Outsourcing Industry - Engagement Models

After having discussed the demand types, it is good to write on various engagement models that are prevalent in IT industry. IT industry essentially depended on technical know hows of its already set IT structure, or new ones to watch for. While some skills are available in abundance, for some the search is tougher as skills are scarce. Organizations have traditionally evolved in the way they give out work and manage them. We will discuss some that i can think of in order of maturity in this blog:



Staff Augmentation: The model is based on skill complementing for a firm. The overall responsibility of people and project management still stays with the outsourcing organization. This was essentially filled by independent consultants and contractors, but given the least strategic involvement, it is the safest bet to get started with outsourcing work without losing much control. This however, does not bring down the cost and also poses uncertainty related risks as vendor's liability and control is limited.
Managed Services: As the staff aug presence grows in a certain team, the management of uncertainty related to multiple lose ends from different organizations and their lack of liability to final aim, leads to project associated risks. There is requirement to take all contractors on the roll to give them common aim or to consolidate the staff aug under one umbrella which can manage the uncertainty, take the bottomline and collect the individual efforts to form a pool to provide robust back up and assurance to services. This type of engagement requires replication of a responsible organization, a small back up and one to one reporting and management with the outsourcing firm. While there is slight addition initially in terms of management overhead and pool, there are financial benefits drawn from more robust services, cross skilling and resilience. The services are more assured, focus of firm can move from staff hiring, managing and firing to final outputs.
Risk and Reward: Once the organizations mature under managed services, there is requirement to add "predictability" to services. This level of engagement has dependence on multiple factors like: fairness in vendor and outsourcing firm's relations, predictability in operations, mutual cooperation, clarity on roles and responsibility. All in all a long standing, stable vendor can take on the end to end management of its piece of work to deliver outcomes. The outcomes are reported to the outsourcing firm and if deviated from certain standards vendors are willing to take the risk and be penalised for it. This requires a very high level of working experience and stake holder management on vendor firm's part. This is increasingly becoming common in BAU services, where outcomes are of utmost importance.
Business Partnership: The engagement model expects financial commitment from both the vendor and the firm on IT initiates which they feel can be transformatory in nature. Vendor organization comes together with the industry and decide to co build a solution. There is fair level of financial investment and hence profit sharing to try a new idea which both organization feel convinced about. In such engagements vendors play a technical and cross industry expert role for its partnering firm, while firm provides industry process knowledge. The engagement is one to one with equal rights for both parties to drive the initiatives in right direction. Vendor organization has the right to share the IP and also market the same to recover its investments and gain more business in similar sectors. Most IT service providers gained early entry into government sectors and now in airline operations through these models. There could be partnerships in: taking on infra cost, setting up innovation labs, dedicated consulting teams, stake in captive enters or Go To Market together.
Advisory This probably is the highest level of engagement where by vendors take on the consultative role and participates with CIO organization in charting the future technology roadmap. The vendors play a key neutral role in providing the inputs on cost, efficiency, new technologies and also help firms move their BAU investment to new innovation portfolio. The vendors here talk to business, understand their drive and connect the requirements with technology. They participate in business case creation. The key is - vendors at this level, do not enter with aim of financial benefits only, they try to optimize the client organizations and drive their investments such that it directly impacts the revenue stream and hence justifies the IT cost. It has CIOs KPI on itself.

Apart from the ones listed above, there are multiple other engagement models that get innovated under risk and reward. Outcome based has become a buzz word. How effective and right these are, depends on context, maturity and knowledge of outsourcing organizations. There is no one size fits all answer. One essentially has to go through all stages in an account development span and a lot depends on trust and human emotions at play. The IT industry will evolve interestingly to pass on more and more responsibility towards the vendors with maximum head counts. The questions at play will be how to empower vendor organizations to take on right decisions and how to handle the conflict of interest which shall change as responsibility shifts. The Vendor firms will have to evolve to run multiple IT businesses as its own. The risk portfolio for them will increase and variety in business ownership will build on the cost. Where to draw the line? Which side to stick on to? Which processes to put on business platforms and make generic for firms and which specific ones to take on rolls for specific firms?? All these questions will become critical in coming times. Interesting times for IT vendors to define its boundaries. In the end, it should not be running the same IT departments, with all risks, no authoritative role and a stick on head on costs. The industry will have to stand up to chart a role for itself.