Caveat Emptor: Badly structured deals - QAI

Outsourcing | Feature
While the profuse
use of technical
jargon to impress
may appear
unethical that
does not seem to
discourage many
service providers
under pressure to
win deals.”
Caveat Emptor:
Badly structured deals
By Aditya Bhalla
In the past 3-4 years the APAC region has
witnessed a significant and broad based
improvement in the service delivery capabilities
of the BPO/ITO service providers.
The upward trend continues as lower tier
organisations scale up their capabilities and
the top-tier players target even higher levels
of process maturity.
The evolution of the clients, however,
has not kept pace with the increased process
maturity profile of the service providers.
The evidence for this is seen in the badly
structured deals that often end up hobbling
even the specialised high maturity service
providers.
Many clients seem to have realised this.
That may explain the increasing trend to
hive off internal service providers into
independent companies or their sale to
other specialised organisations (well known
recent examples GE, Citibank, Barclays).
The implied message seems to be that clients
are better off focusing on their core business
processes.
Clients will have to resolve two challenges
to continue to realise the benefits of
outsourcing in the long run.
1) Seamless integration of core and
non-core processes:
There is no universally agreed upon
differentiation between core and non-core
business processes.
• One of the reasons for a badly structured
deal is the lack of a value stream perspective
in the outsourcing of processes.
• Seemingly non-core processes like customer
service or customer account maintenance or
application maintenance can also significantly
impact the end-customer molding their
perception of the outsourcing organisation’s
ability to provide quality of service.
Consider the example of an organisation
into General insurance (some facts have
been adapted to mask the identity of the
client).
20 | Outsourcing | December 2007 – January 2008
20-21(4).indd 20
12/5/07 11:42:36 PM

Feature | Outsourcing
Lack of a Value Stream Perspective:
US General Insurance firm
• This large organisation (‘Firm’)
does telemarketing of insurance
products to its SME (Small
and Medium Enterprises)
financial services clients.
The telemarketing has been
outsourced to more than one
specialized external agency.
• Outsourcing Design Flaws
• Since the firm did not want to
create an IT application, each
vendor developed its own
proprietary IT application. This
created problems in integrating
data received in different
formats.
• The Firm therefore outsourced
the job of sorting the data to
another agency.
• This agency makes calls to
customers to resolve any
database inconsistencies.
• All the above coupled with other
design flaws led to a turnaround
time of 3-4 weeks for confirmed
orders waiting to be processed.
Additionally, customers felt
hassled by the duplication of
effort.
• The firm was losing confirmed
orders lying unprocessed in the
system.
• Ironically, no one was looking at
the value stream perspective or
had an estimate on the revenue
leakage on account of lost
orders.
• A subsequent study established
the potential revenue leakage
estimate at US$500,000.
2. The Techno-babble trap
Even after outsourcing, clients will need
to retain the ability to understand the finer
nuances of running the outsourcing business
to effectively audit the operational capability
of the service providers.
This is because the increased pressure on
service providers to differentiate themselves
from others coupled with the relative
inability of the clients to discern the finer
technical nuances has encouraged some
service providers to resort to techno-babble
to win badly structured deals.
Techno-babble manifests itself in two
ways:
a) Technical blind spot on best practices for
managing the process
Examples of techno-babble blindspot
in IT industry
• Software Architecture: Software
architecture is an evolving field
in the IT industry. However,
that does not stop many IT
companies from brandishing
multi-tier software architecture
software platforms. Industry
experts call such diagrams
‘markitectures’ or at best a
technology stack.
• Such architectures are at many
times divorced from the realities
of the variety of end-user
problems to be solved and/or
even the Business Requirement
Document.
• Software testing: Many players
are also unaware of leading
practices in ensuring test plan
coverage leading to sub-optimal
test plan creation often based
on exclusive focus on testing of
software features.
• One bank discovered in the
pre-product launch phase that
the testing team of an MNC
service provider was going
through the motions of testing
the new software platform
oblivious of the fact that the
business logic governing the
process had conceptual flaws
exposing the bank to potential
fraud opportunities.
Examples of Techno-babble Blindspot
Trap in BPO industry
• Six sigma Graphical Purgatory: Examples
of impressive and complex looking six sigma
project presentations with incorrect analysis
and misguided solutions exist even for the
higher maturity service providers.
• Inconsistent operational definitions:
Inconsistent interpretation of how to define
and track performance metrics is another
bane of the BPO industry.
• This is one area where many clients are
equally remiss in ignoring the advice of their
service providers.
• The stated reason is the move towards
standardization of practices (incorrect?)
across the world. The downside is that
improving the customer experience remains
an elusive dream.
Existing differences … the evolution of the clients
has not kept pace with the increased process
maturity profile of the service providers.
b) Profuse use of technical jargon to
impress: While this approach may appear
unethical that does not seem to discourage
many service providers under pressure to
win deals.
Examples of techno-babble
technical jargon traps
• Six sigma and Process
Capability:
1. One common practice in IT
industry is declaring impressive
entity level process capability
baseline based either on
statistically insignificant project
data or incompatible projects.
This is more so for organisations
competing under pressure to
obtain CMMi high maturity
assessments.
2. For the BPO industry six sigma
has provided many organisations
the ability to claim high
performance capabilities based
on indefensible performance
targets.
The above examples are
representative of the outsourcing
design problems endemic to the
service industry.
For the outsourcing wave to
succeed in the long run, clients
will have to evolve the internal
vendor management support
structures and retain the technical
competencies to ensure that the
end-customer does not turn out to
be the biggest loser undermining
the objectives of outsourcing.
Aditya Bhalla is a senior consultant with QAI
Innovation Practice. He is a certified Master
Black Belt, I-TRIZ IPS and AFD trainer,
CSQA, COPC Coordinator. His client engagements
include Citibank, Credit Suisse, HP,
Trend Micro, Reliance, Tata Teleservices,
HCL BPO, MinDef Singapore and many
others. He can be contacted at aditya@
qaiindia.com
December 2007 – January 2008 | Outsourcing | 21
20-21(4).indd 21
12/5/07 11:42:37 PM