Taking the Long View: Holistic Outsourcing
When a company is looking to outsource or review its sourcing decisions, traditional portfolio analysis may not provide the complete solution. It can miss some key inputs that may require additional homework.
A holistic approach that includes an architecture road map or direction, structure, competency hierarchy and a mapping of current and future application characteristics will provide longer lasting benefits, and help avoid some of the long-term, ill effects of outsourcing and offshoring.
Most engagements for offshoring and outsourcing start of with the first question: what to offshore? A vendor (or an internal team) is chosen to detail the portfolio characteristics. The criteria is chosen and its risk to outsourcing and offshoring is tabulated. Voilà, you have the portfolio that is to be outsourced.
Most often, the constraints evaluated include people issues, knowledge retention needs and organizational considerations. However, these constraints are sometimes missed in the overall weighting scheme and worse, these become a gate that keeps out potential candidates for outsourcing.
The major disadvantages of the traditional approach are:
1. The current portfolio, not the portfolio of the future becomes the basis for offshoring. Thus, the current evaluation will lose its relevance over time.
2. Future competency needs are not taken into consideration leading to a gap in competency development and, therefore, the ability to quickly respond to changing business needs.
3. The need for restructuring the organization to one that will map to both the outsourced context and the future competency hierarchy is missed. Typically, vendors adjust their structures to map to current organizational silos. This results in sub-optimal use of resources, and lack of speed in decision making, setting up the portfolio to become increasingly diversified with creeping redundancies.
4. In the case of inorganic growth, the problem worsens as shifting priorities necessitate compromises in staffing, architecture, processes and standards.
To avoid these pitfalls, consider including these three factors, apart from the traditional portfolio analysis approach: Road Map, IT Organization Structure, and Competency Hierarchy.
Knowledge of a companys journey from its current application portfolio to the intended portfolio is essential in the selection of appropriate vendors. They need to show expertise in both the current and future skill sets; and perhaps also have the experience of executing migration projects that have traversed similar technologies.
Expertise in the current skill set is not as important as skills in the end-state technology as there will be enough people and vendors who support current portfolio needs.
Ease of migration (usually ignored in traditional portfolio analysis) now becomes an important factor in deciding whether to outsource an application. Validation needs, infrastructure needs and the ability to control changes (a volatile application is not the best choice for migration until the volatility is controlled) are the other factors that affect the sourcing decision.
Understanding your road map, and the applications that will be most affected by the change will provide critical insight in deciding the sourcing strategy for those parts of the portfolio.
IT Organization Structure
Geography or technology can greatly determine the kind of IT organization structure that the vendor will propose. As it evolves, it will become increasingly necessary for the vendor to adapt to the newer structure. Most often, the change at either end for the outsourced portion of the portfolio is reduced to a superficial change of reporting lines with no genuine benefit (disadvantages in some cases) to either party due to the structural change.
If the changes can be anticipated, and mapped correspondingly to the metamorphosis of the IT organization, negotiations should begin with the vendor for appropriate changes to the interface and delivery models. It then becomes feasible to plan for people to work across business lines (if you change to a technology-based organization); governance (escalation channels will change with structural changes); and changes to SLAs and performance measures. Productivity improvements and efficiencies of scale can then be quantified and measured and cost increases can be anticipated.
This, unfortunately, is the most neglected, but perhaps the most important factor in determining a sourcing strategy. Competency hierarchy is the name for the informal power that teams and individuals bring to the table due to their knowledge and ability to deliver.
This is distinct from the organizational silos and hierarchies that are built up. An example would be an individual who knows the software code of a custom, mission critical app so well that it is impossible to remove him or replace him. Such an individual becomes very powerful when projects impacting that specific application are to be executed.
A few questions can be asked to clarify and understand this hierarchy better:
1. Who knows all about a certain application?
2. Who are the people indispensable to the running of the critical applications? Why are they so indispensable? Is it really so complex that it will take years to groom replacements?
3. Who is the go-to person when the core application is to be modified? Is the person an internal player or is the person from one of the IT partners?
These critical roles need to be filtered, classified and tagged as being vital to business-as-usual activities or to enhancement/project related initiatives. With this map, a structure can be drawn outlining the new team to include IT vendor/partners thus minimizing the risks posed by the departure of critical resources. Better decisions can be made by you on retaining some of these people.
Giving weight to factors to determine offshorability is only part of the work. Considering qualitative factors like competency hierarchy, IT roadmap and organization silos and their hierarchies is key to getting a portfolio organized.
Ramesh Dorairaj is vice president and head of a Strategic Account at
MindTree. Ramesh has more than 19 years of industry experience across
domains such as banking, commercial markets, retail, utilities and manufacturing.