At the end of last year I travelled to India to assess the capability of a potential supplier for our clients. Over the years I have always both enjoyed and been impressed with my trips India. The culture, capability of the people I meet, their client focus and general level of friendliness have always made my trips ones that I look forward to.
This trip was no different and reconfirmed my views. However, I did return with one nagging question;
Why do many corporations not extend their technology services operating model to include partnerships with offshore providers?
Our Broadsheet publication has discussed the changing face of sourcing models many times over the years. Through the late 90’s and over the subsequent 20 or so years much of the focus was on cost reduction. As the efficiency agenda bit into available budgets, many leaders looked towards the labour arbitrage benefits that India could offer, either through their own captive operations, or via sourcing partners to help address the squeeze.
Offshoring business cases often paid lip service to the potential added benefits in areas such as access to skills, quality of delivery or agility, and innovation was often not mentioned at all. So companies transformed their operating model to offshore delivery models throughout this period. Initially the focus was on Business Process Outsourcing (“BPO”) and Information Technology (“ITO”) with back office operations roles and development forming the lion share of the skills transfer. As the model matured, more sophisticated roles in each were shifted offshore in more “value add” areas such as research development and production, as well as infrastructure operations to manage the emerging cloud delivery models through Google, Amazon and Microsoft platforms.
However, with the acceleration in technology innovation over the last few years in areas such as Artificial Intelligence, Machine Learning and Automation, there does appear to be a huge opportunity to harness the talent that the offshore providers have developed?
The first movers in the India offshore business have both an advantage and disadvantage in the new digital economy. Labour arbitrage largely fuelled wave one of the model, enabling companies like TCS, Infosys, Cognizant and HCL to grow their workforce dramatically (TCS now employ c.425k staff at the top end and HCL have c.120k at the lower). However, whilst this is growth has been good on one hand it also means that these organisations will have a difficult transformation to go through with their own operating model through areas such as automation. Their capability is without question, but they now face the same challenges as their clients in how to introduce the new technology without eroding their core business.
So let’s look at the next tier of offshore providers. Here we find companies such as MindTree, UST Global and Zensar, all of which still have significant staff numbers, but sub 30k. Naturally these providers have focused their service offerings around digital rather than increasing headcount.
In my view, this puts them at a significant advantage when it comes to engaging with clients for the delivery of new disruptive technology. By building new platforms to automate operations they can take on new clients without the need to hire at the rate required by the previous Indian offshore pioneers, thus limiting the challenge of what to do with what may become a significant surplus of skills.
So what about tapping into this capability for new technology? Offshoring is something that still divides opinions a lot. Yes, there are probably as many tales of woe as there are of delight. However, this is something that we also find with the more traditional onshore models. In truth, when both sides enter into the model as a partnership and understanding what needs to change in the engagement, roles and responsibilities, strengths and weakness and a shared ambition, then it can really benefit both the client and offshore partner tremendously.
One of the key success factors is to set up the operating model with a common shared interest, irrespective of organisational and geographic boundaries
One of the things that struck me on my visit was just the depth and scale of the talent in new technology, not only within the providers I visited, but also in the very visible growth for big name companies, consultancies and technology mainstays. AI, Dev Ops, Cloud and ML are core to this revolutionary growth.
In our view, the next few years will bring opportunities to develop partnerships, or even new “captive” type models, with those organisations that are on the pioneering end of the digital growth. Organisations should ask themselves “Why build the capability themselves?”. Often the answer to this question has been coloured by the perceived overhead of managing service provider delivery, through vendor management, security oversight, service delivery management etc.
However, organisations should take a “green field” thought approach to tapping into the offshore provider capability. Core platforms can be delivered by technology and service providers with business services layered on top. Also, this should not be structured as a linear end-to-end service chain, coupled together with hand-offs between the parties, but through a Joint Product Led team. This helps to drive efficiencies, a more agile delivery and an end product aligned more closely with expected business outcomes.
We should say something about the wider macro considerations to using Indian offshore talent.
- Firstly, from a security perspective there is a noticeable increase in the level of physical security when entering almost all establishments (in response to events over the last 10-15 years). This used to be consigned mainly to corporate access, but this is now visible at hotels, shopping malls and the like. Not an issue, just an observation.
- Secondly, India is under pressure to retain its offshore status not just from the nearshore providers, but also from areas such as the Philippines and most notably China. However, this is simply a natural evolution and the competition will provide more choices.
It certainly seems like this decade will bring further opportunities to tap into this offshore digital talent for those that chose to look for it.