How much more with less ?

Over the years economic cycles have turned all conventional wisdom upside down; the new normal that became reality before the turn of the decade squeezed all the unnecessary costs out of every line item in IT budgets. Do more with less being the mantra, CIOs scrutinized operations and optimized them ruthlessly. Half a decade later and half way through the year, one of the resurgent themes with many CIOs is conservation of funds; revenue growth has been under pressure for some time, bringing costs back into focus.

In an informal gathering of CIOs this was the predominant theme with everyone attempting to figure out where do they get additional savings from ! Hardware refresh had eliminated maintenance costs for a few years, but now maintenance and support contracts are up for discussion for all the critical and non-critical hardware. Users now expect desk side support for all types of incidents and problems; with rising manpower costs, hardware service vendors and maintenance providers are demanding inflation linked increases.

Last time around there was a flurry of activity around license management; are people really using their allotted licenses ? Thus software license costs were pruned down to the bare minimum required; number of users has gone up now and there is a need to buy additional licenses. Vendors pushed usage audits and attempted to enforce compliance to license agreements putting the CIO in a precarious situation; no one wanted to be non-compliant. Open source again became a discussion with limited success for some.

Back then again contracts for running legacy and custom applications, and maintaining business as usual were trimmed; wherever possible the activity moved to internal resources. Onsite activities were offshored to the service provider’s premises; back office functions relegated to low cost locations in the suburbs. Contracts were examined afresh and brought down to a bare minimum. A few also took the tough step of letting some of their team mates go and reallocated portfolios stretching the remaining team. FUD ruled for a while.

So where do we look for new savings opportunities ? How much more can we do with less lamented the group ? The group had no bright ideas, nor any best practices to share. One of the CIOs present gathered sympathy for a 25% cut imposed on her capital investments as well as operating expenses and still expected to run projects as well as keep the lights on with no adverse business impact. Someone suggested that she conduct an open dialogue with her boss and ask him for ideas on how to implement the cut.

Systematically the group explored some of the options that vendors pitch in as cost savings measures. Is the Cloud with pay-per-use models a viable option ? Variability has been one of the promises from the cloud; but then the proponents of this model cautioned against if cost savings was the primary objective. If you moved existing loads to the Cloud, what would you do with the existing hardware ? It would anyway make sense only if there was a need to increase compute capacity or hardware refresh was imminent.

Can and should total or strategic outsourcing be explored ? That is when most vendors promise 20+ percent savings and projections are locked down for a number of years ! Transfer the accountability and let the vendor figure out how. A couple of CIOs who had been there done that cautioned against it. They have had a harrowing time making some of the numbers in the spreadsheets stick in real life. Legal teams poured over contracts to find a way to make it stick; the CIOs ended up in getting the stick instead.

Most organizations which are driven by ratios and numbers resort to cost cutting rather than cost management in their attempt to keep the street happy. They want to look better than their competitors and keep the stock price high sometimes even at the price of damaging the DNA of the company. Consultants get hired to find hidden costs while they get paid visible money with diminishing returns. I believe that enterprises driven by customers don’t resort to cycles of cost containment and thrive in adversity.

A lone voice in the room asked, “Can we look at increasing revenue instead ?”

Awry Outsourcing Anguish

Recently I met a friend whose company had signed a strategic outsourcing deal a few years back with much fanfare and was talked about as one of the first in his industry. His company made news in restricted industry circles and the vendor gained good leverage out of the deal. The long-term deal was expected to create efficiency which were acknowledged by the Management and the Board. The teams were excited with the prospects of the new engagement and the benefits outlined.

From initial discussion to closure of the deal, it had taken a lot of groundwork between both the teams who toiled for over a year. Setting the baseline was the most rigorous task which required everyone to agree to the “as-is” scenario; number of assets, age and residual life, upgrade and replacement norms, scale-up of the business operations, revenue growth targets, additions to workforce, industry outlook; everything was required to be put in writing to ensure that the contract survives the signatories.

I asked him on how it was going; after going down the journey for close to three years, had they started seeing the benefit of their decision ? How was the service delivery and how had the users taken the change ? What would be his advice to others who may want to go down the same path ?  After all not many had signed long-term deals in recent times. He looked at me hard as if trying to understand why I was asking him all that. Seeing no ulterior motive in my query, he responded:

We have decided to terminate the deal; it is not working out. Our problems started during service transition. The team misinterpreted almost every clause and intent; we had to involve the pre-sales team and escalate across layers to get to the shared understanding that went into the contracting. The people on the ground had skills deficit and were unable to come up to the same level of service pre outsourcing. In every review meeting they promised improvements and then nothing changed.

The commercials were based on certain assumptions of growth and efficiency. They were expected to make upfront investments on tools and technologies which took longer than committed to materialize. Business had also started slowing down and the cost was beginning to hurt. The vendor was unwilling to accept this and review terms of engagement even though one of the primary benchmarks, cost as percentage of revenue, was broken and going north instead of the promised south.

After much discussion, escalation and negotiation, small tweaks were done to the model which survived a stormy year. When business growth eluded us as per original plan and required deferral of certain initiatives and hardware refresh, the dialogue was not very encouraging. All the spreadsheets that made lot of sense prior to commencement now appeared to be work of fiction. The contract did not allow significant change downward while it captured the upside. Short of suing each other the only recourse was termination.

In recent times there have been many outsourcing contracts that have run into rough weather; what seemed like a great idea in the late 90s and turn of the century have lost charm. Back then everyone was racing to outsource; now it seems that everyone is in a race to find a way out. Most contracts that are coming up for renewal are finding favor with neither incumbent vendor nor new partners. Have the outsourcing benefits suddenly disappeared ? What has changed that suddenly makes enterprises shy away ?

It is evident that for many who outsourced with large long-term deals with big service providers have not gained the promised benefits. Where did it fall short ? Sales organizations did a great job of painting a rosy picture while the delivery and execution team ran out of color red. The gap between intent and execution and the inability to adapt to variability of business has resulted in both sides feeling shortchanged.  The advent of newer services and scenarios like RIMS and BYOD has anyway changed the game.

One of the models that I have found survive over others is a deal where service parameters and expectations are reset every year. It requires IT, business and the vendor to work on the same side of the table. I have observed many successful deals that survived multiple challenges; they had clearly defined ownership. When you outsource, you still are accountable and responsible; it is not abdication of responsibility. New models of outcome based engagements are appearing on the horizon, their efficacy is yet to be experienced.

One Stop Shop

The IT industry has many types of vendors; some focusing on niche solutions, some specializing in specific technologies or domains, some who offer a menu of products/services ranging from infrastructure to applications, and then there are large diversified companies who do everything from consulting to implementation of technology solutions or packages backed by support services in a local, offshore or multi-location model. The big guys manage all kinds of requirements and bring to the discussion table a comprehensive long-term engagement model.

Different vendors set different expectations on what they can deliver; the niche providers do not promise a breadth of services, they stay focused on their expertise. The big ones claim to have expertise across the legacy to contemporary and cutting edge; they have industry practices and business consultants who profess incremental to transformational change capabilities. You name it we can do it; even if you cannot put a name to it, we will find a way to do it !

The large one-stop-shop engagements typically begin with setting of scope and expectations on delivery, timelines, and quality of service, rewards, penalties, force majeure, arbitration, cost, escalations and a lot more. The larger the scope, or the longer the time period of the contract, the governance becomes complex. We know that Total or Strategic outsourcing can cover everything; in recent times though the number of such deals has been dwindling.

So it was an interesting debate when a few CEOs on a panel berated the one-stop-shop companies giving it a new twist. Consider you wanting to reach a far-far away destination and the only option is to go by bus. Every bus gets you there, some are slower than others, some offer many comforts through the journey; the cheaper ones just get you there. Depending on what you can afford, there are many options to choose from. Caveat is once you have bought a ticket, a change is difficult and painful.

When someone advertises one-stop-shop the conventional understanding is that I get from where I am to the final destination with no stops with the advertised and agreed comfort. Reality as we know is not always as advertised. A CEO remarked on his journey with one of the global biggies; he signed up for a long journey wanting to focus on his business. Very quickly he was on the discussion table with the bus driver, conductor and the entire fleet management company.

Why is my journey so excruciatingly slow ? Why is the transformation promised not happening ? When will I see any impact to my employees, stakeholders, customers, or for that matter any efficiency to business operations ? Whatever happened to the pre-sales promises made by the various function heads of your company on various domains and technologies ? Pat came the answer, “we are a one-stop-shop company; we go one stop at a time. This is what we promised; we did have a driver change and a breakdown; that is part of the contract. We meet defined service levels.”

Both are right in their frame of reference; so where is the problem ? I believe that any such engagement should have common definition of reference points with clear understanding of step-by-step process, impact and governance. Otherwise the semantics of the one-stop-shop can be painful for everyone involved, the deliverer and the recipient. The bus is still moving but not in the way that makes the journey a pleasure. CIOs will be at the receiving end if there are such gaps.

OMG = Outsource, Manage, Groan

My CIO friend was looking glum, really glum if you know what I mean; and he is not the type who normally gets harried by issues, always cheerful, and willing to help others. He goes around telling people about thinking positive and choosing your attitude. It was surprising to see this side of his demeanour. So I asked him about the root cause of his worries.

He has always been a proponent of outsourcing over his illustrious career spanning more than two decades, more like a trendsetter than a follower. In that he had worked with outsourcing companies large and small, local and global, structuring large deals that were acknowledged and appreciated by the companies he worked for as well as the vendors. When someone needed advice on managing tricky situations or contracts, he was the person they approached.

Building on an existing contract that did well he had extended the scope of services and support for a longer tenure. Considering that the outsourcing vendor had been working with him for a long time it was seen as a natural and logical extension. There was merit and value in the deal for both sides.  It was like a no brainer deal. Going into execution he did not foresee any challenges barring the initial teething troubles when any new service is commissioned.

The slip between the lip and the proverbial cup or intent to execution started going awry very quickly. Process review and tool deployment planned, the timelines slid with consistency that was expected of improvements. Existing services that had been working well for many years also started deteriorating. Monthly review meetings attended by increasing levels of management made the right noises but delivery failed to align to commitments. Whatever happened to ITIL led SLA and global best practice ?

I was surprised to hear of his misery considering that the relationship with the vendor preceded his arrival into the company and that successful outsourcing was child play for my CIO friend. Large deals have a way of coming to life on their own; they do not always follow a predictable pattern, instead they find their own lowest common denominator in which they settle down before improvements begin. He acknowledged this hypothesis and queried how should he respond to adverse business impact or disruptions to critical business processes ?

This was discussed in the review meetings and the team said they were committed to making amends. Reality being different, he was exasperated with selective and partial information sharing. It is not the way relationships are built and sustained. What causes this gap ? I do not believe for a moment that there is mal intent present; but how to bring the train back on track ? Was it about transition from courtship to marriage predicament where partners take the relationship for granted ? The nuptial agreement spelt out everything, but … Not wanting to proffer advice to the wise, I sought his game plan.

Forget the SLA, the contract, that can come back later; it is people who make things happen. For the situation to change, the people have to be brought back to the table with a rigour to the review that sticks accountability to senior leaders and individuals. Review and monitoring by the day on the plan by everyone and change people if they are unable to run with the required speed. Keep the pressure up until they deliver or want out of the relationship. It is critical and important to keep the end objective in mind, and that is linked to business expectations and improvements.

I wished him luck and promised to connect back in a few weeks again.

Strategic sourcing, pathetic delivery

The poor fellow was looking harrowed after week long meetings sans his CIO with the big global IT services company with whom the company had entered into a long-term strategic services contract. Six months having passed since the signing of the contract, he was wondering whether the decision can be changed or penalties levied for not meeting commitments, the contract protected the vendor in the transition phase. The presales team which was a permanent fixture in the office earlier was now trying to avoid coming to the meeting very well knowing the situation not being favourable.

Over a year of courting, discussions, negotiations and going over a long legal contract, it was a sigh of relief for the vendor and the enterprise when they did sign off the deal. As all strategic sourcing deals go, there was an expectation of maintaining business as usual with improved efficiency and lower cost; then move on to transformation driven by tools and technology which was the investment promised by the vendor. Over the decade of relationship, it was expected that there would be efficiency of scale, savings on the table, and investments in innovation with global benchmarking.

The big team arrived soon enough to transition services and fit or change existing processes into their framework, which they managed with some difficulty. Within a few months unable to scale up to diverse needs across locations, changes in the management team were enforced and that brought welcome improvements though not commensurate to expectations. The first big review meeting was a shocker for everyone. Some milestones achieved, lot of work in progress way past due dates, a few endpoints seemed a long way off; the CIO who was well known for his patient handling of crisis lost his cool.

To begin with interpretations of clauses done by the execution team were in conflict to understanding while drafting them into the contract. Stretched timelines became super-stretched timelines; senior consultants attempted to provide solace with no Plan B in case success eluded the team. The High tension meeting resulted in change of pace and “compromise” in favour of the customer. With new timelines cast, the pressure was on everyone; avoidable pressure as agreed by everyone present.

Why does delivery rarely match presales promises or timelines ? Are sales teams preconditioned to sell unreasonable timelines or commitments to bag orders from unsuspecting and gullible customers ? No, I am not calling the CIO names, but admiring the ability of the sales teams to sometimes get away with untenable contracts. I am also bewildered at the ability of delivery teams to squarely make a hash of even normal service delivery expectations. What causes history to repeat itself in almost every engagement ?

In this case, the CIO summed the case up with one phrase “lack of consistent communication across the ecosystem”. The presales team did not spend adequate time taking the transition team through each and every clause and expectation. The delivery team found significant differences on the ground to their assumptions which required change. The project lead busy fighting fire every day forgot that consistent communication is essential to setting expectation, managing perception and finally success.

I believe that it does not always matter what you do; what matters is how you communicate what you have done or planning to do. No news is not good news when everyone is expecting some change. Otherwise strategic sourcing will become a big tactical pain where real life experience defines success.

Is Outsourcing cheaper in the long run ?

Once upon a time many moons back, the IT industry discovered multi-shore sourcing, I use this term to encompass all types of (out)sourcing initiatives, and with that came long-term contracts, 10 years was normal, 5 was seen as short-term. A lot of these that termed themselves as Strategic Sourcing also built in innovation, new technology, business process linked contracts with broad intent on changing market and business dynamics.

The fever spread across the globe and no markets or sectors remained untouched. Big or small, almost every company was expected to embrace this new wave. The euphoria within the enterprise as well as IT companies was such that companies that did not enter into such arrangements were seen as stakeholder unfriendly or just plain dumb for not acquiring the obvious value.

As the years passed by many companies reported rumblings of discomfort and missed expectations. Analysis appeared to indicate specific issues with companies and individuals for not putting in their best effort, safeguarding the model with zeal lest the industry collapse with an unsustainable framework if there were indeed cracks in the carefully crafted Contracts, Service Level Agreements and Reference Architecture that represented the blueprint for the future. Business, profitability, political and other pressures forced reviews and scale down.

Prudent and rigorous reviews also exposed that long-term contracts had advantages of consistency and predictability, but lost on taking advantage of swings in the IT industry as well as did not bring in the level of efficiency or capitalization of quick market trends requiring agility that was possible with short-term relationships or with the ability to review and recast the terms of engagement say every alternate year. This was reflected in the drying up of the decade long deeds and most engagements focused on a 3-5 year term. Maybe “familiarity breeds complacence” also took root with in most cases both parties working hard to keep the marriage going.

There is no implication that these did not deliver to promise; some of them did and continue to do extremely well; some required significant investments in governance. Leaving aside labour arbitrage, the value captured did stretch the boundaries of discussion and measurement models.

New models now seem to be emerging with focus on outcome based payment schedules, collaborative investments in new technology exploration, but the basic framework has survived the troughs and waves of the economy and resultant impact. The challenge of growth (manpower retention) has mutated the needs and solutions into new forms with service providers hungry to get back to growth of the past, but discarding the learning of unsustainable linear growth assumptions.

Outsourced contracts or strategic sourcing contracts will thus become expensive and non-tenable with linear growth not aligned to market/business or the (in)ability to manage sudden shocks or black swans that keen coming back to surprise us. Periodic review of terms of engagement even if they imply disruption is the need of the hour; the IT industry however is not very excited.

Quest for a perfect SLA

I recently had a discussion with one of the respected global company that specializes in providing consulting around outsourcing and managing Service Level Agreements. My friend on the other side of the phone passionately tried to convince me why it is important to create SLAs that can tie down every aspect of the service that the outsourced service provider will deliver now or in the future. He cited many examples of how his company helped many customers “win”.


In another setting a debate was set off between CIOs on how they ensure that their service providers deliver what they promise consistently that meets the promise to the business. For more than a year, one of them has been unsuccessfully trying to get a bunch of vendors to come to the table for a discussion on creating effective SLAs. Not that the vendors are shy of the subject but collectively at the same table with multiple CIOs is not a viable proposition.

Service levels matter to everyone, the customer, the provider and the end consumer of the customer; I do not believe that deficiency of service is due to wilful behaviour or mal intent. The exception to this may be in monopolistic scenarios where no incentive exists. When it is relatively easy to switch services or move business to competition, efforts are indeed put in by the provider, the end results may however not be aligned to expectations.

The reasons why SLAs fail could be many ranging from ambiguous definition of service, staff involved in execution not being aware of quality of service expected, lack of skills on the ground, unrealistic expectations, or force majeure conditions to name a few. Irrespective of the reasons, when things do go wrong, contracts come out of the closet again to review the penalties that can be levied or avoided depending on the frame of reference. My belief is that “if-then” motivation will not deliver world class service; i.e. if SLA is met you get paid, if you better the SLA, you collect a bonus, whereas if the SLA is breached, there is a penalty.

SLAs are typically calculated on statistical data which fails to recognize business impact when the service is deficient. Creating complex SLAs that factor in all types of exception conditions makes it readable and enforceable only by lawyers and not CIOs. A SLA should illustrate the intent of partnership between the two (or more) parties. Incremental innovation or improvements are expected as much as occasional failures that could be for any of the reasons listed above. Both parties need to work together towards ensuring that they understand the root causes and work towards prevention of repeated adverse impact.

Unfortunately such behaviour is rarely seen and everyone invests significant resources towards the scripting of a document that covers all bases. End result is that the parties involved split hairs with irrational discussions thereby leaving the spirit of partnership aside. Most successful relationships are based on simple few page documents that capture the intent with the managements investing time in frequent reviews not just when things go wrong, but when they are working too.

Over the years it has been a difficult journey on this path, but it has been worth the effort. The big companies (customer as well as provider) have however yet to learn.

Outsourcing travails

Almost every mid to large size organization now outsources the basic maintenance of desktops, laptops, printers and other end computing devices to service providers under the broad framework of facility management. Some have also given away the tasks of managing servers, backups and networks. As far as I remember, this practice is definitely more than 15 years old, considering that the first time I came across this concept was in the early ‘90s. So by now, one would assume that the vendors and service providers (along with the CIOs), would have fine tuned this basic support activity to a level where it does not require significant management time and attention. However, recent discussions bring out a different story.

Essentially, outsourcing of the basic break-fix and first level support (typically personified as the IT Helpdesk), broadly constitutes a centralized number, email or web based form for users to log their calls. The person at the other end is expected to acknowledge the call, and attempt troubleshooting via phone or remote control of the computing device. If this is not feasible, he’s then supposed to provide desk side support through an Engineer. Track progress of the call until completed, repeat ad infinitum. Sounds simple enough!

Add a dash of best practices, frameworks like ITIL, service level agreements, and periodic reviews—everything should be hunky dory?

As computers get ubiquitous, cheaper, sturdier, and easier to use, the expectation levels have also risen. Today the expectations veer towards near instant resolution, which reflects the high level dependence as well as time pressures that are typical of today’s workplace. Mobility adds to the complexity, while security concerns mount—new and old threats challenge existing solutions, and compliance add to the challenge. To add to this, budgets are shrinking, and attrition is on the rise. So is it fair to expect service levels to sustain and improve, quarter on quarter?

CIOs with reason are right in their expectations from facility management, as this is what the enterprise demands in a hyper competitive environment. On the other hand, service providers have been struggling to rise up to these challenges and seize the opportunity. A few CIOs mentioned that they were reviewing alternatives, even though the contract period was far from over. In these circumstances, root cause analysis points towards many reasons that contribute either singularly or collectively.

Key amongst these factors remain people (See Challenges of an upturn), where service providers did not plan for attrition, with growth coming back; thus the pipeline dried up, and customers saw an adverse impact. If the person exiting is a Project Manager, it can take up to six months to recover. And we are not yet talking about quality of resources on the ground, which is deteriorating slowly and surely. Most new hires were fresh out of institutes, with very limited or no soft skills orientation. Customer service is not just about fixing the problem, but also with respect to addressing the person behind the computer and his downtime.

The second big issue is process compliance, with or without ITIL. Every outsourcing engagement has a plethora of checklists and processes which need to be rigorously followed to ensure success. However, for the person on the ground, this is a distraction, and sometimes seen as policing. Inconsistent data and incomplete checklists lead to increasing grievances with the users.

Weekly, fortnightly or monthly review meetings are at best a post mortem of the issue; instead, daily exception management between the vendor and customer Project Managers is required to ensure that these do not get discussed at the Management table. CIOs need to conduct periodic assessments to remain connected to the process, a practice which also keeps the teams’ focus on deliverables.