Recently a customer of ours gave me a copy of the ‘Outsourcing Performance 2016’ guide published by Giarte. It had caught my eye when I was in his office, because the title was ‘Simplicity’. One of my favorite topics, and one that I fail to understand would be at all applicable to the outsourcing industry…
Struggling to survive
For years I have seen outsourcing companies in bad weather, resulting in many layoffs across the board. It seems that a lot of companies are struggling to survive, now that their customers are beginning to see the true nature of many of these companies.
The report summarized this problem very clearly: “For years the buzzword ‘partnership’ has been abused by the IT outsourcing market. Much was promised, but innovation and transformation hardly ever emerged. The result: a huge lack of trust between the partners, managed by using very strict contracts and a tight, direct control structure.”
It is evident that this lack of trust and the absence of promised results leads to many companies taking a different approach to outsourcing. General Motors, for example, has gone from a maximum of 50% of IT being outsourced to a 10% maximum. Similar reductions are seen in many other companies as well.
The future of outsourcing
The lack of trust is also exactly our own experience in the outsourcing market. When we started with our first company, we were in the outsourcing business. Customers would often not trust a deal, and we had to make a huge list of specifics to show that what we offered was realistic. Even if we offered a deal as fixed price.
The Giarte report also concludes that the future of outsourcing lies in making different choices. Letting go of the focus on technical specifics, instead managing on output and business goals. I couldn’t agree more. Outsourcing companies have a broken business model. Can this be fixed, or is it too late?
Broken Business Model
I have been in the IT business for about 15 years now and for as long as I can remember, outsourcing companies have had the billability business model. A junior consultant costs X per hour, a senior costs Y and a principal consultant costs a lot more. If you need a number of hours of consultancy, simply multiply, haggle a bit for a discount and you’re good to go.
The problem of course is, that you need to ask the consultancy firm how many hours something takes. Not a big deal, I hear you say. You just ask for 3 different offers, from different companies. Choose the least expensive one, and you feel you have done a great deal. But now the problem manifests itself….
You want a change in your software, or need to expand your IT because you expect more customers to be using your website for example. Now you are stuck with the outsourcing company you hired, because they have all the knowledge. The Giarte report states this as one of the major downsides of how outsourcing has been done in the past years. This, in effect, puts all the power in the hands of the outsourcing company and leaves companies fully dependent on the outsourcing company. These outsourcing companies will now drive up their price, because switching to a competitor is more expensive.
In my perception, the issue is that your success as a customer, isn’t necessarily the success of the outsourcing company. You’d want the outsourcing company to be successful if you are, and to suffer enough if you aren’t due to their work.
In 2014 I was in a meeting with the board of a big consultancy firm. They claimed to do things differently, they were no stranger to making deals based on the results of the project, they said. So I asked them what percentage of projects was done using a results based model, instead of invoicing the hours spent. They couldn’t really say. So I asked how many projects they had done this way, in absolute numbers. The answer? None.
And I can’t blame them. It is easier to be able to invoice the effort, and not the result. It is easier to not take responsibility when a project doesn’t bring what it was supposed to. And there we are; the problem. How to align the success of the outsourcing company with the success of the customer?
A truly results-based, longterm business model
At Triggre we ran into this exact same issue. As I said, we came from outsourcing originally (granted, a long time ago), and we got fed up with this issue. Old school software companies don’t need to pay attention to the customer, because they care more about their outsourcing partner eco-system. If their partners are happy, they will sell the product for them. To make partners happy, all they need to do is make sure the partner can spend a lot of hours. So there is no need to fix any non-critical defects very quickly, or make a new release completely backwards-compatible. The partners will solve these issues for the customer, by spending additional hours on implementation. Happy partner, happy software company. And if they’re very lucky … a happy customer.
The solution lies in making the (financial) success of the software company and partner dependent on that of the customer. And the model doesn’t need to completely change. For example, a good first step would be to charge cost-price for hours during the project, and charging a percentage of the financial gains the customer makes. If there are no direct financial gains such as extra turnover or saved costs, a similar agreement could be made based on the improvements the customer intends to achieve with the project, e.g. a price per point that customer satisfaction increases. Sadly, there are very few companies that are willing to take this risk. And think about it; is that really testament to how well they will perform for the customer?
I truly hope that outsourcing companies world-wide can change their business model to a fair one, a more value-based pricing model. Because if they don’t, their business will dry up very quickly. Rightfully so, if you ask me.
Source: triggre.com-Outsourcing is Dead
IT organizations are committing to outsourcing this year at the highest rate since the Great Recession.
The new IT Outsourcing Statistics 2017/2018 study from Computer Economics finds that while organizations aren’t broadly increasing the number of functions they choose to outsource, they are increasing the amount of work they send to outside service providers. In other words, more companies are choosing to tap into certain skills from outside organizations so they can focus on mission critical skills in-house.
As shown in Figure 1 from the full study, the percentage of the total IT budget being spent on outsourcing rose from 10.6% in 2016 to 11.9% in 2017. This represents a major increase as organizations have hovered between 10.2% and 10.6% for the previous four years.
“Not surprisingly, IT security was the fastest growing function being outsourced. The variety of threats and the danger they pose increase yearly,” said David Wagner, vice president of research for Computer Economics, based in Irvine, Calif. “Finding and maintaining the right skills to meet these threats can be a challenge. Turning to experts to supplement internal IT security skills is a wise choice for most organizations. Other areas growing quickly included disaster recovery and network operations. Like security, these are areas that are important, but require specialized skills that are not necessarily core to the business.”
Here are other key findings from our IT Outsourcing Statistics study this year:
- Outsourcing is becoming more attractive to all organizations. But large organizations are growing IT outsourcing budgets the fastest. At the median, large organizations have increased the percentage of their IT budgets spent on outsourcing from 6.3% to 8.7%. Small organizations are now spending 7.8% of their IT budget on outsourcing at the median this year, compared to 6.7% last year. Midsize companies have increased their spending at the median from 4.7% to 6.5%.
- Application development is the most-frequently outsourced function in the study. In these times of relatively good economic growth, 37% of organizations that outsource this function are planning to increase the amount of work they outsource. Application development continues to take larger parts of the IT budget, and many IT organizations are looking to optimize internal staffing through selective use of outside development firms.
- Organizations that outsource are favoring help desk and web operations as functions where they are moving the largest percentage of work to service providers. Much of this work involves commodity skills that many organizations find easy to send to service providers.
- The IT functions with the greatest potential for successfully reducing costs through outsourcing are help desk, desktop support, disaster recovery, and data center operations. The economies of scale that service providers can offer makes these areas good opportunities for cost savings.
- The functions with the greatest potential for improving service through outsourcing are IT security, disaster recovery, application maintenance, and database administration. IT security and disaster recovery, especially, are areas where the motivation to outsource has less to do with saving money and more to do with having the job done better than it can be done in-house.
- The outsourcing of disaster recovery delivers the best value when looking at both cost and service delivery. Outsourcing disaster recovery is the only function that has a high cost success and service success rating. For other areas, there is generally a tradeoff between saving money and improving service levels.
In the full study, we profile outsourcing activity for 10 IT functions: application development, application maintenance, data center operations, database administration, desktop support, disaster recovery services, help desk services, IT security, network operations, and web operations.
For each IT function, we measure the frequency and level of outsourcing. We also look at the current plans of IT organizations to increase or decrease the amount of work they outsource. Finally, we examine the customer experience to assess whether organizations are successfully lowering costs or improving service through outsourcing.
Contact Center Outsourcing (CCO) – Service Provider Landscape with PEAK Matrix™ Assessment 2016
The world of contact center outsourcing (CCO) continues to be a hotbed of activity as service providers respond to the pressures of a changing value proposition. Most of the investments made by CCO service providers in past 24 months and planned for next 12 months are focused on offering more digital services to buyers, and shifting focus from the traditional contact center outsourcing value proposition of cost containment to providing unparalleled customer experience. The CCO market has reached an overall size of US$75-78 billion globally, having posted a moderate growth of 4% in 2015. Contact centers are evolving at a rapid pace primarily due to technological innovations as well as changing customer needs. From a solution perspective, CCO market is observing a shift towards digital enablement leading to higher leverage of analytics, RPA, and multi-channel solutions.
This study assesses the contact center outsourcing capabilities of different service providers (CCO specialists, BPO pure-plays, and IT+BPO players) and evaluates their positioning on the Everest Group PEAK Matrix.
In this research, we focus on different aspects of the CCO market:
- Relative positioning of 34 service providers on the Everest Group PEAK Matrix for CCO
- Analysis of service providers’ market shares
- Key strengths and development areas for service providers
Scope of analysis
- Contact center outsourcing offered by CCO-focused specialists, BPO pure-plays, or IT+BPO service providers
- Coverage across all major industries and functional areas
- Coverage across 34 CCO service providers, including Aegis, Alorica, Atento, Capita, CGI, Concentrix, Conduit Global, Convergys, Contax, Dell, EGS, EXL, Firstsource, Genpact, HCL, Hexaware, HGS, HPE, Infosys, Intelenet, Knoah Solutions, Minacs, Sitel, Sutherland Global Services, Sykes, TCS, Tech Mahindra, Teleperformance, TeleTech, Transcom, Webhelp, Wipro, WNS, and Xerox
This report examines the service provider landscape for contact center outsourcing and provides insights into the global contact center outsourcing market. It focuses on service provider position & growth in the market and assessment of service provider delivery capabilities.
Some of the findings in the report are:
- Everest Group classifies 34 CCO service providers on Everest Group’s proprietary PEAK Matrix framework into:
- Leaders: Alorica, Concentrix, Convergys, Sitel, Sutherland Global Services, Teleperformance, TeleTech, and Xerox
- Major Contenders: Aegis, Atento, Capita, Contax, Dell, EGS, EXL, Firstsource, Genpact, HCL, HGS, HPE, Intelenet, Minacs, Sykes, TCS, Tech Mahindra, Transcom, Webhelp, Wipro, and WNS
- Emerging Players: CGI, Conduit Global, Hexaware, Infosys, and Knoah Solutions
- Alorica, EXL, Sutherland Global Services, Wipro, and WNS have been identified as Star Performers on the CCO PEAK Matrix
- Teleperformance and Convergys are the two largest CCO service providers by revenue
- CCO specialists dominate the market, with nine specialists declaring revenue in excess of US$1 billion
- Teleperformance is the only player to hold major presence across all geographies and also across major industries
Everest Group has a complimentary four-page PEAK Matrix preview document for this service provider landscape report.
Contact Center Outsourcing (CCO) – Service Provider Profile Compendium 2015This report provides comprehensive and fact-based snapshot of 20+ major CCO service providers. Each profile highlights service provider’s delivery capability, market strategy, key organizational developments, delivery footprint, and client portfolio along various dimensions such as geography and industry. In addition to this, each profile provides the positioning of the service provider on the Everest Group PEAK Matrix with an insightful analysis of its capabilities. | More
Contact Center Outsourcing Annual Report 2015: Incumbents Beware – There’s No Place for Complacency The CCO market grew at ~5% in 2013 to reach US$70-75 billion. Last 12-24 months have seen a high number of terminations, much higher than the extensions that make the market even more competitive. This report provides an overview of the CCO market, including market size & adoption trends, key solution characteristics, service provider landscape, and areas of service provider investment
Public sector outsourcing deals are growing as the U.S. government seeks shared services efficiencies.
Over the past five years, as outsourcing in the commercial sector has grown steadily but modestly, the annual contract value of outsourcing deals in the public sector has more than doubled, according to analysis by outsourcing consultancy ISG. Today, public sector outsourcing deals account for two-thirds of the annual contract value in the market overall.
Much of the activity is happening in the U.S., which consists almost entirely of information technology work and driven in large part by Department of Defense spending, according to ISG. The Department of Homeland Security and the Department of Health and Human Services, contending with the changes mandated by the Affordable Care Act, are also significant users of third-party IT services.
These federal agencies are also poised to add on more business process services in the future as well “as technology improves and the workforce ages,” says John Keppel, president EMEA and Asia with ISG. Public sector agencies in the U.K. and Australia have already adopted business process outsourcing on a much wider basis, according to ISG. Both countries have increased their BPO activity over the past year in areas such as taxation, pensions, asset registration, e-governance and benefits administration.
In recent years, public sector outsourcing contracts have gotten longer in duration as well at a time when private sector deals have gotten shorter. Both have converged to average of about 3.2 years. “The federal government is pursuing outsourcing in a number of areas where agencies had traditionally created in-house technology functions in the past,” says Keppel. “Private sector terms have been growing shorter, driven by specialization and the flexibility that those deals provide to clients.”
Shared services environments drive longer outsourcing deals
A new push from the U.S. government for shared services environments (particularly in back-office functions like IT, accounting and finance) is another contributing factor to the longer deals. “Shared services offers the possibility of substantial budget savings. This dynamic drew private sector companies toward outsourcing and government managers, faced with growing pressure to increase efficiency, are being encouraged — even forced — to look at shared services as a smart way to approach this,” Keppel says.
But the shared services mandate has ruffled feathers and introduced significant technological challenges. “The move to shared services hasn’t been easy, as it runs counter to a long history of each agency establishing its own IT functions,” says Keppel. “Implementing shared services requires significant system integration and data migrations. In addition, many agencies have had to maintain legacy systems they thought they would be able to retire. Agencies have been successful in identifying the lowest hanging fruit, such as consolidating systems within their own agency.”
At the same time, federal CIOs are working aggressively to adopt cloud applications, roll out mobile technologies and support big data projects, for which they’ll need the experience, efficiency, and capabilities of private sector providers. “Many agencies’ budgets remain flat, they are understaffed, and face a skills gap to pursue cloud, mobile and big data technologies,” says Keppel. “Outsourcing providers possess the expertise, unique skill sets, and service delivery capabilities to help agencies launch these projects quickly and cost effectively.”
According to cOutsource founder, Sal Sarosh, Mid-size and enterprise customers have largely stayed away from using freelancing platforms.
Although many companies continue to find success with outsourcing a lot of their work, according to Sarosh, the outsourcing structure, as it is today does nothing to offer larger firms the reliability they need. The need for innovation makes a turn over a less strategic option at a time when IT is strategic again.
Outsourcing is not a new phenomenon, it has been around since the mid-1980s. Companies in search of new ways to cut costs and to increase efficiency decided to outsource the work with the understanding that technology was a cost of doing business.
Why has the tide turned against IT outsourcing? The idea only made sense when companies viewed technology as a cost of doing business. The rise of digitization, big data analytics, and cognitive technologies has made IT strategic again. And it is often difficult to get innovative, differentiated outcomes when you turn IT over to someone else.
Tom Davenport, Why Companies Have Stopped Outsourcing IT
Although there are many reasons why larger firms may choose to apply their IT strategies in-house, Sal Sarosh believes that by providing something as simple as reliability can offer them the confidence to continue to explore outsourcing.
The unreliability of Outsourcing
Over the years, IT outsourcing vendors opened up offices in locations around the world looking for the best and brightest. This approach resulted in some success and enabled organizations to tap into a global pool of talent that was not available before. However, this model has now saturated and cost for IT outsourcing has gone up significantly, and quality of talent has come down drastically.
On the one hand, companies that outsource work do not end up getting their dream team of A+ players with both large and small outsourcing vendors. While smaller consulting firms have only limited talent and end up using not so qualified resources for projects, large enterprises tend to keep the billable rate high and use more junior talent for most of the work. On the other hand, companies end up paying way more money than they should. Some of the reasons for this are most consulting firms are bloated and end up with huge hierarchies that are not required. Other reasons are the need to maintain US-based sales teams and huge infrastructure costs.
Enterprises Stay Away
Enterprises have not adopted freelancing platform due to several factors. First, most enterprise projects require more than one or two resources and need someone to manage these resources. Usually, freelancing platforms do not provide access to a team. Second, managing freelancers from around the globe, given time zone, culture and communication challenges, becomes a nightmare and very few companies have had success with this. Third, even if companies overcome the first two challenges, there is no guarantee for the quality and security of the work product, and there is no one neck to choke to ensure deliverables are met. Finally, the reliability of the talent through a ranking system has not created the trust required for them to adopt these platforms.
Creating a pool of verified project managers with the ability to manage enterprise size project work.
We are providing a reliable and trusted way for enterprises to adopt freelancers. This is achieved by providing verified project managers in the US who compete with each other for enterprise project work. The best among them chosen by the customers are provided with tools and other freelance talent to manage the entire project. All project managers are background checked by us for communication and leadership skills and are experts at managing global teams. The global pool of freelance talent is verified by us for authenticity and filtered by the project manager for skills, talent, and fit for the project. Customer’s benefit from on-demand access to a labor force that is truly global, when they need it, where they need it and with the skills they need; trust and accountability comes through the project manager. In short, we have redefining IT outsourcing like never before.
We source a large pool of freelance talent in a wide variety of skills. Usually, this is done by posting ads on LinkedIn and other channels, direct solicitation through various channels, network effects, and other channels. This pool of talent is then verified for authenticity by validating their identity (i.e drivers license, etc). Once the freelance pool is verified, they compete with each other for the enterprise project work through profile and background, contributions to discussions, and direct interaction with project managers through the platform.
In addition, project Managers go through additional background check and interviews to make sure they have the communication, leadership skills required for the job. All project managers are based in the US and sign Non-Disclosure agreements with personal liability to ensure confidentiality of the information provided by the customer. Project managers compete with each other for enterprise project work, and the winning project manager is provided with the choice of freelancers they can select from and manage the work. The platform has ranking and rating of all freelancers, access to LinkedIn profiles of freelancers, and audio/video/chat integration between customers and project managers, and between project managers and other freelancers so they can discuss the project and shortlist the talent.
According to Stratistics MRC, the Global IT Outsourcing Market is accounted for $314.92 billion in 2015 and is expected to reach $481.37 billion by 2022 growing at a CAGR of 6.2% during the forecast period. Improved company focus, gaining access to exceptional capabilities and reduced costs are some of the major factors driving the market. Whereas, factors such as loss of control and reduced employee morale are hindering the growth of IT Outsourcing market.
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New market opportunities and trends with cloud computing and new business models are prompting the IT infrastructure outsourcing services market. Asia pacific and Latin America are expected to witness prospective growth due to expansion by multinationals into these regions.
Some of the key players in the global IT Outsourcing Market are Infosys, iGate, HCL, Cognizant, CGI, Capgemini, Wipro, Unisys, TCS and ITC Infotech.
Browse the full report at
Scope of the report:
Security Types covered:
• Gain sharing
End Users covered:
• Small and Medium enterprises
• Large Enterprises
• Telecom and IT
• Government and Public Utilities
• Banking, Financial Services and Insurance (BFSI)
• Aerospace, Defense and Intelligence
• North America
o Rest of Europe
• Asia Pacific
o New Zealand
o Rest of Asia Pacific
• Rest of the World
o Middle East
o South Africa
What our report offers:
– Market share assessments for the regional and country level segments
– Market share analysis of the top industry players
– Strategic recommendations for the new entrants
– Market forecasts for a minimum of 7 years of all the mentioned segments, sub segments and the regional markets
– Market Trends (Drivers, Constraints, Opportunities, Threats, Challenges, Investment Opportunities, and recommendations)
– Strategic recommendations in key business segments based on the market estimations
– Competitive landscaping mapping the key common trends
– Company profiling with detailed strategies, financials, and recent developments
– Supply chain trends mapping the latest technological advancements
The smooth functioning of IT infrastructure is the key to successful business operations. That’s precisely why most businesses focus on accomplishing 100% IT efficiency. But the process of maintaining computing infrastructure is not that easy isn’t it?
Optimizing, securing, managing and supporting the mission-critical infrastructure throws in a lot of challenges that include:
– Maintaining a scalable and secure computing infrastructure that minimizes costs and ensures service quality
– Hiring and retaining a team of well skilled IT professionals
– Providing an agile and flexible IT infrastructure that enables quick response to dynamic market demands
– Ensuring adequate bandwidth capacity and traffic loads to support mission-critical application environments
– Managing and controlling increasingly expanding infrastructure
– Managing best-in-breed service providers and product vendors.
Trying to fulfill to these demands, a vast number of businesses have met with non-accomplishment. Their IT infrastructure has failed to run smoothly and reliably 24/7 that has affected the performance and functionality and disabled businesses to seek and seize opportunities for moving forward.
Outsourcing IT Infrastructure Management
This common critical plight of ‘IT infrastructure management failure’ has divided the business world into two groups – advocates and opponents of IT outsourcing. However, amidst a big debate whether IT infrastructure is best managed internally/externally, a large section of businesses have gone ahead and partnered with professional technical support and maintenance service providers.
So what has been the outcome?
IT outsourcing has enabled businesses to tap into new technologies, expand skills, respond to market demands and deliver services and products quickly. The entire IT onus, ranging from data center operations to application development and desktop management has been shifted. The corporate professionals have got empowered to concentrate on key strategic initiatives and meet the companies’ other pressing concerns while the external partner takes care of the IT needs.
The news of the terrific outcome experienced by these businesses have spread like wild fire and fostered several others to outsource their IT infrastructure management too. As a consequence of which, the ‘outsourced infrastructure management services’ market has expanded to an unimaginable level.
Quoting the words of Vlad de Ramos – ”The total market for various outsourced infrastructure management services has grown up to $120 billion at present, according to Stephanie Overby’s piece for Chief Information Officers’ magazine. From network services, help desk support, server maintenance, and desktop management—there’s definitely been an upturn of offices farming out their infrastructure management necessities to outsourcing companies.”
So what factors have contributed to the stupendous growth of the outsourced infrastructure management services market? Let’s find out:
The benefits of IT application and infrastructure outsourcing are significant.
1. Focus on higher value responsibilities
Managing the infrastructure system is a time-consuming task. And things become more challenging when the business is fast-growing and new areas get added into the operations. Managing all the core competencies along with IT infrastructure becomes taxing. Often the focus on operational activities takes away the focus from infrastructure management necessities.
Having an infrastructure management partner enables businesses to comfortably hand over all the IT tasks while they concentrate on developing operational strategies.
2. Reduced Costs
Now this is a no-brainer!! Its simple math that hiring an external partner to handle the company’s entire infrastructure is less expensive than employing a team of full-time IT professionals. That’s the reason it’s deemed best for all fast-growing small and medium-sized businesses that grapple with finances.
SMBs can hire any renowned IT infrastructure management company and outsource all IT tasks at a reasonable cost. Going forward, they have the ease to pull back contracts from the partner and switch to another. Dealing with a permanent team of IT professionals is never the hassle for them.
3. 100% IT efficiency
Collaborating and partnering with an IT infrastructure management company ensures on-time support and prompt resolution of the most complex server and application problems. These companies have in-depth knowledge on the latest technologies and services in the industry and provide scheduled updates for security patches, antivirus, spam protections and network security.
Resultant of which, the IT system becomes robust and powerful in the long run. The business experiences high uptime with great redundancy and disaster recovery capabilities.
4. Smooth tackling of IT challenges
Businesses are often required to have multiple integrations, consolidations and changes in their IT infrastructure. Now, while this is quite troublesome for any business to solely handle, working with a company that offers reliable IT infrastructure management services make these tasks super easy.
Possessing in-depth information, these service providers precisely know the tricks and methods to handle all the IT challenges and render maximum value and minimal risk to the business.
5. Improved agility
In the present hyper-competitive landscape, it is imperative for every business to have “speed to market” and agility to respond quickly to dynamic opportunities. And both these factors can only be realized when the business brings in the services of a reliable IT infrastructure management company.
That is because in comparison to in-house IT team, outsourcing providers offer better support to quickly implement new developments within the business.
IT Outsourcing – Step towards Operational Efficiency and Excellence
Every business is dependent upon its applications and infrastructure components: servers, network, and security. Outsourcing IT Infrastructure management with a trusted provider ensures strategic effectiveness as well as cost efficiency. It puts the management professionals in a better position to give attention to operational areas, align IT with business objectives and optimize processes and acquire new capabilities.
Statistics also show that businesses who partner with an IT management provider are better at capitalizing on the market changes than others. That is because they get to use their IT partner’s economies of scale, high performance, and enhanced service delivery to address most urgent issues and bring in innovation and significant change.
Already, more than 50% of businesses have acted boldly and taken the leap to IT outsourcing. When will you??
Many companies in mature, offshore, FTE-based outsourcing environments experience substantial bloat. From our knowledge of our clients’ situations and our research for companies seeking objective data to help them determine the return on investment in outsourcing, it’s clear that many companies today are paying too much for the resources. And they’re blissfully unaware of the outsourcing bloat — which means that they are paying for 30 percent or more of FTEs than they need. Moreover, they don’t have visibility into what could be done to rationalize the bloat. This is a significant problem.
The outsourcing bloat grows in two dimensions: (1) paying for too many FTEs and (2) paying too much per FTE. The problem has an even bigger impact when you consider that outsourced FTEs will cheerfully respond to system problems, but not address the underlying issues which cause them. Our observation is companies that have fixed underlying systemic problems are operating with 30 to 40 percent fewer FTEs.
We’re finding this situation across most of the industry. Every company is different; but if yours is in a mature FTE-based outsourcing situation, there’s a good chance you have substantial FTE bloat.
The problem is exacerbated in that companies are paying more than market rate. Here’s why. Typically, when a company signs an outsourcing contract, a cost-of-living (COLA) adjustment is applied, which ratchets up the cost. But over the last three years, market costs for these services have been dropping between one and three percent a year. Yet the COLA has been going up between three and five percent a year.
Companies sign a COLA agreement because they believe they want to retain the people. But even if this is the aspiration, most companies experience significant churn in the offshoring factory model. So they’re paying for something they’re not getting (retention of people) and also paying higher costs even though the provider’s costs aren’t rising. Although wages are increasing in India, wages for the freshers (the people coming out of college) haven’t been increasing, and that’s often the resources the customer pays for as the provider’s model is to keep lower-priced people doing the work.
Finally, rupee depreciation is a factor. Since the customer pays for more resources than are necessary, this offsets the depreciation impact on the provider’s rates.
My advice: If your company has a mature, FTE-based outsourcing relationship, you need to take a close look at it for possible bloat. Obtain objective market data to help you determine whether you’re paying for too many resources and too much for those resources.