| |
|
|
| PLUGGING PRODUCTIVITY GAPS |
| Problem |
Solution |
| No metrics to measure productivity |
• |
Document in-house process to have a benchmark
|
| • |
Assess gain by looking at the overall process gain and not focus on individuals
|
| • |
Prioritize metrics |
| FTE-based pricing encourages slack
productivity |
• |
Have performance-based variable components in the pricing model |
| Expecting immediate benefits from |
• |
Bear upfront investment in terms of training to have long-term productivity |
| Communication and cultural gaps |
• |
Maintain constant communication with offshore teams |
| • |
Institute frequent review schedules, at least during the transition |
| Attrition. It causes productivity gaps as
new employees take time to peak |
• |
Create a sense of ownership in employees
|
| • |
Check vendor attrition before offshoring
|
| • |
Ask for monthly index of attrition·
|
| • |
Make retention of key team members part of contract |
| Differences in skill sets |
• |
Incorporate level of experience required for outsourced project |
Mapping Productivity
Global Services finds that the productivity gap is largely restricted to IT services, particularly to software development and not so much to BPO services. This is because BPO is more process oriented where chunks of processes are migrated and where improvements can be made more easily. Comparatively, ITO is a much more complex phenomenon that requires not just specific skill sets but also knowledge about the client’s business and the IT environment.
However, it would be wrong to rule out the possibility of productivity gaps creeping into BPO services. “Productivity gaps can occur in any function that requires some level of decision making, including higher levels of BPO functions,” says Meena Ganesh, CEO Tesco Hindustan (the offshoring initiative of UK-based retailer, Tesco, providing both IT services and BPO support), Bangalore, India.
Second and more importantly, our research finds that customers of global services are still majorly preoccupied with the low-hanging fruits of offshoring which include cost arbitrage, availability of skill sets, and a follow-the-sun concept.
“However, as the maturity curve increases, these gains will level off and the issue of productivity will become a significant issue in the next couple of years,” says Atul Khosla, former Head of Everest Group in India.
“If you talk to clients, you will find that they are typically happy with cost savings,” says Helen Huntley, VP, Research, Gartner. But in reality that cost saving is fast disappearing. Highly productive offshore workers are seeing compensation gains to narrow the wage gap with U.S. employees. In order to have a sustainable framework for global delivery, one has to look beyond labor arbitrage. The focus has to be clearly on underlying issues like lower productivity that will have a great impact in the long run.
Huntley points out there are many instances of deals going sour because of lower productivity. Clearly, it is an explosive issue and if not managed properly early enough could end up upsetting the best-laid plans.
Defining Productivity
Productivity appears to be a complex issue and measuring it is even more so. Despite metrics, productivity is an abstract notion in the eyes of many managers.
That is why TPI contends in its report that most companies are unable to develop proper metrics to measure productivity. “Measuring productivity and effectiveness of Applications Development and Maintenance (ADM) activities remain elusive…. This is a result of failed efforts within the ADM community to successfully measure software-development productivity in a consistent manner, along with a perceived lack of cost benefit of such measurement,” the report states.
While assessing offshore productivity companies should look at the overall value it brings to companies. “It is important to measure the productivity of overall processes and not individuals,” says Sarvesh Goorha, CEO, Six Sigma Consulting, an offshore-consulting firm, Dehi, India. “Offshore companies are strong in processes and have demonstrated enhanced productivity by improving processes.” Besides, he says, lower worker productivity is actually a concern for vendors who must bear the brunt of higher labor costs.
Customers should keep business imperatives in mind while prioritizing metrics for productivity measurement. For instance, productivity wasn’t the most important factor for Norwich Union, a U.K. investment bank, in how it structured its deals with Indian service providers. Higher priorities were placed on the quality of work and the availability of manpower with the requisite skill-sets.
Gap In Process Maturity
A disparity in process maturity between customers and service providers causes confusion, and hence a productivity gap, says Gartner. For example, it says that four out of five customers’ development teams are at level CMM Software or Integration Levels 1 or 2, while most global service providers have higher process maturity at Level 5.
At the lower CMM capability levels, customers typically fail to properly document development or business processes. This immature approach becomes a nightmare in IT outsourcing when the in-house team has no idea what applications might be running on the systems it wants a service provider to manage.
Extreme Networks, an infrastructure service provider, Calif., says it walked out of an IT-outsourcing relationship with EDS two years ago because, there was no in-house documentation and it could not assess what it was being charged for. Subsequently Extreme undertook massive documentation before farming out work to HCL Technologies in Delhi.
The effort that goes into building process and documentation is not unrelated to pricing mechanisms — at least when it comes to giving incentives to third-party service providers. Although full-time-employee pricing is one of the oldest models, critics are quite clear in saying that it encourages slack productivity. It is therefore better to have different pricing modules including an element for variable performance.
