For many US companies, understanding the total cost of IT talent services has always been challenging, and is even more concerning now as budgets and resources have tightened in a post-COVID-19 world. But as the need for change and innovation continues to grow, companies are rapidly shifting focus towards outsourcing as a solution to assisting in digital innovation.
Procurement commonly compares hourly rates because it’s an easy comparison. Well, not exactly. But the issue is that the invoice at the end of the month for a committed amount of work is what matters, not what the hourly rate states. Overtime, 45-hour billing weeks, etc. are ways offshore vendors distort billings and make your hourly rate look lower to win deals. So, how can you avoid additional costs associated with services provided by your outsourcing partner?
At SMC2 we find that many Global Insourcing Center RFPs ask for hourly rates as a selection criterion to support cost control or optimization. Hourly rates themselves are easy to compare but do not accurately reflect the actual costs to deliver services or projects. Fixed bids make an attempt at solving this issue, but are often laced with caveats and take a significant effort to understand scope.
Also, many people believe that although the rates in India are lower, it takes more resources to deliver the same value as a US resource. Ratios such as 3:1 or 2:1 are often cited, demonstrating a lack of understanding of India’s technical capabilities and, more so, the opportunity to optimize under a global team structure.
SMC2 has solved this issue by focusing on value generation instead of billable hours. Our teams are measured at the same level as their US counterparts in terms of productivity. This is expressed as 1:1 productivity. We provide the necessary time each week to guarantee a US-full time equivalent of contribution.
Steven Stephan, SVP of Global Services and Co-Founder, SMC Squared
Amy Fong is a Vice President in Everest Group's Strategic Outsourcing and Vendor Management practice. In this role, she advises enterprises on maximizing value from strategic provider relationships in outsourced services categories. She is a featured presenter at SIG’s upcoming virtual SIGnature Events taking place throughout the fall of 2020. Virtual SIGnature Events are free to all qualified buy-side practitioners and sell-side members.
What is your role and what are your day-to-day responsibilities?
I work with our procurement members to ensure they are getting the research and support they need to maximize value in outsourced services categories. We have 200 analysts focused on the outsourcing, global services and intelligent automation space. My role is to work across those content areas to bring it all together and ensure we’re helping procurement.
For instance, developing category strategy templates with the market intelligence we provide, facilitating briefings and peer discussions, and designing surveys that answer top of mind questions. I’m available to our members to answer their questions or guide them to the right expert analyst to dive deep into their challenges.
In the time of COVID-19, this also means helping procurement teams understand how service providers are reacting and what they can expect. Also, helping them identify cost takeout and risk reduction opportunities for the “next normal.”
We all know the story of Bob, the Verizon employee who outsourced his programming work to China. After a couple of years, he got caught when security questioned why he was Virtual Proess Networking from China. Bob shipped his token to a programmer in China and paid him less than one-third of his salary. Meanwhile, Bob was relaxing in a cubicle, getting great reviews and regular raises for his programming prowess.
I have now met three people who told me they outsource their work. So, do you really know whose finger prints are actually on the keyboard? About six years ago when crowdsourcing was in its early days, I wanted to see what it was like from the employee side of crowdsourcing, so I signed up to be a crowd sourced person. No one questioned me about my application, about why a CEO wanted to make an extra $20 an hour in her spare time. After a few hours of doing task work, I handed my computer to my 13-year old son and asked him to try it. Of course, he caught on in no time and was able to produce work tasks. No one questioned that my work style had changed slightly. The company who hired me is one of the largest corporations in the world, and they never knew that this task was being performed by child labor. Being the ethical person that I am, I didn’t let this charade last long. I resigned in under two weeks… although my son begged me not to. I did it to test the system for my own curiosity and to understand the crowd sourcing model better.
“Impact sourcing results in a more engaged and motivated workforce for companies, and enables them to increase their global competitiveness.” — The Rockefeller Foundation
You need the work done and there are countries that are disadvantaged, war-torn or underemployed that have motivated, educated workers who can perform the work you need. It truly is the correct choice. Why continue outsourcing to developed countries or countries in which the vast majority of people already have access to the middle class?
Did you know that outsourcing to India is the number one reason it now has a thriving middle class? Are you aware that through outsourcing an entire generation was lifted out of poverty in both China and India? Do you know that when you outsource to a country, it can change the trajectory of people’s lives? In a 2003 speech, Anne Krueger, First Deputy Managing Director of the IMF stated that the impacts of globalization have benefited both India and China by lifting millions of people out of poverty since 1980 and putting tens of millions of people firmly into the middle class. In addition, China has seen their extreme poverty rate fall from 84 percent to about 10 percent largely because of trade, reports the Economist.
As the demand for independent talent grows, many organizations are using their own resources to directly source top independent talent without engaging third-party staffing agencies or consulting firms to perform recruiting functions. Direct sourcing affords many economic benefits such as avoiding high-priced staffing markups, decreasing overhead costs by hiring fewer full-time employees and filling project-specific roles with the right-priced independent talent.
But direct sourcing is only a small part of the picture. In order to compliantly utilize independent talent end-to-end, organizations must build a Direct Access program that encompasses finding, sourcing, engaging, paying and managing independent workers. Here are five best practices organizations should keep in mind when creating a Direct Access program to source and engage independent professional talent.
1. Drive Support from the Top Down
A lasting and successful Direct Access program begins with the right leadership support and sponsorship. This support must be driven from the top down by a senior business leader who has influence over the managers who will be sourcing and utilizing independent talent.
While a top-down approach is not the only method, attempting to build a Direct Access program from the bottom up is almost always a long and arduous path. Internal adoption is much slower and disjointed as the process relies on word of mouth and proof-of-concept in small groups.
Procurement has evolved to become more strategic and collaborative and has moved from an isolated, back-office function to a boardroom partner. While the procurement function must continue to drive hard savings, manage suppliers and mitigate risk, it must also pivot to look for opportunities to deliver future savings and innovation.
“Procurement is at an inflection point,” said Dr. Marcell Vollmer in an interview with SIG CEO Dawn Tiura. “Procurement needs to transform into a value-added function focusing on strategic tasks.” How can procurement teams do this?
Based on interviews with today’s leading procurement executives, innovative suppliers and academic research on the procurement function, five notable areas stand out in which procurement can drive innovation in areas critical to the sourcing industry.
INVEST IN THE RIGHT TALENT
For all the great advancements that technology brings, it requires people to manage the technology. Oxford Economics’ survey among procurement executives and practitioners found that the top three investment priorities include new talent recruitment, training/upskilling programs and procurement/supply-chain technology.
The relationship between buyers and providers can be a tricky one, especially when operating across multiple continents. Speaking during a podcast interview with Dawn Tiura, Sean Delaney, Vice President of Sales for cloud platform Determine, draws on his experience as both a buyer and provider to share best practices for relationships that are sustainable and strategic.
WORK ON YOUR SOFT SKILLS
Technical expertise is valuable, but your ability to establish a rapport with customers is important for sustainable relationships. “Candor is important because there's a large degree of personal credibility that buyers are putting on the line when selecting a vendor," says Delaney. "That needs to be understood as a seller and we need to make sure that we don't break that trust. That's our role.”
Situated in the southernmost part of the Brazilian state of Minas Gerais, nestled among green rolling hills, coffee plantations and dairy farms is the small town of Santa Rita do Sapucaí. A cursory glance shows Santa Rita as a charming town full of farms and churches but in reality, this picturesque little city has so much more to offer. In recent years, it has become known as “Vale da Eletrônica” or Electronics Valley because it is home to the highly respected technical school, Escola Técnica de Eletrônica Francisco Moreira da Costa and is also known as a hub for technological applications, from carpool and table service apps to toothbrushes with sensors that connect to children’s games. And Santa Rita isn’t the only city in Brazil ramping up their efforts.
Plagued by years of upheaval economically, Brazil is making a comeback and relying on the IT sector to help make their triumphant return. A $200 million joint investment with chipmaker Qualcomm, was welcomed in March by the federal government to build a semiconductor factory in the state of São Paulo where other major tech companies such as Samsung and Lenovo already have operations. Their hope for the investment is that this will be the first step for Brazil in becoming a noteworthy player in the manufacturing of high density semiconductors that are used in 4G and in the future, 5G devices, as well as IoT applications. The investment from Qualcomm is expected to bring in about 1,200 new jobs which only makes a tiny dent in solving Brazil’s unemployment rates—at 11% there is still a long way to go, but it’s a step in the right direction.
When most people think of Argentina, they probably think of the tango, wine, soccer fanatics or maybe the emotional play, Evita. What many may not know is that despite many setbacks and hardships, this country of proud and hardworking people has continued time and again to rise and become one of the leading exporters of products ranging from soybeans to software.
Until the arrival of the Europeans in the 16th century, Argentina was a sparsely populated country and most people lived either in small, walled towns that made pottery, grew potatoes and squash and used metal for their work, or belonged to hunter-gatherer communities. Despite the Spanish and British fighting for land and the breakup of the United Provinces into what is now Bolivia, Argentina and Uruguay, Argentina has continued to grow and develop its’ resources. The first railroad was introduced in the country in 1857 and by 1912 there were over 20,000 miles of railroad throughout Argentina, making it easier to export goods to other countries. Due to exports of wool, meat and grain, by 1900 Argentina was the richest country in Latin America and the seventh richest country in the world. At the same time, the population was booming due to a new wave of immigrants from Italy and Spain. Then Argentina, like the rest of the world, was deeply affected by the Great Depression and subsequently ruled by ineffective leaders and dictators throughout much of the next century causing Argentina to become largely indebted. After a severe recession in 2001-2002, the economy began to grow rapidly for several years. This growth occurred in part by making the peso equal to the US dollar, privatizing numerous state-run companies and using part of those proceeds to pay off debts.
Over the Easter weekend I had what ended up being a rather disturbing conversation with an old friend, which I thought sufficiently relevant to this space to share with you. This friend has very recently started a new job, working in an outsourced contact center providing advice to, and processing applications by, users of local (public sector) health and social services (I need to be relatively vague here, for obvious reasons...).
One of the main tasks she has to perform is vetting people who call looking to get access to one particular healthcare-related service. Due to the nature of this service, applicants are invariably over pensionable age (65, more or less, here in the UK) and suffering from illnesses or disabilities that restrict mobility - this is an important point: we're dealing with some pretty vulnerable people in (often serious) need. My friend has to take them through a survey and, at the end of the call, inform them whether or not they've qualified to receive this service.
The problem - one of the problems - is that certain responses to some of the survey questions can disqualify applicants outright. My friend explained some of these to me and, frankly, it's an outrageous situation. For example, applicants who say they're using certain medical apparatuses which haven't been prescribed by their General Practitioners (GP) won't qualify, even though these specific items are the kind of thing one might buy oneself, be given by relatives/friends/charities or procure in some other way simply because they're useful, rather than even considering going to the GP to be prescribed them.
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How to Avoid Hidden Costs of Offshore Hourly Rates
For many US companies, understanding the total cost of IT talent services has always been challenging, and is even more concerning now as budgets and resources have tightened in a post-COVID-19 world. But as the need for change and innovation continues to grow, companies are rapidly shifting focus towards outsourcing as a solution to assisting in digital innovation.
Procurement commonly compares hourly rates because it’s an easy comparison. Well, not exactly. But the issue is that the invoice at the end of the month for a committed amount of work is what matters, not what the hourly rate states. Overtime, 45-hour billing weeks, etc. are ways offshore vendors distort billings and make your hourly rate look lower to win deals. So, how can you avoid additional costs associated with services provided by your outsourcing partner?
At SMC2 we find that many Global Insourcing Center RFPs ask for hourly rates as a selection criterion to support cost control or optimization. Hourly rates themselves are easy to compare but do not accurately reflect the actual costs to deliver services or projects. Fixed bids make an attempt at solving this issue, but are often laced with caveats and take a significant effort to understand scope.
Also, many people believe that although the rates in India are lower, it takes more resources to deliver the same value as a US resource. Ratios such as 3:1 or 2:1 are often cited, demonstrating a lack of understanding of India’s technical capabilities and, more so, the opportunity to optimize under a global team structure.
SMC2 has solved this issue by focusing on value generation instead of billable hours. Our teams are measured at the same level as their US counterparts in terms of productivity. This is expressed as 1:1 productivity. We provide the necessary time each week to guarantee a US-full time equivalent of contribution.