G-Special: Vendor Make-over: Why and How?

G-Special: Vendor Make-over: Why and How?

Guarantees, sharing customer's profit and loss, result-based payments, partnership models, promises woven tight into contracts, wagering deals on performance, direct revenue correlation and a lot more. It's a new wardrobe altogether at your vendors side. And it's haute couture!

Pratima Harigunani

Monday, November 30, 2009

Nothing can make a buttoned-down, numbers-drained, abacus-wielding customer do somersaults.
Nothing?

How about the word ‘Guarantee’?

A word that according to a dictionary unwraps like this: “A promise or assurance specially one in writing that something of a specified quantity or quality or content or benefit will perform for a certain period of time. In short, a word that assures a particular outcome or condition.”

Drop the dictionary. This word could very well be a dream scenario, almost‘Manna’ for any customer!
Imagine you doing your house, and your ear-drums wake up in shock, a pleasant one of course, to hear your plumber, painter or the interior designer saying this with a smile, “Sir, if I don’t give you the job you want on this house, I promise your money back.”

Lines that can make anyone tickled pink and jump to cloud nine.

Guarantee or Promise, words that give that bounce in your step and those extra inches to your grin.
Imagine a dog in a sausage factory; a child in a chocolate factory; and an IT enterprise customer in a ‘Vouch’ factory.
Well, the ‘Vouch’ factory, at least, is no more a fantasy world.

Prick up your ears and get ready to rub your eyes in surprise. Your vendors have put on a new robe. No more paying through your nose, unaccounted license fees down the drain, or black hole IT spends. It’s a new world where every penny’s worth is promised, where losses and profits are equally shared, where results alone get the cheques through and where ‘ your partner’ is as visible on the balance sheet as on the sales brochure.

Yes, words like ‘money-back’ are interestingly coming from the salesmen themselves.

Here’s how.

Guarantees, and its many flavors

Zensar calls it ‘impact sourcing’, Persistent tags it ‘partnership’, MindTree appellates it as ‘outcome-based services’, while Symphony calls it ‘Guarantees’. The names could be different, but the quintessential flavor is same.

A new flavor of servicing customers, with new and stronger ingredients of accountability, responsibility and financial risk sharing.

That’s how many service providers are changing their approach to positioning themselves and treating a customer.
At Zensar Technologies, it’s ‘Impact Sourcing’.
A consultative service offering from Zensar that aims to identify cost culprits in an organization’s IT operations and guarantees quantifiable savings over measurable periods in time, as the company explains it.
The Impact Sourcing 10/10 formula means an assurance of a minimum saving of 10 per cent on what one spent across infrastructure, processes and applications management within ten months of engagement.

At Symphony Services, a software product engineering player, it is certainty and guaranteed success.
Over 25 per cent of Symphony’s clients are working under performance-based engagement models.
The company is doubling down on its commitment to ‘Engineering Outcome Certainty.’ More than 50 per cent of its new engagements will use performance-based models.

“From strategic and operational consulting guidance to complete software product lifecycle capabilities, Symphony’s risk-reward partnership models and focus on metrics and transparency ensure complete alignment with clients’ business and R&D objectives.” Gordon Brooks, CEO of Symphony Services stresses.

The new model ensures certainty and guaranteed success for software engineering initiatives, he claims.

Another OPD major, Persistent is also successfully suggesting a new business model for ‘transformation of business’ to its several customers.
By structuring engagements with customers, Persistent is trying becoming an extension of customer’s own product organization, sharing risk and rewards - all resulting in better business outcomes for customers.

MindTree Ltd is another company that is about 25 per cent on to this path and is also ready to launch off a new version of the outcome-based model. The same is going to be visible clearly on the company’s delivery side in about six to nine months, as Amar Karvir, Vice President, MindTree Ltd tells.

“Guarantee-based outsourcing models or what we refer to as Outcome-Based Models/Approaches have been gaining ground over the last two years and this push has accelerated especially in the last year for obvious reasons. This has relevance to our business too and we are in discussions with several of our customers to structure engagements on lines of these models.” Karvir explains.

Drivers, catalysts and Triggers

The global downturn was the prime market driver for this new service offering to be initiated by Zensar. So is the case with other companies who attribute the role of catalyst, driver or advocate to the slowdown too.

Rapidly changing global business dynamics has made it imperative that the entire paradigm of strategic sourcing is revisited. In these changed market conditions where budgets are pruned and intent to spend scarce, quick and measurable savings over predictable and short timeframes become key decision points, says Krishna Ramaswami, Vice President, Strategic Services Unit, Zensar Technologies.

“The current economic crisis is a challenge as well as an opportunity for our global customers to increase market share and reduce costs. Our experience in working with customers of all sizes including some of the FTSE 100 and Fortune 100 companies has given a global perspective to our services & solutions and helped us reduce the Total Cost of Ownership (TCO) to our clients in many cases between 15 and 20 percent,” he says.

Direct linkage between outsourcing activities and clients’ business objectives, brings unparalleled predictability to costs and schedules and ensure finished products are aligned with clients’ business goals, it appears.

“The outsourced software engineering industry too often focuses on contracting for inputs (e.g., engineering resources, rates and costs, etc.) without regard for results. This practice is especially detrimental in down economic cycles when the performance of companies, teams and individuals are measured with increasing scrutiny.” Brooks points out.

Some studies have shown primary emphasis on “rates” and “experience categories” vs. “results” leads to poor R&D performance from in-house engineering teams.

From the vantage point of Symphony Services, when companies are unable to accurately measure their team’s outcomes, significant problems can emerge, ranging from missed deadlines for critical product releases to countless hours wasted redoing poor-quality work.
“In fact, industry studies conclude that software engineers spend 40-50 per cent of their time on avoidable “rework” rather than new product development. This leads to significant cost overruns, as once a software product makes it into the field the cost of fixing an error can be 100 times as high as it would have been during the development stage.” Brooks argues.

What makes the report card: Metrics

There could be many deliverables and outcomes that serve as metrics for clients. At Zensar these range from identified weak areas, identified solutions with saving potential, prioritized solution based on mapping difficulty in implementation vs. saving, a ten month implementation plan an assured saving of 10 per cent on overall IT spend in 10 months time. “Periodic reviews are around to check that we are on track to achieve the committed saving.” Ramaswami tells.

“We have demonstrated saving of 10 per cent of application portfolio cost in one year for a large manufacturing company, 18 per cent of infrastructure management costs in one year for a utilities company , and a 17per cent savings in total Cost of F&A process for a Retail & Distribution company.

Outcomes can be quality-based, cost-based or business-based.

Amar Karvir cites some outcomes. In testing area for example, quality results could mean the level of functional coverage, defect removal efficiency. Cost results may mean overall cost of testing, or percentage of automation achieved. Business metrics could be the testing cycle time, schedule completion status etc.

Risks and concerns

There are a lot of challenges around the outcome-based models.

The customer is an integral part of this exercise and lack of dedicated bandwidth from the customer side is a potential stumbling block, shares Ramaswami.
“While it is Zensar’s responsibility to achieve the 10/10 target, the decision making process is an interactive one & timely inputs from the customer are essential to the effectiveness of the plan.”

There are many more serious issues – that of legal implications and cultural factors.

“Legality is one big reason why not everyone has not jumped on to the result-based bandwagon right away. As vendors, we can commit to only whatever we have good control over. Customer has to buy in and both the sides are still accountable and it is people on each side that can make or mar the success of a project.” Karvir comments.
The revenue-to-risk factor can range from ten per cent to anything, based on the output, as Brooks tells, but then Karvir has the best answer to it.

“The risk is high, but for someone who can deliver in this new model, the risk-to-reward ratio is favorable too.”

So, clearly the vendors around have groomed up for a real makeover.

G is in fashion. Make the cut.

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