Frank Scavo has a nice post on the downsides of vendor consolidation in the enterprise software space. His arguments are centered around vendor lock in and he writes:

• "Consolidate to a single vendor for worldwide financials, but standardize operational systems on another vendor's platform. Always leave the option open to replace one with the other.
• Consolidate to a single vendor for centralized CRM and order management, while allowing one or two different vendors to provide operational systems at the plant level, perhaps one for large plants and one for small plants.
• Revive a best of breed approach. Leave HR, asset management, and other non-core systems outside the scope of the primary vendor's implementation.
• Test vendors' touted SOA capabilities to build composite applications. If these capabilities really are what vendors say they are, they ought to allow "seamless integration" with third party applications."

Very true.

What of software services ? Vendor consolidation is low hanging fruit for both vendor and client.
The classic approach is to get a offshoring biggie to come in and clean house. Lock in is not such a big issue. Offshoring and process efficiencies that come with consolidation are big wins. But there are things to watch out for. Here are a few:

    - Keep the larger sourcing picture in mind : There are things that the offshore model is simply not suited for. Niche skill areas, choppy demand that fluctuates very frequently and onshore staff augmentation are a few things that come to mind. It's better to consolidate such requirements and give it to one local vendor - rather than to an offshore player.
    - Understand where your star contractors figure :  Great performance, good cultural fit, strong skill sets, loyal to your organization BUT offshorable. Vendor consolidation might be a good time to really examine the type of work these loyal stars are doing. Do they understand your business? Do they really have strategic value? Have they ended up managing the business relationship? If the answer is yes, consider hiring them rather than firing and replacing with an offshore provider. But think twice if you want these stars to continue to be domestic contractors and expect them to work with new resources from the offshore provider. The inherent conflict of interest could jeopardize your budding offshore relationship.
     - Closely examine productivity claims: It's easy to show improvement when your nose is in the dirt. Consider today's economy. People seem to be thrilled just because we are improving. If you are at an 80 year bottom the only way is up! Productivity norms of the current team of contractors should be base lined and the offshore provider should go up against this baseline. Also consider the fact that offshore work hours are usually longer than those of your local contractors. Apart from improvement, benchmark the norms against best in class.
      -Sign short term contracts with rewards and penalites: Vendors might give you an overall better deal if sign up a long term, 5 year contract at the outset. Guess what? You'll get an even better deal if you sign up for a year and then renew. Throw in six monthly reward and penalties and the deal becomes even sweeter.

 Financial times : " Cloud computing is threatening the business model of the Indian IT outsourcing ….". As if we needed one more negative story with all the bad news about the economy. There are two sides to this cloud thing. Let's do a reality check.

- Hit on the package implementation business : SAP goes the single instance multi tenant way. Nobody spends millions doing SAP implementations and a handful of administrators configure a single instance for many customers. This will surely kill the customization revenue that outsourcers enjoy. Reality check - The "On demand" buzz is really aimed at expanding the market to small and medium sized businesses. Here's a snippet from the SAP website " SAP Business ByDesign is fully integrated business management software designed for midsize companies or small businesses that want the benefits of large-scale business applications without the need for a large IT infrastructure. It enables preconfigured process best practices for managing financials, customer relationships, human resources, projects, procurement, and the supply chain. SAP takes care of installation, maintenance, and upgrades – so you can focus on your business, not on IT."

Two things stand out : a).Midsize and small businesses and b). Preconfigured processes. I have in the past blogged about the focus Indian outsourcers have on large clients. In fact >70% of the revenues come from clients that contribute >$10M to revenues. Surely not SMB's. Secondly, "preconfigured"  business processes imply a certain level of commoditization. The availability of a "preconfigured" SAAS alternative for a business process does not change the reasons that made you spend many millions customizing it before the SAAS alternative came along. SAAS is good for the commodity processes but not for something that is your secret sauce. Indian outsourcers make money by helping large customers with complex package customizations and that market is not getting "SAASified".

-Hit on the maintenance revenue stream: Before Clouds you'd have 10 teams of 10 people each maintaining 10 apps for 10 customers. If these 10 customers were to sign up for one Cloud based solution, you'd have 1 team of 20 people maintaining one instance for these 10 customers. Very plausible for commodity processes like email, but what about the systems integration revenue for integrating the cloud based app to what's in house ? Cloud can give offshore vendors a fresh revenue stream through systems integration.

-Private Clouds: If the secret sauce business processes need to get a cloud fillip, most large enterprises would prefer a private cloud. Outsourcers like Wipro Technologies with data centers in the US and deep existing relationships are ideally positioned to leverage the private cloud opportunity. This increases the value of the outsourcing relationship.

Full disclosure: I am an employee of Wipro Technologies.

Prof. Bob Kennedy argues that offshoring of IT services cannot be regulated for two reasons:

- Inability to observe the actions firms are taking.
- Any proposed policy must be credible and enforceable.

Thanks to Bill Ferhst for posting this. 

Do you agree with Prof.Kennedy ?

Crime rates go up in a recession and we know that. Peter Allen of TPI blogs about a perceived increase in information security risk in the light of Satyam and the Mumbai attacks. He makes the case that captives might have an advantage here. More perception than reality IMO. The risk itself can be broken up into:

Individual risk: Basically a 'terrorist' getting into your company. The only way you can lessen this risk is background checks. Captives cannot do better background checks that larger local players. You recruit from the same pool and your chance of weeding out the bad boys is actually lesser. At the end of the day, the agencies that actually do the checks are the same and a traditional offshore player would be able to command lower prices on these checks because of scale. To make matters worse, decades of experience of dealing with these agencies would have taught the traditional players the loopholes that they need to watch out for. Higher cost, higher risk. Traditional player wins.

Firm specific risk: With today's technology (virtualization+warp speed access+security) almost any work can happen from offshore without a single byte of sensitive data actually landing on a foreign hard drive or RAM. Add to this the ability to completely control the hardware and software environment from onshore and you have virtually the same level of firm specific risk. Actually terrorists might be more inclined to target an 'Western captive' than a more traditional player for the same reason that the Mumbai attacks were directed at places frequented by westerners. More firm specific risk at a higher price. Traditional player wins.

Country specific risk: Obviously the same for a captive and a traditional player. It's a draw.

Verdict : Don't go the captive way for the sake of risk!

Paul Allen, Partner and Managing Director, TPI shares his views on how the outsourcing market would evolve in 2009 given the current financial crisis. I have summarized some of the points below:

Impact for the rest of 2008:
-Budget for back office functions in most companies will get scrutinized and scaled back.

-Existing contracts maybe called upon to scale back on the bells and whistles to lower costs.

-New projects with even a strong business case would be held back.

Impact for 2009:

-2009 should see a growth in outsourcing through added scope.

-Divested operations could be a major growth factor.

-Transformational outsourcing will be put on the backburner.

-Increased government involvement in management will not lower outsourcing.

Ray Wang provides an interesting perspective on what customers are demanding from ERP vendors. 24×7 support, transparency, SLA based services and better pricing are some of the factors he brings up. I can see similar demands on the services side of the business as well. Below's a list of some of the stuff I see happening:

- Pay-as-you-go pricing for "horizontal" BPO processes.
- Committed year on year productivity improvement.
- SLA based reward/penalty clauses.
- Ability to "own" applications rather that just get by the day.
- Transition at zero cost to the customer.
- Usage of reverse engineering tools to improve the quality of transition and possibly move towards "ownership" faster.
- Ability to 'transform' the shop through improved and streamlined processes.
- Quick rampup and rampdown.
- Well defined "unit of work" based productivity.
- Virtual offshore development centers to minimize security risks and lower switching costs.

Asking questions to a customer can sometimes be daunting. You need to get the customer to like you, but if you don't qualify the lead, sales productivity goes for a toss. Asking questions on decision making authority, budgets and long term plans at the outset can put off some customers. Here are some nice ways to ask the tough questions.


Figuring out the decision making authority:
 - "Besides you, who else would be interested in this solution?" This question is better than the more direct "Who is the decision maker?" question as it gives importance to the person you are taking to while you ask for more details. It also de-personalizes the question by focusing on interest in the solution as opposed to decision making authority itself. The flip side is that the customer might end up giving you a list of names that you might need to sort out.  
- "I would like to give you a comprehensive presentation on our solution and also discuss commercials. Besides you, who else should I invite to the discussion?". Putting commercials into the question would likely get you the name of the person who signs the cheque.

Figuring out budgets:
This is one area where direct questions sometimes are like a complement to the customer. So shoot straight. "How much do you want to spend on the solution?". The "you" is critical as you are putting the customer into centre stage. If you feel awkward, you may want to try this:
-"An online trading portal is a large, multi year initiative for most investment banks I have dealt with and many of them have a staggered budgeting process. Would your budgeting cycle permit a large fixed price quote?" Depending on the answer you can ask further questions to get an idea of the number. The idea is to avoid a direct numbers question. Ask for a range rather than a number. Also make sure the number is the amount they want to spend on services rather than the entire budget.

Urgency of the solution:
This area should always be explored after you have done enough digging on the problem itself. Jumping to the solution timeline without "building up" the problem can backfire. Assuming you have done the groundwork, try something like this:
-"The trading platform is clearly important for your business and will start paying back from day one. We have delivered a similar solution in under twelve months for a large swiss bank. How soon are you looking at a solution going live?" This question reinforces the need, plays back the benefits and builds credibility before popping the timeline.

Asking qualifying questions can be tricky and requires practice. But knowing what questions to ask and how to ask them is a must for sales success.

Dinesh Goel of TPI says "Corporations deciding on a sourcing strategy need to answer the “chicken or the egg” question: what comes first - the fix or the move?" "Fix" here means improve efficiency and effectiveness. "Move" refers to outsourcing. He goes on to propose the following framework for making the decison:
  

It would be interesting to place the fix first /move first dilemma in the context of the larger sourcing problem. What to outsource and what to retain in house is a more fundamental problem. You obviously want your own people to work on the more strategic stuff. But what if your strategic stuff is all messed up and you don't have the skills needed to fix it. You might then opt for a Move (bring in a vendor)-Fix (let him change the model and also empower your people)-Move back(take your baby back and manage it with the newly empowered people) model. In this case you would go in for a transformational partner rather than just someone who can just drive efficiencies. I think of it something like sending your kid to a great boarding school.

To cut a long story short, the whole move-fix/fix-move puzzle needs to be viewed in the larger context of what is strategic to your business, whether your people have the skills needed and what type of a partner to engage to transform the areas that need 'fixing'. Once you have this nailed, you can go on to decide whether to fix first or whether to move first.