Services Safari

Professional Services Lessons From Sourcing Pros

          Advice From the Other Side of the Negotiating Table

                                                Part Two

I recently sat in on an all-day meeting with a dozen or so sourcing executives.  The entire day was spent discussing the acquisition of professional services.  There were a number of interesting insights that surfaced throughout the day.  Here are the second group of highlights I noted:

• Some executives whose companies utilize extensive amounts of contracted legal assistance, recommended placing lawyers on risk sharing or outcome based arrangements.  The typical deal they discussed involves the payout of bonuses when matters are resolved ahead of schedule and under favorable terms.
• Training projects are still wide open from a sourcing perspective. Practices for how this work should be negotiated, priced, etc. are far from standardized.
• The executives in attendance recommended that IT project management activities should be done by the client not an integrator or a specialist integrator. The issue involved is that a client would offer a more critical review of progress and press the integrator to stick to the contract and not find countless ways to expand the scope of work.
• The more commodity-like the services and the longer the project's duration, then the lower the target margin for the service work should be. Outsourcers and package installers should not expect nor receive the same margins that a short-term graphics artist gets for a 1-week gig.
• No consistent definition exists for professional services or consulting. Sourcing executives find it tough to apply a single set of practices that apply to the full breadth of services that companies procure.
• When service firms use delivery personnel that are different from the sales team, clients are warier than ever. They don't believe that sales pros know how to correctly estimate service work or are afraid that sales pros will intentionally under-scope the work just to get a nice commission.
• Several execs indicated that the fear of outsourcing is dissipating somewhat in their firms. It still is a touchy subject and one that must be handled carefully. One of the more interesting comments was that employees 'no longer think of travel or benefits processing as outsourcing. They (employees) just see it as a service now'. This may be true for non-core functions but it takes time for the thought process to change.
• SG&A costs of service providers are considered too high. This point was especially sensitive with sourcing executives who feel their firms are being invaded by service sales teams.
• Service firms should expect clients will pare back projects if the economy degrades further. Clients will go for shorter duration or fewer projects.
• Lastly, these executives have a new math equation they'll try out on service firms. They want to know how many clients you have so that they can calculate your revenue/client. The greater this number, then the lower margin they believe you should receive.

If you'd like more information on any of these comments, fire me off a comment or an email.

Professional Services Lessons From Sourcing Pros

               Advice From the Other Side of the Negotiating Table

                                                Part One

I recently sat in on an all-day meeting with a dozen or so sourcing executives.  The entire day was spent discussing the acquisition of professional services.  There were a number of interesting insights that surfaced throughout the day.  Here are the first group of highlights I noted:

• When it comes to approving expenditures for management consulting or strategic consulting, most sourcing executives indicated that this is controlled by their CEO. Procurement has no say in these decisions.
• Procurement executives are heavily involved in IT spending decisions.  In fact, IT is indicated as the greatest success area for procurement/sourcing executives.  Procurement is involved in all aspects of IT spend including hardware, services and software.
• Sourcing executives have little input in the choice of external auditors or outside counsel.  In-house counsel continues to control the selection and rate approvals for outside legal spend while board members and the CFO approve and negotiate fees with external auditors.
• Sourcing executives strongly recommended that service buyers include most favored nation's clauses in their master service agreements and other service contracts.  Several executives noted great success in enforcing these arrangements as too many service firms are uncoordinated in managing to a static rate card.
• Several sourcing executives indicated concern when they uncover that critical service suppliers (e.g., engineering firm) may have violated corporate intellectual property protection clauses.  Offending firms often have their contracts immediately canceled and are barred from future bidding for a multiyear time period. However, some executives noted that critical suppliers cannot be cut loose without creating material adverse harm to their own firm.
• Sourcing executives are particularly irritated with systems integrators who seemed to be blanketing their firms with sales teams on a global basis.  In retaliation, these executives have changed building access rules for consulting personnel.  Now, only one sales person per consultancy is allowed a building pass and all consultants must be signed in by a client.
• Sourcing executives are maintaining a watchful eye on the human resource practices of outsourcers.  These executives fully expect to expend more effort in monitoring compliance with critical regulations and policies in this area. 

Tomorrow- I'll post more observations

If you'd like more information on any of these comments, fire me off a comment or an email.

Update: H-1B Story

            Patni and Others Respond to BusinessWeek H-1B Story

Last week, I mentioned a BusinessWeek piece that discussed a lawsuit involving Patni and former employees of the firm. (see: http://servicessafari.blogs.com/services_safari/2008/02/prediction-lawy.html ). This week's issue of the same magazine ran three letters to the editor discussing that story.

An EVP of Patni wrote about BusinessWeek's 'unfair portrayal' and use of 'unsworn allegations'. This EVP discussed Patni's participation in a Labor Department investigation 'to correct the payment mistakes'.

Another writer discussed how employers are using lower cost H-1B workers to displace nurses in his community of Thousand Oaks, California. Incidentally, H-1B workers are supposed to be paid prevailing wages of domestic workers.

Another writer was apparently an underpaid H-1B worker who must have become a naturalized citizen and he now has a 'big job and a big paycheck' some ten years later.

As I wrote last week, I suspect that we'll be reading more and more of stories like these particularly as the US economy may be softening. An election year also drives potential politicians to whip workforce abuses and/or job losses as a big campaign issue. This has the potential to become a big PR headache for non-US firms and the outsourcing industry should do a lot more to police itself, prevent abuses and expose those who are not following the rules. 

Hewitt Financial Results - HR BPO Observations

                          An Analyst's Assessment of Hewitt

Check out: http://www.theindustryradar.com/Home/?currentHome=/Accounts/article/layouts/Hewitt_Hood.xml for an interesting read on how Hewitt is doing. This piece is not that positive but it does give some insights into the competition and financial performance of the HR Business Process Outsourcing space. Check it out.

Prediction: Lawyers to Circle OffShore Service Providers

                   The Raping of H1-B and Domestic Workers

This could become a big issue in the world of professional services. BusinessWeek reported (see: "Are H1-B Workers Getting Bilked?", www.businessweek.com, February 11, 2008) the case of Vishal Goel and Peeush Goyal against Patni.

The essence of the case is that Goel was sent to work at State Farm Mutual Automobile Insurance via a US work visa secured by his employer, Patni. The visa application apparently stated that Goel would be paid $44,000.  He alleged that he received a base salary of only $23,310.

The article contains this quote as well:

"Goel's is not an isolated case.  A number of the most active users of the work-visa program, for what are known as H-1Bs, have been accused of underpaying or otherwise mistreating workers.  Last year, Patni paid $2.4 million to 607 H-1B visa workers after a Labor Department investigation uncovered systematic underpayment of wages.  "I highly suspect that these employment practices are widespread among the tech outsourcing firms," says Ron Hira , assistant professor of public policy at Rochester Institute of Technology, who will testify as an expert witness in the Goel case."

Another aspect of this case is that complaints by domestic US technology workers that H-1B visa holders are unfairly taking away jobs and substantially undercutting market prices for same may have some merit. Cases like the one above certainly add credence to these claims and will certainly trigger changes from Washington.

Before this situation is totally sorted out, we should expect to hear of other similar cases and abuses.  This may not be a new phenomenon but may represent a set of business practices that have gone on for years.  Many years ago, I heard sketchy rumors of a very similar situation occuring in another firm. I can't even remember the company but I do know it failed. Hopefully, its business practices and the Karma they threw off, doomed it.

What's so disturbing about stories like these is that employers may be willfully and grossly taking advantage of workers.  Their employees are in a foreign country where they may lack legal standing. As very low paid workers, they cannot afford to hire an attorney in this country unless they possess superb documentation and an iron will. By the time any trial arises, they may no longer be in the United States and the case is moot. There's a real possibility employers are counting on all of these factors to continue their deceit.

Worse, the companies that use these service firms may be unwittingly or knowingly participating in this abuse.  Major service firms and their clients can ill afford the negative publicity or PR damage that would result from public disclosure of unethical or illegal hiring practices.

If I were a CIO using the services of an offshore service firm, I'd want to conduct an immediate review of all personnel assigned to my account that hold H-1B visas. I'd certainly want to see copies of the visa applications and the salaries stated on each. Then, I'd want to ask each visa holder to verify their salary. Any discrepancy would result in the immediate termination of that service firm's contract.

In an age of GRC (governance, regulation and compliance), how these abuses can even occur is baffling. Either the GRC documentation of US firms (that use these service providers) is inadequate or ineffective or the internal audit function within offshore firms is broke. Either way, it's a disgrace. 

We should expect:

• greater CIO scrutiny of existing offshore firms
• investigations, Congressional inquiries and other reactions from Washington
• more pressure to restrict H-1B visa grants or, at least, a better set of criteria for application
• more truth about the role of these visas in triggering potential domestic job losses
• H-1B visa holders getting wise to unethical actions of their employers
• potential visa applicants demanding better treatment from their employers before the visa application process begins

As stated at the beginning of this piece, this could become a really big issue.

Get Over It Already

                         You're Not Consultants Anymore

Today I listened in on an analyst firm webinar concerning their predictions for the IT services industry. In the Q&A that followed, a caller wanted to know why systems integrators still have not productized their offerings as we move well into 2008.

While one of the analysts offered a capable answer, the reality of it is a little more insidious.

Yes, consultants like to believe in the unique problem sets that their clients possess and that only a consultant can craft an equally unique solution for them.  The concept of commoditizing (or productizing) one's solution is repugnant to a consultant because once commoditized, the unique value of a consultant is lost.  In fact, the consultant is replaced with an installer.

People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day.  Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects.  No, you're not a consultant. You are an order fulfillment specialist.

The Economist produced a book titled Business Consulting recently.  One major theme that this book explored was that management and strategy consulting is no longer what most major service firms sell today.  No, they sell preconfigured solutions.

Any systems integrator that balks at productizing its offerings is doing so because it is hanging on to the romantic notion that it still is a highly malleable and adaptable consultancy when it is not. Anyone who works in a delivery center, center of excellence, or other industrialized factory of preconfigured thinking is not, I repeat not, a consultant.

For those firms with deep roots in the old consulting world, it's time to drop the name consulting from your corporate banner.  You do not provide independent advice and counsel to clients anymore.  You do not put your client's interest first as you put your economic interests ahead of their's.  You have chosen to provide services around commodity technologies and not provide unique solutions in their place.  You have chosen to grow your company and revenues at the expense of maintaining the intimacy and professionalism of consulting.  You no longer deserve nor warrant the use of the name consulting or consultant and you should refrain from it going forward.

The market, workforce and many firms have evolved in recent years. It's time to to rename companies, professions and job titles and get clear about what it is that integrators and consultants deliver.

But is telecommuting right for you?

                           Not Everyone Can Work From Home

It takes a certain sort of individual to be a successful telecommuter.  These people possess a set of personality traits that many employers would find welcoming.  These may include:

• self-motivated
• self-reliant
• multitasker
• disciplined
• technically proficient with personal computers, telephony and other tools of the telecommuter

But even someone with these characteristics will not succeed as a telecommuter if they are:

• new in the position and do not understand their role and job expectations
• involved in a critical project that requires significant interpersonal contact
• required to be in close proximity to critical machinery or other personnel

BusinessWeek (see: "Out of Sight, Yes. Out of Mind, No" February 18, 2008, www.BusinessWeek.com ) reported that Hewlett-Packard offers a personality test to determine which workers are best suited for telecommuting. It examines their ability to handle limited supervision.  The story also reported that IBM noticed workers experiencing reductions in productivity and happiness if their teams did not meet at least once every three days.

Employers should view telecommuting as a perk not a job requirement for many employees.  Employees must prove first that they are trustworthy and can be depended upon to make decent business decisions.  When working at home, employees will make choices as to the timing of work, conflicts between work and family obligations, etc.  Employers need employees to demonstrate solid business judgment and put the correct priorities on all of the demands on their time and attention.

As an employer, I did not mind if workers moved their schedule around so that they spent some time during the day on personal tasks as long as their work responsibilities were completed later in the evening.  This, of course, implied that the tasks that were deferred were not time sensitive or required interaction with others.

Some individuals, I learned, are ill-equipped to be telecommuters.  Their living home situation is such that productive work cannot be accomplished in any real measure at that location.  I have personal experience with individuals who've lived in remote rural locations where broadband Internet access is not a reality.  Others lived in very small efficiency apartments where there is no physical room for a desk, files and other trappings for a home office.

Some individuals do not possess the work ethos required of a telecommuter.  If they have a hard time getting to the office on time, you can bet they will have trouble manning the telephone bright and chipper at 8 a.m. from their home, too. Individuals who enjoy a partying lifestyle may sometimes find telecommuting a tough responsibility to complete.  Why?  They may not be home or at work when the business day starts anew.

For telecommuting to work well, there must be trust from both sides.  Trust is a attribute that one earns.

Should Service Workers Form Competitive Barriers?

                        Three Stories That Will Make You Think

Forbes is a magazine I read regularly although its flattering stories about CEOs and their corporate jets are too sacchrine for my tastes sometimes. This week, it's got three stories you should definitely read. (see www.forbes.com , 2/25/2008)

#1 - Child Labor - by Megha Bahree - This article is exceptional. It steps readers through the supply chains of major firms and how their products were created, harvested, etc. by children or other underpaid persons in India and elsewhere. Large seed/agri-business firms are particularly scrutinized in the piece. This is worth a read as it will make you realize how little of what you are paying for a product is actually making it to the person(s) creating the product. You'll rethink your opinion of how contract manufacturing should really work.

#2 - The New Unions - by Susan Hoppough - This piece examines how groups of workers are pressuring state governments to create licensing and other barriers to competition in service firms. The economic cost to consumers is considerable and the usefulness of these groups is in question. If you are a service executive, you've got to read this.

#3 - The Next Zapper - by Victoria Barret - This is the shortest piece of the three but focused on an interesting aspect involving the Microsoft - Yahoo acquisition attempt that's currently in play. It asks the question "Microsoft's bid for Yahoo is founded on the notion that people see Web ads. But what if they no longer do?". I've wondered that myself as I studiously avoid Google listings on the right side of the results page and I don't use the paid placements at the very top either. If you're speculating on this merger, read this piece.

cross posted to www.softwaresafari.typepad.com