Outsourcing has certainly come of age in India. This is clearly evident by the size and scale of operations being set up in India in the BPO space. Even consolidation efforts are more deliberate and planned. However, in the midst of all this there is a quiet but definitive presence of a lot of direct customer representatives in the country-call them vendor managers, process managers, transition managers, outsourcing managers, or business managers. The modus is typically through a liaison office usually co-hosted with one of the service providers and a small but tight team of direct employees to oversee outsourcing contracts.

The rationale for this is quite clear-customers do not and cannot afford to experiment or make mistakes post a certain scale of operations. They want their ‘own’ business managers to oversee their outsourced operations. This is what I will discuss here, the new Achilles heel of outsourcing-vendor relationship management or VRM, especially since unlike in the IT industry, one cannot change vendor relationships at the drop of a hat here.

Life Beyond the ‘Dog and Pony’ Show....

Service providers are now well used to droves of prospects and customer delegations descending on their facilities for a typical dog-and-pony show (read operational due diligence). The overall process is now much slicker and decision making takes weeks not months, barring a few segments with business control restrictions. However, all of these decisions only result in pilots. The pilot takes place prior to a scale commitment, which is when the customer really has to bite the bullet since these operations cannot be quickly insourced back or moved as the cost and risk factors are prohibitive.

Also, there is now a lot more of experimentation with business lines, domains, and service providers getting more specialized-cases in point are legal BPO, equity research BPO, retail BPO, pre-press BPO, etc. It is only after the initial euphoria of a new project induction that operational realties set in and the need for a more involved interaction and dialogue with the customer come to the fore.

As we are all aware, outsourcing (especially of multiple processes) does not allow for a simple method to flip vendors. This is the reason that customers often ‘try’ their vendors for long enough for doing benchmarking and comparisons before committing to scale. Service providers in India have also been used as a ‘safe harbor‘ until the service bureau or customers’ boardroom pushes the ‘commit to scale’ button-cases in point Convergys, Aviva, Bank of America, BT, etc. Once the scale decision is taken, the India strategy needs to be perfect. At the core of such a strategy is the customer representative who is positioned in India. In fact, this is a clear indication that the customer wants to consolidate the outsourcing destination through this gesture. Clearly, from the customer perspective, this is a strategic move.

Some Red Flags in the Outsourcing Process

Let us look at what are the red flags on an outsourcing owner’s list, as scale and volume grow. These are some of the high-priority aspects.

• Control of Program Operations: This is important to ensure consistent output at scale as also to ensure high customer satisfaction.

• Cost of Provisioning: This is important to ensure a consistent cost structure. With larger operations come larger wage bills, training, and overheads and hence both capital cost and operational cost structures crave for management attention.
• Service Quality and SLAs: This is important to ensure that programs continue to perform as expected and operations do not buckle with scale.
• Risk Management: The overall cost of risk needs constant monitoring, as larger volumes are committed. This needs a high degree of skill with the service provider and a strong stakeholder alignment with the customer.

All of the above need constant interaction with a customer representative. Since a lot of the work is on the operational front, it makes business sense for the customers to deploy their ‘own’ manager on the scene.

The Indian Service Provider and the Need to Oversee

Outsourcing as a business model usually means an onsite-offshore effort. However, customers do monitor several more aspects of the operation, as more work and resources are committed, especially in complex transactions that involve approvals and other business controls. Whilst Indian service providers have matured quickly to face the a challenge, there are few ground realities from the customer’s perspective.

The gap in the outsourcing parameters which customers find during the process leads them to feel the need for overseeing their operations despite a perfect business understanding at the contractual level. (See box: Ground Realities in India.)

Evolution and Role of a Client Outsourcing Manager

The client outsourcing manager has evolved in terms of role over the last few years-from a strictly liaison role, the outsourcing manager of today plays multiple roles. From being a strategic and operational planner to being the repository of tacit local knowldge, influencing deals to portfolio management. (see box: Complex Role of Vendor Manager)

Ground Realities In India
Customer Outsourcing Parameters	Outsourcing Challenges and Gaps
Domain and tacit knowledge	Service providers often do not have the required depth since they have not run similar businesses-however very few admit this upfront often resulting in lost transition dollars and professional credibility
Long-term commitment of key program resources	Service providers often are not prepared to invest deep in an industry segment and funnel is viewed opportunis- tically which does not give a comfort factor to the customer, especially with the added attrition problem- clearly the customer expects a longer-term commitment of key resources in programs which does not fit with the typical psyche of the Indian BPO employee
Quality of operations not just metrics compliance	Indian service providers take a lot of effort to implement service quality and often tend to over-engineer the SLA- in most cases since the customer business goals are not clearly understood, only the operational goals are met which do not result in long-term sustainable benefits to either party
Dynamic nature of customer business environment	The customer business environment constantly changes with shorter business cycles. Despite contracts having a long-term view, the impact and contribution of program degenerates unless business rules change, technology changes, skill are upgraded, and revisiting the goals is done on a regular basis.

Are Captives Becoming the India Outsourcing Hub?

So, is there a strategic reason for these managers to start operating in India when these companies do not operate as businesses in India? e.g., Capital One, Greenpoint Mortgage, Providian, Sprint. There is a pattern emerging on the Indian BPO scene. The captives, be they end-user businesses or service bureaus, are clearly emerging as the nerve centers of outsourcing in India and leveraging both their own centers’ build out as well as asset light outsourced operations through third-party operations. Clearly, the captives have rugged management processes to run such operations and bring a clear strength to the table through these trained outsourcing ’process managers.’

The complex role of a vendor manger
Role	Description
Strategic and operational planner	n Uploads facts and figures regularly to senior management n Filters macro-economic and service provider trends and commissions primary research as needed. n Understands operational nuances and cost structures in great detail n Interacts with potential vendors n Anchors decision making at country level
Local tacit knowledge repository	n Develops local supply chain and relationships n Understands policy changes and their impact n Defines, classifies, and measures risk n Networks and understands business practices
Deal influencer and operations sponsor	n Conducts or facilitates due diligence n Develops and / or reviews transition plans n Takes decisions on localization of technology/business practices n Establishes business controls in programs n Conducts regular operational reviews
Growth and diversification (portfolio management)	n Provides direction to parent organization n Evaluates ‘go’ and ‘no go’ decisions n Evaluates suppliers, vendors, and partners n Manages program portfolio

The reason why these managers have surfaced is a mandate for management of control, scale, risk, cost, and business continuity for their operations. Why then so many models-owned centers, private label centers, BOOT/BOLT operations, JVs-well everyone is still experimenting especially since the Indian third-party service provider has not perfected the art of managing scale yet. Last but not the least, this model provides the customer with a great financial leverage and very low operational overhead and the Indian service providers are not complaining!

The difference roles across the vendor relationship manager’s portfolio can be defined in a tentative model.

There are several dimensions to the role and it needs a great deal of maturity, business acumen, and depth to play such a role. Today, Indian managers have to experience this firsthand to get to a dimension of managing scale. Last but not the least, vendor relationship management still needs to mature in the BPO industry especially since we have not taken the pains as an industry to establish and benchmark the overall activity-the real measure will be when Indian organizations win bids of the size that US service bureaus currently do. Clearly VRM is a two-way street and cannot be done in splendid isolation by either the customer or the service provider community.