprise Resource Planning (ERP) platform.  Hordes of consultants were called upon to lay down these ubiquitous services to enable the workflows of a wide range of (generally) back-office functions.
I won’t name names.  You know the players.  Their numbers have whittled to a very few, both of which remain acquisitive towards any new bright and shiny capability to enter the enterprise market.

·        The ITO industry made hay by offering “hosting” services for these behemoths.  

·       The SI and Consulting industry ran circles around “instance consolidation” as companies tried to reign in the multitude of parallel islands of autonomy across their global operations. 

·        And, the Applications Services segment trained up armies of programmers and support staff to care and feed the permutations, databases, unique configurations, interfaces, and bolt-ons that dangled from the “common platform” that ran the back-office of the business. 

·        Finally, let’s not forget the many BPO providers who took flight by being expert at the design and operation of transactional business processes – often merely providing the lower-cost labor to do the work with the Client’s systems and proprietary processes.
Today, most major corporations run their back-office operations on an “ERP Platform” that was cobbled together over the past two decades and which are supported by legions of internal and external staff to maintain harmony and run reports.

The significance of ERP to the ITO/BPO industry is considerable.  This is because, to a great degree, ERP merely automated the processes and procedures that required almost the same number of people to perform as was required pre-ERP.  Ask any CFO or Shared Services leader how much labor was saved as a result of and ERP adoption.  The cost may be lower – owing to the ability to offshore the work – but the effort held largely at the same levels.
Alas, that was yesteryear.  Fast-forward to the enterprise strategy for business processes today.

Thanks in no small part to the wild success of, the enterprise strategy has been enlightened. ERP need not be monolithic.  Heterogeneity is celebrated.  Cloud-hosted functionality is proven.  Rapid deployment is expected.  Configurability is cherished.
While these lessons could be seen as merely the next generation of ERP, there’s an even more substantial significance to what has happened.  Beneath the application layer exists the “dial tone of business process connectivity” – the platform layer that was portrayed as the secret sauce for yesterday’s ERP platforms.  Today, platforms are the common language of enterprise operations.

No longer is the standardization and automation of business processes relegated to the back-office.  No, we’re seeing new innovations in front-, mid-, and back-office services.  CIOs and business architects aren’t looking to buy point solution applications, but rather subscribe to business process platforms.  And, these new platforms are about the business of the business – sales and services to customers.
The platforms are being united within the enterprise in ways that allow for modularity, regional and business unit customization, but also integrity in data, security, and operational performance.  There’s a fair amount of added complexity – a call to action for the Supply Chain community – and a reinvention of many roles in the company.

There’s much more written on this topic in our industry, but my point of emphasis centers on the impact to the ITO/BPO industry.  What’s to become of the companies whose models exist only for the care/feeding of yesterday’s ERP-laden business operations?
Some progressive providers will be the pathway for the modernization of the Clients’ operations.  For most, I fear, this context shift is too great.

One needn’t wonder why there aren’t large-value outsourcing contracts being awarded.  The answer lies in the strategy to subscribe to best-in-class services platforms, united through a services integration platform. 

Monday, February 3, 2014

An Industry Reboots - Capabilities Aren't Services

Let me begin to fulfill the promise that I made a few weeks back to share my opinion of how buyers are driving transformation of the outsourcing industry.  I’ll do this in several iterations … and I will frame every criticism of past practices with an explanation of the causes, and a view for when and how remedy will come to market.
For those who don’t know, I know this space through practical experience in roles that spanned services delivery, deal advisory, and services sales and marketing.  I will even admit to having been part of the problem, but more on that another time.

Assessments like these carry risk for two real reasons:  I am making generalizations and I am expressing opinion.  I acknowledge these as true.  Exceptions to my observations will clearly prevail.  Alas, I think that my views are fair and true in the round.
Today’s opinion: the industry has largely failed to deliver on the central promise of an outsourced service - leverage.  That is, the provider of the service brings to market a collection of assets (comprising intellectual insight, proven processes, scaleable delivery capacity, trained staff, multi-tenant automation, and the like) that perform a function for the benefit of customers.  One of the principle customer benefits is the avoidance of the complexity and risks of assembling all of these assets themselves.  The cost to the customer is also less than that which would be paid if the customer were to build/operate the function themselves.

Over the past 20+ years, hundreds of outsourcing contracts have been launched – for IT and business process scope – and virtually all of those contracts carried the promise of benefits through leverage.  Customers awarded these contracts because they believed that they were buying a Service. 
Now, the fact that a provider has the wherewithal to assemble some smart people and solve a problem in a repeatable way is important.  That’s an essential capability.  But, a capability isn’t a Service.

A Service is a function that is delivered to multiple customers with high degrees of consistency.  It is the product of artful design and implementation, with recognition that every costumer experience must fulfill the promise of a defined outcome.
For many providers, the eagerness to please provided for wide variations in solutions that were meant to be “standard.”  And, for many demanding customers, insistence on applying constraints (often artifacts of a legacy operating model) limited the ability of the supplier to reap the benefits that formed the basis of the commercial relationship in the first place.

A few years ago I had the opportunity to discuss this issue with the CEO of a major ITO/BPO provider.  I asked two questions: 

1)     In bidding a new outsourcing opportunity, how much of the Service scope is generally assumed to be leveraged (e.g., not dedicated to one particular Client)?
      2)     In the course of delivery, what has been the experience in achieving that bid model?

The answers:  most deals are bid assuming 60-70% of the scope is leveraged.  In actuality, only 30-40% is delivered as such. 
That gap is a very real problem.  It must be bridged by up-selling, change orders, and service quality actions that generally cause the Client to pay more and be less than fully satisfied.  The worst outcome, however, is the immediate erosion of any potential for innovation.  After all, one cannot justify the investment in innovation if the returns on that investment aren’t leveraged.  Bespoke solutions don’ have a future worthy of innovation investment.

It’s a self-fulfilling and self-perpetuating prophesy.

Just because a company is in the services industry, doesn’t mean that they are delivering Services.  They might be providing capabilities.  Those aren’t the same things.  Witness the large staff augmentation subsegment of the outsourcing industry.  Effort is a capability, not a Service. 

This lesson has been a hard one.  Next Generation services contracting won’t repeat the mistakes of yesterday’s ITO/BPO arrangements.